Soy, wheat futures play catch up with corn

January 21st, 2015

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Category: Grains, Oilseeds

SoybeanCorn450x299Low50(Agrimoney) – Have investors been too kind to corn futures?

After a tumble in Chicago corn futures on Tuesday last week, on what was attributed to second thoughts about the US Department of Agriculture’s slew of data the day before, prices have staged some recovery.

Values have been boosted by a string of export orders of US corn, besides by technical factors, after March futures refused to close below their 100-day moving average, currently at $3.77 ½ a bushel.

Corn vs soybeans

However, the grain’s resilience has elevated its prices compared with those of soybeans and wheat.

For soybeans, the ratio between November soybean futures and December corn, the benchmarks for the 2015 crop, “is now down to 2.32, which is its lowest since March of 2014 and well below the August highs near 2.67,” one US broker said.

The narrowing in the spread reflects largely ideas that US farmers, the biggest growers of both crops, already appear intent on favouring soybeans over corn in their spring planting programmes, so adjusting prices for the likely harvest results.

“At today’s prices, we are in a cost-cutting environment which naturally supports more soybean acres in 2015,” the broker said, with corn requiring more investment in terms of inputs such as fertilizers.

‘Bumper crop’

As an extra boost, concerns over South American weather are easting, “and analysts are once again calling for a bumper crop.

“This has given the market confidence that the world has options for sourcing soybeans,” whereas Brazilian growers look likely, in fact, to cut back on sowings of the second crop, or “safrinha”, corn typically sown by the end of February, and which is the source of the country’s export supplies.

On South American conditions CHS Hedging said that “weather patterns in South America continue to look favourable with temperatures at or near normal for the major growing areas.

“Scattered pockets of dryness persist in the northern areas but overall forecasts remain favourable for crop development.”

Corn vs wheat

As for prices of corn compared with those of wheat, Terry Reilly at Futures International noted that, in the last session, the spread between spot Chicago contracts of the two grains “hit fresh lows at below $1.41 a bushel, a level not seen since mid-July”.

This spread is important in that both grains compete in the feed market, so relatively low wheat pricing could move more of the crop into livestock rations, and beef up demand.

Certainly, there is beginning to be more comment on the idea that wheat futures may have fallen far enough for now.

On a technical basis, Brian Henry at Benson Quinn Commodities said that the “oversold nature of all three wheat markets [Chicago, Kansas City and Minneapolis] merited some respect”.

“I would be cautious about establishing new short positions in the short-term,” he said.

‘Perhaps the low is hereabouts’

There is also some idea that the drop in US wheat futures of more than $1.30 a bushel, in Chicago, from pre-Christmas highs has rendered it more competitive on export markets.

“One could make the case that US wheat has gotten more competitive,” Mr Henry said, if with the caveat that “there are plenty of suitable global offers to contend with on most potential business”.

At Commonwealth Bank of Australia, Tobin Gorey, who has already cautioned against over-bearishness on wheat, said that it looked increasingly likely that a price floor had been found for now.

“The one thing that had held us back from being more confident about a base is that US Gulf physical basis on soft red winter wheat had still been weakening, suggesting that the adjustment to a stronger greenback was incomplete,” he said.

“Last night that basis stabilised, so perhaps the low is hereabouts.”

‘More chatter about dry conditions’

Furthermore, also in wheat bulls’ favour is the reviving concerns over US winter wheat seedlings, after a period of dryness on the southern Plains (actually a region growing hard red winter wheat, as traded in Kansas City).

Mr Henry said: “Going forward, there will be more chatter about dry conditions developing in the southern plains in the absence of better rains.”

MDA said that this week “showers in southern [Plains] areas will improve moisture a bit for wheat”.

Winter wheat condition already deteriorated rapidly over December, as noted in official data two weeks ago.

Corn futures underperform

Soft red winter wheat futures for March stood 0.8% higher at $5.41 ½ a bushel in Chicago as of 09:30 UK time (03:30 Chicago time).

That allowed them to catch up ground against March corn, which fell 0.3% to $3.89 ¼ a bushel.

Soybeans also recovered some ground, adding 0.2% to $9.84 a bushel for March, although worries remain over the prospect of more cancellations by China of orders of US corn, after 459,000 tonnes in ditched orders announced over Friday and Monday.

“The combination of competitive South American offers, ample supplies, tight crush margins and some issues with financing can be given credited for the recent cancellations,” Mr Henry said.

“Given the supplies that will be available out of South America I expect to see more cancellations going forward,” potentially reaching “another 1m tonnes”.

That said, there are also ideas that the Brazilian soybean harvest will be delayed, thanks to a slow sowing season – a factor which would appear to limit the potential somewhat for Chinese order cancellations.

Harder softs

Among soft commodities, raw sugar started firm, adding 0.6% to 15.92 cents a pound in New York for March delivery, extending its gains of the last session attributed largely to a decision by Brazil to raise a gasoline tax.

(This effects sugar prices via their link through cane to ethanol.)

That said, CBA’s Tobin Gorey also flagged the support to sugar prices from covering by hedge funds of some of their large number of short positions in the sweetener.

“Investors are still likely to be buying back a very large short position,” he said

“Consequently we need to take care in interpreting the hike in Brazilian gasoline prices as the only, or even the major, cause of the rally.”

Arabica coffee, meanwhile, rebounded 0.8% to 165.60 cents a pound for March delivery, amid doubts that the weather outlook for Brazil’s coffee belt, much in need of rain, is quite as wet as some forecasts shows.

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