Weather hopes, Greece send grains into reverse

July 6th, 2015

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Category: Grains, Oilseeds

Wheat_Future_Dreams450x299(Agrimoney) – There were two major factors for grain investors to consider on Monday. And neither were particularly positive for prices.

The first was the Greek crisis, and Sunday’s referendum in which 61.3% of voters rejected the latest bailout package, and its demands.

“The No vote implies Grimbo (Greece in limbo) is a near-certainty and Grexit (Greece eurozone exit) risk has risen,” said Citigroup, while adding that “formal Grexit could still take months or even years to happen”.

That sent a range of risk assets into decline, including shares which opened down 1.1% in London and by 2% in Germany, having already scored notable losses in Asia, closing down 2.1% in Tokyo, for instance, and 2.5% in Seoul.

Currency moves

Still, the idea of a “risk off” trade was not quite all there, with the euro recovering much ground lost in early deals to stand just 0.4% lower against the dollar as of 09:30 UK time (03:30 Chicago time), helped by the resignation of Greek Finance Minister Yanis Varufakis.

And the greenback itself was 0.4% down against a basket of currencies, and another typical safe haven currency, the Swiss franc flat against the euro, although the yen made ground.

A weaker dollar offers some support for dollar-denominated exports, including many agricultural commodities, in making them more competitive.

‘Avoided the worst’

But even if grain bulls were tempted to look beyond the ripples from the Greek crisis to dollar weakness, there was another hurdle to higher prices to overcome, and that is improvement in weather in many wheat-growing regions.

Last week closed with a peaking of concerns, with parts of Canada, the European Union and Argentina unduly dry, provoking fears of yield loss, while persistent Midwest wetness slowed the US winter wheat harvest, particularly that of the soft red type as traded in Chicago.

Still, Tobin Gorey at Commonwealth Bank of Australia noted that “US soft red wheat regions though perhaps avoided the worst of the weekend rain”.

Not that the Midwest weather ideas are perfect, with MDA forecasting that “showers across southern and central crop areas will increase wetness concerns” this week.

‘Improve moisture’

Still, importantly, in Canada, while only limited showers are expected this week for the Prairies, after similar at the weekend, some better weather may lie ahead.

“Dryness will continue in the central and western Prairies this week. However, some relief is possible in the 6-10 day time frame,” said weather service MDA.

“The 6-10 day outlook is wetter in the Prairies,” where rainfall “will improve moisture for spring wheat”.

And some dry areas of Europe receiving rain too, including the southern UK, which witnessed a band of thundery rains.

‘Ample global supplies’

In Australia, where dryness is also an issue, CBA’s Tobin Gorey said that “weather forecasters expect southern grain region to get further useful rainfall over the next week or so”, although no moisture is in the forecast for needy areas of Western Australia.

Still with the prospects for the current world crop at least stabilising, for now, sellers could take comfort in the strong inventories left over from 2014-15.

“One day investors will have to recognise ample global supplies,” said Brian Henry at Benson Quinn Commodities, saying that rallies “look like opportunity for the producer” to sell crop.

Chicago soft red winter wheat for September stood down 1.6% at $5.81 a bushel, while Minneapolis-traded spring wheat for September eased 1.2% to $6.16 ¾ a bushel.

‘Not as wet as expected’

Wheat’s decline was not a help for corn, for which the Midwest rains have been seen as relatively benign.

Sure, they have flooded out some acres, but where rain is not too excessive, ample moisture is a help to yield prospects.

One US broker said that said that the “6-10 day outlook is calling for normal rains, and normal temps for the majority of the belt.

“With the rally corn has had in the last two weeks, it wouldn’t surprise us to see more weather premium taken out of the market.”

Mr Gorey said: “Weekend weather in the US Corn Belt was not as wet as expected and weather forecasters expect a – in places, much needed – drier trend to continue.

“A better turn in the weather might challenge corn prices at 2015 highs.”

Demand worry

Indeed, corn for September eased 1.5% to $4.22 a bushel, while the best-traded, new crop December lot fell by 1.5% to $4.30 ¾ a bushel.

Similarly, soybeans, for which the wetness has looked a greater threat, slowing sowings as well as hindering development of a crop less fond of significant moisture than corn, the improved weather undermined buyers’ appetites.

Especially when forward demand for 2015-16 US soybeans is proving weak, with China appearing to favour ordering from South America.

Soybeans for August stood down 1.4% at $10.24 a bushel, while the best-traded, new crop November lot fell by 1.4% to $10.16 a bushel.

Chinese rains

The decline in row crops spread to cotton too, which dropped 0.3% to 67.16 cents a pound in New York for December, despite talk of damage to the Chinese crop from rains.

China’s weather bureau said on Friday flagged rains 50% above normal in some growing areas, and forecast further poor weather.

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