Sugar extends recovery. But wheat trades – unusually – flat

(Agrimoney) – Was that it?

One big question for agricultural commodity markets on Thursday was whether the start of the month, and of the quarter, buying by funds in the last session – driving wheat especially higher, and rescuing sugar from a six-year low – will continue.

Talking of soybeans, Benson Quinn Commodities’ Kim Rugel said: “It was interesting to see the funds coming in buying today at 9:30am and again on the close. This is something that has been absent in the bean pit recently.

“What will be more interesting is if they show up again on Thursday, or if it was one-off new month buying.”

‘Funds accumulate longs’

Data overnight suggested that there was something to the idea of a wave of fund buying in Chicago the last session (of 7,000 lots in wheat, 8,000 lots in corn and 9,000 in soybeans, according to Reuters estimates).

Open interest for futures rose more than 6,200 lots for wheat, and by more than 12,700 contracts for corn, although the soybean figure was a bit limp, at 4,682 lots, suggesting that a bit of short-covering was going on, balancing out some of the flow of fresh cash.

And there are reasons to expect that funds, which as of last week had a net short position in the top 13 US-traded ags for only the third week since 2006, might take a more charitable view of grain investments, whatever the USDA data on Tuesday showed.

Richard Feltes noted a “strong tendency for managed funds to accumulate ag longs between April and June, to capitalise on inevitable crop scares”.

This period brings the northern hemisphere spring grain (and cotton) sowings, for which progress is a weather-dependent event, besides in softs the start of the Brazilian sugar cane crushing season, and indeed the start of the Brazilian coffee harvest too, besides for cocoa the mid-crop Ivory Coast harvest.

For any funds thinking of short-term fund inflows, Thursday might in theory see a funnelling effect, with markets closed on Friday on both sides of the Atlantic for Good Friday holidays.

Harder softs

Still, many funds seemed sidelined/asleep as of 09:45 UK time (03:45 Chicago time), perhaps awaiting the 9.30am Chicago time which, as Ms Rugel noted, seemed to stir them on Wednesday.

Ag prices gains were largely limited to New York-traded cotton and sugar.

Cotton for May added 0.4% to 62.81 cents a pound, gaining a little support from data overnight, with the International Cotton Advisory Committee cutting its forecast for world production in 2015-16 by 420,000 tonnes.

The US Department of Agriculture attache in Hanoi estimated Vietnam’s cotton imports at 3.81m bales this season, 207,000 bales more than the official forecast, seeing a further rise nearly to 4.2m bales in 2015-16.

Furthermore, from a technical perspective, charts have given cotton bulls some reassurance, with futures finding support at the 50-day moving average for the past couple of weeks, and with the 75-day and 100-day lines just below.

But can the lot break above its 10-day moving average, at 63.16 cents a pound, which gave the contract a nosebleed in the last session.

Sugar sweetens

Raw sugar, meanwhile, gained 1.0% to 12.44 cents a pound for May delivery, climbing back above its 10-day moving average – which it has not closed above for six weeks.

Futures on China’s Zhengzhou exchange gained a touch more overnight, with the best-traded September lot settling up 0.1% at 5,415 remninbi per tonne, its best finish in 10 months.

There has been talk that estimates for Chinese sugar demand have been understated, raising hopes among investors of extra imports.

Furthermore, the dollar opened soft (albeit flat against the Brazilian real) after a series of somewhat disappointing US export data, which have cut the chances of an imminent rise in interest rates/

‘Most likely candidate’

At Commonwealth Bank of Australia, Tobin Gorey said that “the most likely candidate for a catalyst” for raw sugar’s recovery from Tuesday’s six-year low “the Brazilian real finding some stability.

“For some, that will be reason not to be short anymore. Other investors may also have simply decided that sub-12-cents-a-pound sugar was low enough.

“We think there may be something to this idea. Much of the fall in sugar prices this year has not been matched by a rise in the dollar.” Strength in the dollar insulates producers in other countries somewhat against falling New York prices.

“Consequently, for several major producers –Thailand, Australia and the Centrals – prices have now fallen sharply,” with the disincentive for production that lower values entail.

Flat wheat, for a change

Grains, however, were less buoyant, with wheat for May unchanged at $5.28 ½ a bushel for May.

Indeed, the contract has yet to come anywhere near matching the volatility of the last session, although already on Thursday it has considered a fall to its 10-day moving average, at $5.21 ¼ a bushel, only to stop just short and rebound.

Much focus remains on the US weather, and if rain relief is on the way for central and southern Plains winter wheat crops.

“Little widespread rain has fallen in hard red winter wheat regions and weather forecasters reckon there is little coming until next week,” CBA’s Tobin Gorey said.

While forecasters “are expecting a storm system in the region top provide some rain in the middle of next week… rainfall amounts, for now anyway, are useful but would not eliminate the need for follow-up rainfall – about which there is little confidence”.

‘Crop stress is expected’

At Futures International, Terry Reilly said that “droughty conditions are expanding across US hard red winter wheat country from the recent dryness and warmer temperatures.

“And the outlook has not changed much – a drier bias through mid-April.  Some crop stress is expected.”

Will this show up in official crop condition data next week?

CHS Hedging said that “dry weather in the Plains has traders looking over their shoulder that with next Monday’s crop conditions report will deteriorate further”.

As an extra support, Saudi Arabia issued a tender to buy 715,000 tonnes of hard wheat.

‘Delaying planting’

For corn, the US weather threat is proving to be excessive rain in some southern areas, where more precipitation is expected.

“Rains are expected to continue into next week throughout much of the Delta, delaying planting,” CHS Hedging said.

Mr Reilly added that “planting progress may be interrupted this week across the southern parts of the western Corn Belt.

And further east “high saturated wet soil across the Ohio River Valley won’t improve until that region sees warmer temperatures”.

Still, the “rest of the Midwest should pick up on planting progress over the next week”.

And there was not impetus yet to lift prices, without any support (yet) from the ethanol market, which fuelled gains in the last session.

Corn for May fell 0.2% to $3.81 a bushel.

Soybeans gain

Soybeans, meanwhile, fell 0.3% to $9.86 ½ a bushel, undermined by persistent ideas that USDA data on Tuesday, which showed lower-than-expected (if record) sowings prospects, will prove an underestimate.

And slow corn sowings, of course, can spur a switch to planting soybeans, which have a later planting window.

Furthermore, have funds closed many of the shorts already that they had in the oilseed, limiting the upward pressure on prices from further pre-long-weekend position closing?