Wheat dips in market caution after Paris attacks

November 16th, 2015

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Category: Grains, Oilseeds

Wheat field and blue sky 450x299(Agrimoney) – There was a bit of a risk-off feel to financial markets to start the week, after the terror attacks in Paris late on Friday.

Certainly, on grain markets, investors had little appetite for much buying, even after futures’ poor performance of last week, when upgrades by the US Department of Agriculture on Tuesday to estimates for domestic supplies sent prices tumbling.

Some commodities were more in vogue on Monday – but they tended to be more the ones seen as safe havens, such as gold, which edged 0.8% higher t0 $1,092.60 an ounce, looking for its first gain in five sessions.

Brent crude gained 0.2% to $44.56 a barrel as of 09:15 UK time (03:15 Chicago time), after France late on Sunday launched attacks against ISIS targets in Syria.

Given the importance of the Middle East to oil supplies, unrest in the region tends to support prices.

‘Things remain grim’

But grains found buyers harder to come by – although with prices already reasonably depressed, sellers could not gain that much traction either.

Wheat fared the worst among Chicago’s big three contracts, shedding 0.6% to $4.92 ¾ a bushel for December, amid ideas of ample world supplies spurred last week by the closure of two major French silos to deliveries of new grain, because export demand was not draining them fast enough to avoid a build-up.

While Friday for Chicago wheat futures “saw limited flat price movement on either side of unchanged, things remain grim,” said Benson Quinn Commodities.

“December wheat is apparently unable to rally back past the $5.00-a-bushel level after the USDA bloodbath [on Tuesday], and nothing on the horizon that might start to change the picture materially.

“I don’t see anything on the horizon that would force the market out of its $4.75-5.25 a bushel range.”

‘Taking a beating’

Nor is sentiment being helped by questions over ideas that US farmers might plant less winter wheat ahead of the 2016 harvest.

While Informa Economics on Friday pegged sowings at 38.7m acres – down from 39.5m acres planted for this year’s crop (32.3m acres of which were actually harvested) – Futures International said it forecast plantings at 40.0m acres.

The idea was “based on timely rainfall across hard red winter wheat production areas, and rapid harvesting of summer crop across the Midwestern soft red winter wheat country, allowing producers to potentially expand intentions”, Futures International’s Terry Reilly said.

“We also believe some producers across the fringes of the western Corn Belt, where some producers are taking a beating from low corn and soybean cash prices, will also opt to plant wheat, backing away from row crops.”

With sorghum prices lower, some farmers will ditch the grain for wheat too, Mr Reilly said.

‘Market needs to go lower’

Corn actually fared better, edging 0.25 cents higher to $3.58 ½ a bushel for December delivery, recovering from a contract closing low in the last session.

In fact, some technical influences remain downbeat even at these lowly levels.

While corn “is a touch oversold… the technical studies indicate the market needs to go lower with dailies and weeklies both pointing lower”, Benson Quinn Commodities said.

On corn’s side on Monday was the higher oil price.

Energy values are particularly important for the grain, given the large proportion of the US crop used for making ethanol.

‘An anchor’

Still, there are few investors expecting the revival in corn futures to gain much momentum, especially with ideas of huge Chinese stocks, prompted by the USDA last week, which Shanghai consultancy JCI has said could turn the country to exports.

“China’s corn situation acts as an anchor,” said CHS Hedging.

“The Chinese corn balance sheet remains a point of concern as a policy shift could allow them to offer corn onto the world export market, much like a policy shift on Argentina export taxes could cause a surge in exports.”

‘Competing at cheap values’

In fact, Argentina, which holds presidential run-off elections this weekend, looks a particular issue for the soybean market, given the extent of the oilseed farmers already have in store, and their apparent preference for growing it over corn.

Both candidates in Sunday’s election “have vowed to lower soybean export taxes, which could bring a flood of Argentina producer-held soybeans to the market”, said Benson Quinn Commodities.

This “flood” could be “in the form of beans or soymeal that will be competing at cheap values against US supplies in the world market”.

Meanwhile, in Brazil, a negative came late on Friday from Mato Grosso, the top soybean-producing date, where farmers have now nearly caught up with last year on plantings, getting 83.7% in the ground compared with 84.1% a year ago, according to research institute Imea.

A week before, farmers had planted just 61.0%, compared with 66.9% a year before.

Soybeans for January, in their first day as Chicago’s spot contract, eased 0.1% to $8.54 ¾ a bushel.

Palm down

Elsewhere, in Malaysia, Kuala Lumpur palm oil for February dropped 1.9% to 2,300 ringgit a tonne, after a weak performance overnight by the vegetable oil in China, a major buyer importer.

On the Dalian exchange, palm oil for January settled down 0.7% at 4,148 yuan a tonne, the contract’s second lowest close since it began trading at the start of the year.

There are some nerves around in the market about Malaysia’s export performance, although the country said on Monday it would keep its export levy at zero in December, for an eighth successive month.

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