Wheat extends decline as dust settles on Wasde

(Agrimoney) – Wheat futures are back in investors’ doghouse.

There are some weather concerns to give bulls a little bit of hope, notably the lack of moisture for US hard red winter wheat growing areas.

And the “six-to-10 day outlook suggests dry weather conditions over the US south western Plains area”, CHS Hedging noted.

However, the concerns over Russian winter wheat, after dryness left the crop poorly established in the autumn, have eased a little.

Indeed, currently “snow cover remains extensive across much of the former Soviet Union, which will improve soil moisture when it melts”, weather service MDA said.

“Temperatures remain a bit mild through next week, which will maintain low winterkill threats.”

Wasde revisions

Besides, it is the growing season weather, rather than that during crop dormancy, which is generally viewed as key.

And the general idea is of decent world supplies, enhancing competition among exporters – a battle US wheat is losing in favour of European Union supplies.

The US Department of Agriculture on Tuesday, in its Wasde crop report, lifted by 1.0m tonnes to 31.0m tonnes its forecast for EU all-wheat exports for 2014-15, taking the figure within 1m tonnes of last season’s record.

Meanwhile, the estimate for US exports – hampered by a strong dollar, which makes them less competitive – was cut by 680,000 tonnes to 24.49m tonnes.

The EU looks like in some style, for the first time, overtaking the US to become the world’s top wheat exporter.

‘Needs more export demand’

At Futures International, Terry Reilly said: “Global stocks remain ample and demand for US wheat could be lacklustre over the medium term.

“Overseas competition could continue to undercut US export demand.”

CHS Hedging said that the dollar “continues to trade at some seriously high levels, leaving the US uncompetitive in the world market”.

At Benson Quinn Commodities, Brian Henry said: “The US needs more export demand.

“Regardless of price, the dollar will be a hurdle.”

Spring vs winter

Mr Henry addressed the waning expectations too of Egypt, for now, taking up a $100m US credit line for be used for buying US wheat.

“The trade is doing a better job of embracing the idea that a major export programme of US wheat to Egypt is not imminent,” he said.

Sentiment was certainly negative on wheat, which for March delivery fell 0.9% to $5.17 ¼ a bushel as of 09:25 UK time (03:25 Chicago time) in Chicago, the world benchmark contract, actually of soft red winter wheat is traded.

Still, it is notable that Minneapolis-traded spring wheat was relatively strong (ie less weak) in the last session, and the same on Wednesday, easing 0.1% to $5.69 ¼ a bushel.

But then the Wasde was notable, in its smallprint, for raising the estimate for US spring wheat exports in 2014-15, by 10m bushels to 295m bushels, even if it cut the forecast for wheat exports overall.

Indeed, US spring wheat exports will top those of hard red winter wheat (the biggest part of the US wheat crop, traded in Kansas City) for only the second time since records began in 1983, according to Benson Quinn Commodities.

‘Consumption continues to rise’

Soybean futures, however, managed a small gain, adding 0.1% to $9.69 ¾ a bushel in Chicago for March delivery, after coming out of the Wasde relatively well.

In the Wasde, “global soybean inventories were a touch lower than expected, despite offsetting adjustments in South America, as global consumption continues to rise,” Christopher Narayanan at Societe Generale noted.

“Soybean prices while expected to decline as South American supplies hit the global trade, could see some short-term strength as US demand remains robust.”

Indeed, US exports have stayed stronger for longer than many expected, given the onset of the Brazilian harvest, and ideas of weak Chinese crush margins, potentially stemming demand from the top importing country.

“With a huge South American crop, along with ideas of a fairly decent US crop to yet be planted, there could be ample supplies of soybeans to satisfy the world’s needs this year,” CHS Hedging said.

‘Slowing China demand ahead?’

Futures International’s Terry Reilly noted that Abiove, the Brazilian oilseeds industry association, had lifted by 400,000 tonnes to 92.3m tonnes its forecast for Brazil’s soybean harvest this year, but left unchanged at 48m tonnes its forecast for the country’s exports.

Does this mean an expectation of “slowing China demand ahead?” he asked.

Also as something of a headwind for soybeans, elsewhere in the oilseeds complex palm oil fell 0.6% to 2,285 ringgit a tonne in Kuala Lumpur.

The Wasde in fact cut by 750,000 tonnes to 20.5m tonnes the forecast for Malaysian palm oil production in 2014-15, thanks to flooding.

“December rainfall was especially high, with up to 1,750mm, or 70 inches, of rain occurring in important growing areas in peninsular West Malaysia,”

However, the downgrade was not unexpected, and traders are currently more focused on the falling demand for Malaysian palm exports unveiled in separate data on Tuesday.

‘Neutral to slightly bullish’

Chicago corn futures, meanwhile, eased 0.4% to $3.86 ½ a bushel, having emerged from the Wasde with better credentials than wheat (a lower-than-expected estimate for US inventories) but not as good as those for soybeans, with the world stocks figure 360,000 tonnes above market forecasts.

Societe Generale termed corn futures “fairly valued at current levels”.

Terry Reilly said that the Wasde was “neutral to slightly bullish for corn, but long-term fundamentals remain bearish”.

Benson Quinn Commodities added that “charts still offer support” to futures, with the March contract continuing to trade above its 100-day moving average, at $3.80 ½ a bushel, which has previously shown some resistance to downward movement.

‘No hope for bulls’

Among soft commodities, cotton for March edged 0.1% higher to 62.54 cents a pound in New York, with its rally stalling at around the highest levels in three months.

The Wasde provided some support for cotton bulls in lifting by 700,000 bales to 10.7m bales the forecast for US cotton exports in 2014-15, “based on remarkably heavy sales of about 2.0m bales for the past four weeks, due to strong foreign mill demand for medium- and high-grade cotton,” the USDA said.

“This level of exports would account for 31% of world trade, the highest US share in four seasons.”

The estimate for US stocks at the close of the season was cut by 500,000 tonnes to 4.2m bales.

However, an upgrade to the inventory estimate for China by 1.3m bales to 64.5m bales spurred an upgrade of 1.2m bales to 109.8m bales in the estimate for world stocks at the end of the season.

“There is no hope for cotton bulls, with global stocks up 8.1m bales on the year despite 1m-bale drop in 2014-15 production versus prior year,” Richard Feltes at broker RJ O’Brien said.