US weather fears send grains soaring, again

(AgriMoney) – There are signs that cotton may have found a bottom, but less so that grains have put in a top.

New York cotton futures for July delivery continued their astonishing decline – hitting 70.25 cents a pound at one point, down 20% in four sessions – before recovering some ground to stand at 71.99 cents a pound at 08:15 UK time (03:15 New York time, 02:15 Chicago time).

The revival defied an increase as of today in margins, meaning investors have to put down more collateral against contracts.

And it came when the lot was, in entering the expiry process, freed from daily trading limits too.

However, there are signs of a limit to investors’ appetite for selling the fibre, caught up in turbulence after a huge Chinese order due for rapid delivery, with US data due later in the week expected to show farmers sowed less cotton than they initially intended.

New crop December cotton added 0.7% to 69.61 cents a pound.

‘Heat is coming back’

Chicago grains, meanwhile, extended their rally, and in spades, as the concerns over dry weather in US shifted up a gear.

The weekend didn’t bring much in the way of rain to Midwest areas which need it, with light showers over parts of Iowa and Nebraska, for instance, while temperatures were in southern states elevated, reaching around 95-100 degrees Fahrenheit on Saturday in all of Alabama, Mississippi, Texas etc, WxRisk.com said.

In parts of Colorado, the mercury showed 110 degrees.

And the forecast ahead is not too clever either, showing that while tropical storm Debby will bring rain to Alabama and Georgia, it will bring cooler temperatures, but not rain, to the Midwest.

Even so, “the heat is coming back into the Midwest by the time we get to Friday”, WxRisk.com said.

‘Stage is set’

At FCStone, Rory Deverell said: “The forecast this week is for dry weather again for the Midwest which should maintain the bullish corn and soybean market for another week, and carry wheat with it.”

Meanwhile, northern US states into Canada “continue to be a wet weather concern”, as Agrimoney.com highlighted on Friday.

“It is more or less inevitable now that new crop US Department of Agriculture yield projections for the US are too optimistic.”

Mike Mawdsley at Market 1 said: “The stage is set and the fuse lit. It’s all weather from here.”

Critical period

The fireworks show was most evidence in new crop December corn, as might be expected, given that the crop is entering a two-week period which will be crucial for the final yield outcome, in bringing the weather-sensitive pollination period to many areas.

Corn for December soared 4.2% to $5.77 ¼ a bushel, earlier hitting a four-month high of $5.78 ¾ a bushel.

However, new crop November soybeans fared well too despite their sensitive period being a little way off yet.

“Unlike corn, soybeans still have potential for a good crop if weather changes down the road – assuming it doesn’t die before then,” Mr Mawdsley said.

Contract high

One factor in soybeans’ favour is historically low US inventories which amplifies the impact on supplies of weather setbacks, and encourages risk premium.

But another is technical. The November lot, in busting up over $14.00 a bushel, set a contract high and rose above a point which had previously been a strong resistance point to upward movement.

With this bust, the lot hit $14.25 ¼ a bushel  before easing back to $14.16 ¼ a bushel, up 3.0% on thw day.

The old crop lots were largely carried up in their wake – after all, weak crops ahead means buyers might be less willing to hold out for the next harvest.

Furthermore, US data late on Friday revealed feedlot populations higher than the market had expected, up 2.0% year on year, underpinning demand for grains from that sector, even if US exports, for corn at least, are fading.

The July corn contract added 3.1% to $6.09 a bushel, while July soybeans gained 2.1% to $14.72 ¾ a bushel.

‘Important cold front’

On a global scale, the weather outlook isn’t all bad, with parts of the North China Plains, where dryness is also an issue, set to be refreshed.

“A important cold front is going to sweep through much of northern and Central China midweek will pull up some of the heavy rains and thunderstorms over south eastern China and this front could bring significant rains to the dry areas over the North China Plains,” WxRisk.com said.

That said, the six-to-10 day outlook “shows more excessive heat returning to all of the North China Plains and even into south western portions of Manchuria”.

‘Particularly warm temperatures’

And in Australia, “crop conditions in Southern Australia and Victoria should improve following widespread rainfall last week”, Luke Mathews at Commonwealth Bank of Australia said.

“Between 15-50mm fell throughout much of the region.

“However, follow-up rainfall will prove extremely important. Parts of southern New South Wales remain too dry.”

In another important dryness-tested wheat area, the Black Sea, rains are forecast too, although temperatures will be “particularly warm for most of the week”, FCStone’s Rory Deverell said.

Nonetheless, with peers higher, wheat rose too, adding 2.6% to $6.91 a bushel for July delivery, extending gains of 10% last week.