(Agrimoney) – Wheat prices jumped 3% as concerns over the quality of the ongoing US harvest crystallised on a strong day for agricultural commodities, which saw sugar futures make similar headway.
Chicago wheat futures for July came within 2 cents of regaining the $6.00-a-bushel mark before easing back to $5.87 a bushel with half an hour of trading to go, up 0.9% on the day.
The gain was attributed to concerns over rainfall which has come for many crops too late to repair damage from drought, and instead raising the spectre of a slow harvest, and of quality damage when the rains fall on ripe grain.
At Chicago broker Allendale, chief strategist Rich Nelson said: “The concern is that harvest will be delayed, and that grain could sprout,” a process encouraged by moisture which renders the wheat liable for a downgrade.
At Kansas-based Country Futures, Darrell Holaday said that “cutting is getting geared up” in central areas of the state, the top US wheat producer, “but may be stopped by rain later this week and into next week”.
Kansas City hard red winter wheat itself, a less traded contract than Chicago soft red winter wheat soared 4% at one point for July delivery, hitting $7.41 ¾ a bushel.
Reports ahead
In fact, there have been concerns over the rains for two weeks.
However, the timing of today’s rebound may be linked to the prospect on June 30 of two key reports, on US sowings and grain stocks as of June 1, both with potential to prompt significant market volatility, Don Roose, president at Iowa-based US Commodities, said.
“We have two big reports up in in seven trading days’ time. Anything could happen with them,” Mr Roose told Agrimoney.com.
“Ahead of major reports you often see some rebalancing.”
Forecast change
The late pullback in prices was viewed as being linked to a drier forecast for now for the hard red winter wheat belt, reducing the threat of crop damage.
“The market came off its high when the GFS midday model indicated a slower trek south with the moisture that had been indicated by earlier runs.
“We are really not seeing significant rains in southern Kansas until mid to late week next week
Hard red winter wheat for July closed at $7.27 a bushel, down nearly $0.15 from its high but still up 2.0% on the day.
Overhang eroded
Scope for price rises is also seen as being enhanced by a switch by hedge funds to a net short position in Chicago wheat, having run down a substantial net long position since early May in a process which fuelled the drop in futures.
And that is a factor viewed as playing a key role in price rises in other crops too, with hedge funds having reduced their net long position in the top 13 US traded agricultural commodities by more than 450,000 contracts since late April.
In raw sugar futures and options, the net long has near-halved below 76,000 contracts, a decline seen as creating scope for the rush back into the sweetener, which in New York closed up 2.5% at 18.35 cents a pound for the best traded October contract.
The July contract soared 2.8% to 17.53 cents a pound, retaking its 100-day, 200-day and 50-day moving averages, and stopping just short of regaining its 75-day moving average too.
‘Concerns about the monsoon’
However, if short-covering fuelled the rise in sugar prices, the spark to the rally was concerns over dryness damage to cane both in Brazil, the top producing country, and now in second-ranked India too, where the monsoon is running late, and with underwhelming rainfall levels in some areas.
“There are concerns developing about the monsoon in India performing poorly and is likely giving the funds cause to cover their short position,” Citigroup’s Sterling Smith said.
“A poor monsoon season can hurt [Indian] sugar production, and the country could find itself in a position where it could become a net importer of sugar.”
Sucden Financial flagged speculation of a move by Brazil to raise to 26% the level of ethanol which must be blended into gasoline, so raising demand for the biofuel, and diverting more cane to it away from sugar.
‘Solid demand’
Back in Chicago, corn futures got support from a jump in US ethanol production to a record high of 972,000 barrels a day, meaning more of the grain used in making the biofuel.
“In addition, the ethanol inventories dropped indicating solid demand,” Country Futures’ Darrell Holaday said.
The data came amid rising ideas already that prices had some reason for recovery especially in old crop, in which demand has proved resilient.
“There’s profitability near these levels in the corn market, which leads to end users extending coverage on breaks,” Benson Quinn Commodities said.
July corn closed up 0.6% at $4.41 ½ a bushel, although the new crop December lot tired near the close to end flat at $4.39 ½ a bushel.
‘Caught the industry by surprise’
Benson Quinn Commodities said that for US spring crops “the ‘too much rain’ argument”, as raised by Agrimoney.com on Monday, is also “getting attention, mostly because the excessively wet areas continue to get heavy rain”.
It was a help for soybeans too, as was the surprise announcement of the sale of 140,000 tonnes of US supplies for 2013-14 delivery – ie for a season in which US stocks are already looking tight enough.
“This definitely caught the industry by surprise,” Mr Holaday said.
‘More problems to solve’
And the firmer cash market, as noted earlier, continued to attract comment too.
“Soymeal basis has shown a firmer tone, which indicates there are more problems to solve on old crop supplies,” Benson Quinn Commodities said.
Soymeal for July gained 0.6% to $453.20 a short ton, while soybeans themselves for July closed up 0.8% at $14.09 a bushel.
The news crop November contract edged 0.1% higher to $12.13 a bushel, taking its ratio to new crop December corn to an elevated 2.76:1.
Cotton recovers
Back in New York, cotton managed a stronger finish, ending up 1.2% at 91.15 cents a pound for July delivery.
And this time the new crop December contract followed suit, adding 1.1% to 77.19 cents a pound – more than reversing the tumble in the last session to a six-month closing low on ideas of improved US growing weather.
Not that weather hopes have reversed.
“The west Texas weather is still favourable for crop development,” Citigroup’s Sterling Smith said.
“The price movement would seemingly indicate another good round of export sales are on their way.”
Commerzbank highlighted “the currently tight supply of cotton in the US”.
