(Agrimoney) – Wheat futures were going to need something unusual to avoid evade sharp pressure from a round of early profit-taking, after their strong performance of the last session.
Especially with it being Tuesday – famed in Chicago as the day of “turnarounds” – reversals of a strong move the previous session.
Still, futures got that something unusual with the US Department of Agriculture’s first condition rating of the US winter crop, for harvesting in 2016, and which is now 85% planted.
As Tobin Gorey at Commonwealth Bank of Australia related, “analysts were looking for an opening conditions number of 55%, in the good or excellent categories.
“The outcome was a 47%!”
Ie, the crop was in much worse condition than the market had forecast, consistent with ideas that conditions have been too dry in some areas, notable the southern Plains.
The figure was below the 59% figure for last year, and the average rating for the time of year which brokers put at 50% of the crop rated “good” or “excellent”.
Poor starters
The worst rating was in Oregon, where a pitiful 8% of winter wheat crops were rated in “good” or “excellent” condition.
The Pacific North West is suffering from a long-term drought, which has raised the spectre of another poor white wheat crop, as Agrimoney.com reported last week.
However, unimpressive readings were gleaned from some major hard red winter wheat areas too, with 41% of the crop rated good or excellent in Kansas, the top wheat-growing state, and 31% in neighbouring Oklahoma.
In soft red winter wheat country, Arkansas, at 26%, and Missouri, at 34%, ha weak readings, contrasting with numbers in the high 50s% for Illinois and Ohio.
‘Buying early this year’
As an extra factor to make sellers think twice, Syria was reported to have bought 200,000 tonnes of soft milling wheat at tender for E192.50 ($212.80) a tonne, on a cost and freight basis, the latest in a series of signs of import demand ticking over.
Indeed, “talk of El Nino might be adding to the positive undertone in corn and wheat markets this week as commercials and importers could be buying the commodity early this year”, said Terry Reilly at Chicago broker Futures International.
El Nino has a habit of causing weather disruptions in many major crop producing countries, although it has to be said that a sharp swing La Nina conditions (which is possible, even likely), linked to excessive dryness in parts of Argentina and Brazil, might be more threatening to corn production prospects.
Wheat futures for December eased in Chicago, but by a modest 0.2% to $5.08 ¼ a bushel as of 09:15 UK time (04:15 Chicago time), sticking above their 20-day moving average which was one of a number of chart points breached in the last session.
Fund factor
In fact, at Benson Quinn Commodities, Brian Henry flagged that the USDA crop rating was not the only factor to look out for on Tuesday.
He also noted that the rally in the last session was fuelled by covering by funds of an unexpectedly large number of short holdings, as revealed in weekly regulatory data.
On Tuesday, “I expect would-be sellers to take a step back just in case the funds need to cover” further positions, he said.
At Halo Commodity Company, Tregg Cronin said: “With short exposure so high by the managed funds, but price not close to making new lows, I would consider these positions very susceptible to short covering.”
From a technical perspective, Chicago wheat for December “has blown through the moving averages and seems be set on testing its next resistance at $5.18 ½ a bushel,” the 100-day moving average, Mr Henry said.
“I could see these markets offering another $0.10-0.15 to the upside before turning sideways. ”
‘Plantings expected to improve’
So if Turnaround Tuesday wasn’t seeing a big reversal in wheat, did that mean soybeans would largely escape too?
The oilseed lost ground in the last session, on ideas of Brazilian rains which will improve conditions for sowings in the key central states such as Mato Grosso.
World Weather said that “weather conditions in Brazil will become a little wetter in this next two weeks. The rain will include the Centre West”.
“Soybean plantings in Brazil are expected to improve this week with up to 3 inches of rain expected in the next five days,” said broker CHS Hedging.
‘Surge in exports’
Still, ranged on the side of soybean bulls is the upbeat nature of recent US export data, including the announcement on Monday by the USDA that shipments hit 2.67m tonnes last week, a figure deemed “whopping” by Futures International’s Terry Reilly.
“This surge in soybean exports has given a reason for some analysts to upwardly revise their China import forecast to over 80m tonnes,” he said.
The USDA forecasts imports by China, the top soybean buyer, in 2015-16 at 79m tonnes.
Whatever, it was helpful that soybean futures for January on China’s Dalian exchange nudged 2 yuan higher to settle at 3,912 yuan a tonne, after losses in the last session seen as one cause of Chicago weakness.
Chicago soybeans for January added 0.6% to $8.90 ½ a bushel.
Rapid harvest
It was corn futures which lagged in Chicago, easing 0.1% to $3.84 a bushel for December delivery, undermined by the overnight USDA data, which showed harvesting continuing apace last week despite the weekend moisture in the deep South from the remnants of Hurricane Patricia.
The proportion of corn harvested reached 75% as of Sunday, up 16 points week on week, and ahead of the average of 68% for the time of year.
Furthermore, there was continued comment over soft US export data, with shipments last week coming in at 413,304 tonnes.
Still, in support for prices, there is also rising comment over the need for corn futures to outperform soybeans to ensure decent sowings next year.
As Morgan Stanley put it on Monday, “higher [corn] prices will be needed in the US by March to defend corn acreage and to prevent stocks from tightening too much in 2016-17”.
‘Expecting more rain’
Elsewhere, cotton for December rose 0.3% to 62.32 cents a pound in New York, despite USDA data showing the USDA harvest on track, at 42% completed as of Sunday, compared with an average of 43%.
And the proportion of cotton rated “good” or “excellent” rose by 1 point to 47%.
Still, investors had already factored in some upbeat crop news in sending futures lower in the last session.
Furthermore, “forecasters are expecting more rain in the US south eastern states this week,” CBA’s Tobin Gorey said.
“No new crop damage is expected,” but it could slow harvesting.
