Tumbling corn, wheat help commodities apporach 13-year low

July 21st, 2015

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Category: Grains, Oilseeds

Corn-on-Cob450x299(Agrimoney) – Corn and wheat futures tumbled as improved weather ideas enhanced a willingness to sell among investors, for which commodities were anyway out of favour, falling close to a 13-year low.

It was a tricky start to the week for raw materials markets as a whole, with the total-return Bloomberg commodity index, which covers a basket of 22 commodities, setting course for its lowest close since 2002.

Gold fell below $1,100 an ounce for the first time in five years, while US crude oil came 1 cent from $50.00 a barrel at one point, while copper headed towards a six-year bottom.

However, selling in grains gained extra impetus from the retreat of many weather concerns, including dryness which has raised a question mark over wheat output in Australia and Canada this year, and excessive rains which have set back US corn.

‘Critical week’

“It is unusual for sharp Friday sell-off to be followed up with another sharp drop on Monday,” said Richard Feltes at Chicago broker RJ O’Brien.

“But such is the case with largely favourable weather during one of the most critical growing weeks of the summer.”

Indeed, he added that the “weather leans negative” for grain prices “with no sign of sustained Midwest heat for the balance of July, along with bulk of rainfall activity shifting north and south of saturated areas from Missouri to Ohio”.

Too much heat would be a big setback for corn pollination, and therefore yield potential, in this the critical month for the process in the US crop, while dryness would be a big benefit to states such as Missouri and Ohio where crops have been drowning thanks to excess rains.

‘No threatening heat’

Separately, CHS Hedging noted that “we are entering the traditional hottest week of the year”, with heat critical in determining the success of ongoing

“Many areas call for at or above-normal temperatures. But no threatening heat is in the forecast for the US.”

And this after a weekend when Benson Quinn Commodities said that “weather was constructive, with average temps in the 80s Fahrenheit with a consensus 1 inch of rain over the eastern Corn Belt”.

‘Inflicting pain’

More will be known on the condition of US corn, and indeed other crops, later when the US Department of Agriculture unveils data which investors believe could show a recovery in ratings.

“The industry is anticipating steady-to-slightly-better condition reports for corn and soybeans this afternoon,” said Darrell Holaday at broker Country Futures.

Benson Quinn said that “corn is expected to be reported at 69% good-to-excellent versus 61% average”, although still below the 76% figure last year.

Investors were certainly not standing by increased risk premium in prices, especially with ideas that hedge funds’ move in the week to last Tuesday to increase their long positioning in ags has only created scope for extra selling.

“Charts are inflicting pain on managed fund longs,” Mr Feltes said, adding that “they may opt to exit before the August crop report”, ie the next edition of the USDA’s monthly Wasde world crop supply and demand briefing.

Futures tumble

Data showing the US exporting 1.16m tonnes of corn last week, up from 1.06m tonnes the week before and 941,977 tonnes in the same week of 2014, helped corn futures recover from their lows.

But corn for September closed down 3.5% at $4.05 a bushel in late deals in Chicago, poised for its first close in a month below its 20-day moving average.

The best-traded, new crop December corn lot ended 3.4% lower at $4.16 a bushel, also surrendering its 20-day moving average, and down 8% in the past week.

‘Negative for prices’

Wheat futures suffered too, with Darrell Holaday noting that “Australia continues to get good rain in their wheat areas, despite the fact that is an El Nino year”, with the moisture a “negative for wheat prices”.

Meanwhile, CHS noted that “some of the really dry Canadian wheat areas received some rain over the weekend”.

Mr Reilly said that the “dry areas of Canada down to less than one-third of crop land”.

Although western Europe, a key wheat area, remains unduly dry, the conditions are seen as having come too late to wreak much havoc on winter crop, which forms the vast majority of the harvest.

Export battle

There was some slightly more upbeat news on the demand side, with US exports last week rising to 489,089 tonnes from 271,191 tonnes the week before, although this remains behind the pace needed to meet the USDA forecast for the whole of 2015-16.

And there remain some concerns over a slow start to the season for Russian wheat exports, thanks to uncertainties prompted by the country’s new export tax.

However, lower prices, besides some massaging of the tax details, could get shipments moving more quickly.

“Russia is offering wheat at below $200 a tonne. That is some $30-40 per tonne below US values,” Mr Holaday said.

Chicago wheat for September dropped 3.4% to $5.32 ¾ a bushel, back below its 200-day moving average.

Paris wheat closed down 1.7% at E192.25 a tonne, but suffered less in the way of technical damage.

Firm soy exports

Back in Chicago, soybeans fared relatively well in dropping 0.7% to $10.07 ¾ a bushel for the August contract, which signally managed to bounce after a confrontation earlier with its 200-day moving average.

The best-traded November lot fell by 0.6% to $9.99 ½ a bushel.

US soybean exports last week weren’t bad at 306,379 tonnes, more than double the 146,130 tonnes the week before.

US weather this month is less crucial for soybeans, whose pollination period lies ahead, meaning the more benign conditions offer investors less cause for reducing risk premium.

Sugar plunge

Among soft commodities, New York raw sugar extended its losses of the last session, in defiance of ideas that data this week from cane industry group Unica will show a cut to Brazilian output in the first half of this month from excessive rains.

“Weather forecasters expect South Brazil’s cane regions to return to seasonable, or slightly dry, conditions over the next week or so,” Tobin Gorey at Commonwealth Bank of Australia noted.

“Drier weather in the south of Brazil is facilitating the sugar cane harvest after rainfall in recent weeks had caused delays to harvesting and a lower sugar content in the cane,” Commerzbank said.

Again, the latest data on hedge fund positioning was seen as offering little help, with a return by managed money to a net long in raw sugar futures and options for the first time in nearly six months seen as creating room for fresh selling.

Raw sugar for September plunged by 4.3% to 11.44 cents a pound, not far above five-year lows set last month.

Robust robusta

A weakening real was little help for sugar too, in cutting the value of assets in which Brazil is a major player, also undermining arabica coffee futures, which for September delivery ended down 0.7% at 127.45 cents a pound in New York.

However, London robusta coffee for September nudged 0.2% higher to $1,678 a tonne, an outperformance which comes amid some ideas that a Vietnamese hold-out on exports may work after all in supporting prices, given shortfalls in supplies from elsewhere.

While Vietnam is the top robusta-producing country, Brazil’s robusta output has suffered from drought this year, and Indonesian supplies have been undermined by poor production.

There are also some ideas that Vietnamese producers are gaining extra confidence in withholding exports from ideas that drought may affect this year’s harvest more than some observers have predicted.

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