US weather fears keep wheat futures buoyant

March 20th, 2015


Category: Grains, Oilseeds, Weather

Young man in wheat field 450x299(Agrimoney) – Wheat futures looked for a strong finish to the week, amid some doubts that rains forecast for southern Plains will prove sufficient to boost crop condition.

The dollar was little changed as of 09:30 UK time (03:30 Chicago time), allowing US export concerns, which are exacerbated by dollar strength, to take a back seat.

(A stronger dollar undermines prices of dollar-denominated commodities by making them less affordable to buyers in other currencies.)

And one of the big concerns for wheat investors is dryness in US hard red winter wheat, and whether it will last long enough to setback seedlings which are emerging from dormancy, so boosting the moisture needs.

‘Still plenty of doubt’

In the last session, some “recent precipitation in the hard areas weighed on” futures in hard red winter wheat, as traded in Kansas City, Terry Reilly, at Futures International, said.

But was the rainfall really that significant, and will it be followed up?

Brian Henry at Benson Quinn Commodities said rains over the key state of Kansas “thus far have been spotty, and there is still plenty of doubt over whether the GFS forecasts for a wetter pattern going forward will verify”.

“With the weather situation and the volatility on the close on Thursday, the market could see more active trade” in the current session, he added.

‘Amounts are almost trivial’

At Commonwealth Bank of Australia, Tobin Gorey noted “some rainfall in US hard red winter wheat regions”, but said that the “amounts are almost trivial when cast against the existing moisture deficits”.

Although weather models “are projecting a wet period at the start of April, forecasters are wary of placing too much confidence in the event– it’s too far away for now”.

And then there is the talk of frost damage already sustained over the winter to factor in.

“There are reports of freeze damage from last fall in areas of north west Kansas as the winter wheat crop continues to come out of dormancy,” CHS Hedging noted.

And, with hedge funds relatively negatively positioned on wheat, leaving markets vulnerable to short-covering, it made for a positive start in particular for hard red winter wheat futures, which added 1.0% to $5.55 ½ a bushel for May, rising back over their 50-day moving average.

Chicago soft red winter wheat added 0.6% to $5.15 ¼ a bushel.

Planting outlook

Weather is becoming more of an issue for row crops too, with sowings beginning in some parts of the US – and being hampered by excessive moisture.

“Planting is slowed due to precipitation in the southern areas,” Futures International’s Terry Reilly said.

That said, an official US spring wheat outlook forecast a risk of only minor flooding for much of the southern Corn Belt.

And looking further north, Mr Reilly said that “planting is expected to start early due to the dry winter”, reducing the risk of flooding in an area prone to inundations from snowmelt.

‘These crops are big’

It was hard for investors to get too excited for now about any weather threat.

Meanwhile, in South America, ideas of decent soybean yields in Argentina rose up the agenda, after the Buenos Aires grains exchange stuck by an estimate for a 57m-tonne crop, and the government by a forecast for a 58m-tonne harvest, despite recent flooding.

“There is ongoing talk soybean yields are coming in above trend across Argentina, despite several areas that received heavy rains in late February through early March that will result in area abandonment of up to an extreme 1.0m hectares,” Mr Reilly said.

Benson Quinn Commodities’ Brian Henry noted estimates from Lanworth of a Brazilian soybean crop of 94.4m tonnes, and Argentine on of 60m+ tonnes.

“Whether you buy into these estimates or not, big crops get bigger and these crops are big,” he said.

Small gains

There was some enthusiasm for covering some of the large short positions that funds are said to have been putting in on corn and soybeans earlier this week, ahead of the weekend, and two days without being able to trade.

But buying pressure was light, lifting soybeans for May up 0.1% at $9.63 a bushel, and May corn by 0.2% to $3.74 ¼ a bushel.

Indeed, there was no sign of the “buy corn and sell soybeans” trade which CHS Hedging said had been a “popular trade as traders look forward to the March 31 report” from the US Department of Agriculture which will reveal .

Cotton revisions

Nor, in Kuala Lumpur, was there enthusiasm for palm oil, which fell by 1.1% to 2,181 ringgit a tonne, after data from cargo surveyor Intertek dampened hopes of some recovery in Malaysian shipments of the vegetable oil.

Exports fell 5.5% in the first 20 days of the month, an acceleration on the 3.4% drop reported for the first half of March, compared with the same period of February.

And, in New York, cotton for May fell by 0.5% to 62.65 cents a pound, despite a trim by Cotlook to its estimates for world supplies.

The analysis group, noting higher demand hopes for Vietnam, and downgraded production ideas for India and Uzbekistan, cut its estimate for the rise in inventories in 2014-15 by 140,000 tonnes to 2.08m tonnes.

For 2015-16, it forecast a drop of 96,000 tonnes in world inventories, compared with a previous estimate of a 41,000-tonne decline.

Still, investors had some profits to take on cotton, after a 0.8% rise in the lasts session, on much improved US weekly exports of 238,600 running bales.

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