(Agrimoney) – So much for Turnaround Tuesday.
Wheat futures held on to higher ground in the second session of the week, which Chicago traders see as typically reversing a strong trend on the Monday.
But ideas of selling in wheat were supressed after US Department of Agriculture data late on Monday confirmed damage to winter wheat seedlings in the southern Plains.
Crops deteriorate
OK, the condition of winter wheat improved in Texas, where 51% of the crop was rated “good” or “excellent”, up 1 point week on week.
“Winter wheat progressed well throughout the state,” USDA crop scouts said.
But in neighbouring Oklahoma, a bigger producer, where USDA scouts noted that “dry conditions persist across the state”, the proportion rated “good” or “excellent” dropped by 2 points to 40%.
And in Kansas, the biggest US wheat-producing state, the rating dropped by 5 points to 41%, after a dearth of rainfall last week.
Weather outlook
The evidence of crop deterioration played to a wheat market which has grown increasingly nervous over the potential for crop damage from dryness in the central and southern Plains, especially when the outlook is for less-than-generous rainfall.
In fact, there is the prospect for showers in “southern Plains areas this week” which will “further improve moisture, weather service MDA said.
“But dryness will expand in central and northern areas” of the Plains, and even for the southern Plains the “six-to-10 day outlook is drier”.
‘Crops will be stressed’
And many observers have doubts over the extent of this week’s rainfall.
“Overall, the weather profile tends to be skewed to the dry side,” said Brian Henry at Benson Quinn Commodities.
At Commonwealth Bank of Australia, Tobin Gorey said: “High temperatures are bringing US hard red winter wheat crops out of dormancy.
“Large regions, though, have little soil moisture. Weather forecasters expect only modest rainfall over the next week or so. Consequently these crops will be stressed.”
Lesson from history
And this when hedge funds have taken a negative view of the market, running up a net short of 67,411 contracts in Chicago wheat futures and options as of last Tuesday, according to the latest regulatory data.
That was the “largest since October 7”, after which investors “witnessed a $1.18-a-bushel rally into late December” in July futures, said Richard Feltes at broker RJ O’Brien.
Mr Feltes flagged market “fear on a large, and vulnerable, managed fund short, and awareness that spring rallies in July futures of $0.60-1.25 a bushel have occurred in each of the last five years”.
Chicago soft red winter wheat, the global bellwether, held at $5.14 a bushel for May delivery as of 09:30 UK time (04:30 Chicago time).
Hard red winter wheat, as grown in the southern Plains and traded in Kansas City, did better, rising by 0.3% to $5.56 ½ a bushel for May – and earlier touched its 50-day moving average at a bit above $5.59 a bushel for the first time in two months.
‘Supply side weather issues’
In short, “supply side weather issues… have once again been able to support grains,” said Mike Zuzolo, president of Kansas-based Global Commodity Analytics & Consulting.
While that went for “wheat especially”, there are some weather concerns for corn and soybeans too, both in the US and South America.
Mr Zuzolo flagged that a “recent heavy deluge of rainfall in parts of Argentina may actually curb soybean production potential by as much as 2.5m tonnes.
“For northern Brazil, the potential for heavy rainfall in key parts of Mato Grosso in the coming 10 days is also something we need to continue to monitor,” Mato Grosso being the top producing state, and rain boding ill for harvest progress.
Too much rain
But even in the US, where spring sowings are (meant to be) just beginning in southern areas, there are concerns over too much rain too (easts of the southern Plains).
In Louisiana, USDA scouts rated corn plantings at 0% completed, compared with an average of 20% by now, slowed by the wet condition of soils, 81% of which were seen as having surplus moisture.
In the latest week, “the precipitation for this week was spread throughout the state, with the highest concentration in the northwest part of the state with an average of 5.01 inches,” scouts said.
And the GFS weather model is “suggesting continued heavy rainfalls for most of Louisiana as well as parts of Mississippi, thus little relief appears in sight”, Mr Zuzolo said.
‘Caution flag’
That said, on the negative side, there are also remain some demand fears, thanks in part to the spread of bird flu in the US, and the potential for a pullback in poultry industry growth, with a knock-on impact on feed demand.
“Kansas has now been added to the list of confirmed bird flu cases, making it the eighth state,” CHS Hedging said.
RJ O’Brien’s Richard Feltes said: “There are no indications as yet that spreading US bird flu problem is throttling back the steady ramp-up in US poultry production.
“But the situation bears monitoring and at the very least represents a caution flag on presumed long term expansion in domestic feed demand for corn and soymeal.”
Disappointing exports
There was also some continued comment on Monday’s downbeat US export data for corn, which for last week came in at 735,311 tonnes, below the 1.18m tonnes the previous week, and well below expectations of at least 900,000 tonnes.
“Weekly inspections are running 44.8% of the USDA’s year-end estimate and 4.8 points behind the five-year average,” said Benson Quinn Commodity’s Brian Henry.
“Inspections will have to average 1,020,353 tonnes a week to meet the USDA’s year-end estimates.”
This at a time of persistent talk of the competitiveness of Ukrainian corn exports.
Price falls
Corn for May eased 0.4% to $3.77 ½ a bushel, while soybeans for May fell by 0.1% $9.68 ¾ a bushel.
May soymeal was 0.2% lower at $323.20 a short ton.
Elsewhere in the oilseeds complex, palm oil extended its decline in Kuala Lumpur, after Monday’s decision by Malaysia to reimpose export duties next month.
Palm oil for June stood down 1.5% at 2,166 ringgit a tonne.
China news
in New York, cotton managed small gains, adding 0.1% to 60.55 cents a pound for May delivery, as investors weighed up talk from China, the top consumer, importer and, until last year, producer of the fibre.
The China Cotton Association said that China’s cotton imports last month were, at 159,100 tonnes, down 35% year on year.
However, on a more bullish note, it also highlighted government moves to cut Chinese production, with talk of an official target of lowering area in Xinjiang, the top growing province, by 15%, or 311,000 hectares.
