US rains put wheat futures into retreat

April 13th, 2015

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Category: Grains, Oilseeds, Weather

weather450x299(Agrimoney) – Wheat futures emerged from the weekend in reverse gear, undermined by US rains over the weekend which beat expectations, and may receive some follow up.

Over the weekend, much of the central and southern Plains, where dryness has been an issue, received rainfall of 0.1-0.5 inches, with some local downpours bringing 1.5 inches of moisture, according to MDA.

And this week “beneficial showers will improve moisture in central and southern Plains areas”, the weather service added, saying that Colorado, Kansas, Nebraska, Oklahoma and Texas should receive some precipitation of potentially 3 inches on some farms.

Whether the rainfall “will be enough to make much difference to very dry soils remains to be seen”, said Tobin Gorey at Commonwealth Bank of Australia.

And if rainfall ahead actually prove sparse, wheat prices “are likely to rise again”.

Prices fall

A lack of dryness is also not the only hardship the crop has faced, with Benson Quinn Commodities highlighting a freeze last week which, while “probably limited” in its threat to the eventual yield brought temperatures which “were low enough to burn back some vegetation”.

But for now, investors removed risk premium, sending the May Kansas City hard red winter wheat contract down 1.8% to $5.48 ½ a bushel as of 09:20 UK time (032:20 Chicago time), dropping below its 40-day and 50-day moving averages.

Chicago soft red winter wheat, the world benchmark, for May fell 1.7% to $5.17 ¾ a bushel.

It was also little help that the US Department of Agriculture’s European Union bureaux late on Friday forecast a bumper 151.0m-tonne wheat harvest in the bloc, seeing the region’s exports remaining strong in 2015-16 too, implying strong competition for the US.

‘Too soggy for fieldwork’

The US weather forecast was not so bearish for corn, in terms of indicating further rains for the Midwest which, for eastern areas at least, are not so ideal, in potentially preventing preparations for sowings, beside plantings themselves.

“Showers this week will slow planting progress in south eastern [Midwest] crop areas, but improve moisture in south western areas,” MDA said.

“Large chunks of the US Midwest, particularly the east, remain too soggy for fieldwork,” CBA’s Tobin Gorey said.

‘Plentiful world supplies’

That said, “weather forecasters still see drier conditions evolving about a week ahead”.

And then there are the plentiful South American harvests to factor in, with Conab on Friday upgrading the Brazilian one in 2014-15 to 79.0m tonnes, 4.0m tonnes above the USDA estimate.

CHS Hedging flagged “plentiful world supplies, slowing export demand and a strong dollar”, which cuts the competitiveness of dollar-denominated exports, although the greenback was largely unchanged in early deals on Monday.

Corn for May stood 0.7% lower at $3.74 ½ a bushel.

China data

It was soybeans which performed best, adding 0.3% to $9.54 ½ a bushel for May delivery.

Assuming the drier weather ahead for the Midwest is forthcoming, that would be a support for prices, in that delayed corn planting periods often see a switch in acreage to soybeans, which have a slightly later sowing window.

And there were a couple of extra boosts to price prospects too, one being data showing Chinese imports of 4.49m tonnes of soybeans last month, up 5.4% month on month, and well ahead of the 3.33m tonnes that the country’s commerce ministry forecast two weeks ago, according to the official Xinhua news agency.

Chinese demand, or potentially the lack of it, has been a growing concern for soybean investors, especially with large South American harvests ongoing, boosting competition for US supplies.

“Demand for US soybeans and products wanes, with China continuing the shift from US to Brazil supplies, and/or Argentine soybean and soymeal supplies,” CHS Hedging said.

Vegetable oil recovery

As a further support, elsewhere in the oilseeds complex, palm oil extended its recovery, as optimism over Malaysian exports overcame bearishness from data on Friday showing a surprisingly strong revival in the country’s production last month.

Palm oil for June gained 1.1% to 2,152 ringgit a tonne in Kuala Lumpur, helping rival vegetable oil soyoil add 0.6% to 31.27 cents a pound in Chicago for May.

Chicago soybeans for May gained 0.2% to $9.53 ¼ a bushel, recovering from their lowest close in nearly six months.

It was a help that data late on Friday showed hedge funds extending their net short in Chicago soybean futures and options to more than 48,000 contracts, the highest since 2006, and potentially raising concerns over whether appetite for short bets is spent.

Drier periods

In New York, cotton for May eased 0.5% to 64.73 cents a pound, amid some easing in concerns over the dent to planting progress from wet weather in the Mississippi Delta states.

“Weather forecasters can now see drier periods in the Delta and South East regions ahead that will allow planting to progress even if not quite at the desired speed,” CBA’s Tobin Gorey said.

The contract remained, just above its 10-day moving average.

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