(Agrimoney) – Some of the much-watched spreads in grain market futures have reversed in the latter part of April.
Chicago soft red winter wheat has recovered premium against corn, for instance. Kansas City hard red winter wheat has pulled out of their nosedive in performance compared with Chicago futures.
But one price comparator which has stayed true to a trend that kicked in a month ago is the ratio between November soybean futures and December corn futures – a much-watched figure, in terms of offering guidance on the amount of the crops that farmers will include in spring plantings programmes.
Soybeans and corn are bitter rivals in the so-called “battle for acres” every spring, and the higher the soybean:corn ratio, the more of the oilseed growers are seen likely to plant, at the expense of the grain.
Ratio rises
Since late March, the ratio has recovered from 2.27 to reach 2.46 as of the end of last week, encouraging soybean plantings.
And the ratio clicked up a further notch on Monday, to 2.47, as US weather forecasts showed good planting conditions, after early cold and wetness delayed sowings in some areas.
Good sowings early in the spring planting season, where we still are, lower the chance of farmers switching extra area to soybeans, which have a slightly later planting window than corn.
This week, “mostly dry weather this week will favour corn/soybean planting,” said MDA.
“A few rain showers will favour Ohio, Michigan and South Dakota this week,” but amounts will be just 0.10-0.50 inches with “10% coverage of corn/soybeans and wheat”.
Dave Tolleris at WxRisk.com said that “this will be a dry but seasonally cool five days over all of the central and upper Plains, western Corn Belt and eastern Corn Belt regions”.
At Chicago-based Futures International, Terry Reilly said that “the US Midwest weather will be nearly ideal for corn planting progress” this week.
Chinese support
Of course, decent sowings conditions are hardly bullish for soybeans long-term.
But for now, it was corn which suffered, falling 0.6% to $3.85 ¾ a bushel for the new crop December lot, and by 0.6% to $3.67 ¼ a bushel for the best-traded July contract, as of 09:40 UK time (03:40 Chicago time).
Soybeans, meanwhile, for July eased 0.25 cents to $9.70 ½ a bushel, and for November by 0.25 cents to $9.52 ¼ a bushel offered some support by further gains in futures on the Dalian exchange in China, the top importing country for the oilseed.
Dalian soybeans for September gained 0.7% to 4,221 yuan a tonne, their best close in more than a month, and are now up more than 5% in a week.
One factor fuelling the rise in Dalian soybeans is an expectation of weak Chinese sowings of the oilseed this year, with growers switching to corn, for which plantings will rise some 3% this year, according to local analysts.
Weather debate
Wheat futures, meanwhile, struggled for direction, as investors weighed up some confusing signals.
One such dynamic concerned the weather, with some differing ideas of what is on offer.
Mike Zuzolo at Global Commodity Analytics said that the hard red winter wheat belt of Kansas “is still looking relatively dry for the next 10 days, with temperatures climbing close to 90 degrees Fahrenheit by the end of the model run.
“If this weather actually transpires, the wheat condition in the drier parts of the hard red winter area will worsen.”
And there are doubts that such weather will transpire, with MDA forecasting that “favourable showers will improve moisture supplies in south western Plains wheat areas”.
WxRisk.com forecast “1-3 inch rains with 65-70% coverage over the Texas panhandle and most of Oklahoma”, as well as further east along the cotton belt.
‘Ongoing dryness concerns’
However, there is less disagreement over prolonged dryness in the northern Plains and into Canada, spring wheat country which is speeding sowings but provoking worries over germination.
“Ongoing dryness concerns across the northern Plains and far western Canada are limiting losses” in prices, said Futures International’s Terry Reilly.
Furthermore, even if investors did have a bearish view, taking out short positions now carries the extra risk that hedge funds have already done so to an unprecedented amount, already, provoking the potential for a large bounce in prices if a crop worry does gain traction.
In both Chicago soft red winter wheat and Kansas City hard red winter wheat, speculators had record net shorts as of Tuesday last week, regulatory data late on Friday showed.
‘Already worked in’
Mr Reilly said: “Fast-money traders sitting on a short position, when the market appears to be trading rangebound, could start unwinding positions,” lifting prices.
“Much of the bearish fundamentals are already worked into the market, and the speculative short is nearly 17% of open interest.”
Chicago wheat for July was 0.2% lower at $4.87 ¾ a bushel, while Kansas City hard red winter wheat for July gained 0.3% to $5.08 ¾ a bushel.
Minneapolis spring wheat for July eased 0.3% to $5.43 ½ a bushel.
Key price point
Elsewhere, New York cotton for July fared better, boosted by the prospect of further rains to slow southern US sowings at a time when farmers are already a little behind.
“Weather forecasters expect rainfall in US Delta and South East to continue into the middle of next week, delaying fieldwork,” said Tobin Gorey at Commonwealth Bank of Australia.
And this at something of a crucial technical juncture too, with the July contract ending the last session at the top of a trading range it has trod for seven months.
“The July contract needs a close above 66.46 cents a pound to make a ‘higher high’ and suggest the [cotton price] rally is intact and attract new buying,” Mr Gorey said.
The contract was doing its best in early deals, standing up 0.7% at 66.78 cents a pound, and earlier hitting 66.83 cents a pound, the highest for the contract since September 17.
Indonesia tax plans
But in Kuala Lumpur, palm oil traded lower, falling 1.8% to 2,115 ringgit a tonne, despite data from cargo surveyor ITS showing Malaysian palm exports up 5.6% in the first 25 days of the month.
To the downside, there were reports of Indonesia, the top palm oil exporting country, scaling back its plans for a fresh tax on shipments – a prospect Agrimoney.com raised on Friday.
Certainly, for May, the tax was kept at zero.
