(Agrimoney) – There was an extra twist for agricultural commodity traders to consider on Friday, and that is the prospect of a long weekend in the US (and the UK for that matter).
Monday brings the US Memorial Day holiday, in remembrance of those who died while serving in the country’s armed forces.
For ag investors, it has added significance in that it is seen as bringing the start of the summer grilling season, and with it demand for barbecue cuts, a trend already reflected in a spring revival in Chicago cattle and hog futures.
And the simple fact of there being an extra day without being able to trade is a factor for grain investors, given that the market has entered something of a weather market, when every change in the forecast can bring big price moves.
Dollar falls
That might be expected in wheat, given somewhat recovering prices of late, to bring some downward movement in futures, as investors take some profits on long positions, rather than risk a change in the weather forecast over the weekend eroding those gains.
But the twist this time is that hedge funds likely retain large net short positions in Chicago and Kansas City futures and options, given the huge extent they had even last week.
Might investors with shorts finally be tempted to throw in the towel, with July wheat futures in both exchanges given the extra positive technical signal of having closed the last session above their respective 100-day moving averages?
It was an extra help for bulls in early deals that the dollar eased 0.4% against a basket of currencies, amid expectations that recent weak US economic data imply that the Federal Reserve will not likely to start raising interest rates from record lows until sometime in the autumn, or later.
A weaker dollar improves the affordability of dollar-denominated exports, such as many agricultural commodities, for buyers in other currencies.
‘Sell only reluctantly’
But of course the bulls’ strongest card for now is the continuation of weather worries, largely, but not limited to, the US southern Plains, where harvest time is approaching with wet weather which will play havoc with mature-ish crops.
“Weather forecasters continue to expect more rain, and so few opportunities for saturated soils to dry, over the next week or so in US hard red winter wheat regions,” said Tobin Gorey at Commonwealth Bank of Australia.
“The trade will consequently continue to worry about wheat availability – and so sell only reluctantly – despite inventories being comfortable.”
He flagged the growing premium of Kansas City-traded hard red winter wheat, as grown in the southern Plains, to Chicago-traded soft red winter wheat, which at $0.35 a bushel as of last night is “double what it was in mid-April”, although still below the $0.50 a bushel touched in early April.
At Futures International, Terry Reilly said that “frequent rain will impact the US Plains for next 10 days which will affect wheat quality and disease expansion“.
‘We aren’t concerned’
Still, this is not the only weather concern which has warranted the reinjection of risk premium into prices, with worries about dryness in Canada and southern Russia alive too, although with some commentators urging caution about getting overexcited on these themes.
“The concerns about western Canada and southern Russia merit some attention, but are premature at this point,” said Brian Henry at Benson Quinn Commodities.
“Excluding western Saskatchewan and Alberta, conditions in the north look ideal for early development.”
At RJ O’Brien, Richard Feltes said that “we aren’t concerned about either area short term – Russia is coming off a wet April, while Saskatchewan soil moisture is only 22% short”.
Indian purchase
Nonetheless, there were some other factors for grain investors to consider too, including talk of Indian wheat purchases, after the country’s rain damaged harvest, and indicating potentially a fresh source of import demand.
“India has apparently bought 200,000-300,000 tonnes of Aussie wheat for May-July shipment,” Benson Quinn’s Brian Henry said.
“Having dealt with a wet harvest, India continues to show interest in securing global supplies.”
Chicago wheat for July stood up 1.1% at $5.27 ½ a bushel as of 09:40 UK time (03:40 Chicago time), while Kansas City wheat for July was 1.0% higher at $5.63 ½ a bushel.
‘Record high condition rating’
And a bit of that rubbed off on to fellow grain corn, although with nearly all of the US crop now in the ground, and requiring moisture to develop, excess rain is not nearly such an issue as for mature wheat.
“Other than parts of Kansas and Missouri, most of the US corn areas should be seeded by Memorial Day,” CHS Hedging said.
“Near-perfect forecasts and a planting close to completion will continue to weigh on this market moving forward,” Benson Quinn Commodities said, flagging expectations for a “record high condition rating” then the US Department of Agriculture next week unveils its first assessment of the crop.
While US rains “will limit fieldwork, the corn and beans that are sown will welcome the precipitation”, said Futures International’s Terry Reilly.
“We are hearing isolated comments about too much rain in some parts and talk of replanting, but we will see this rain as beneficial overall. ”
Still, pulled up by wheat, and decent demand for US exports, corn for July added 0.3% to $3.66 a bushel.
Chicago vs Dalian
Soybeans again lagged, easing 0.1% to $9.38 a bushel for July delivery, feeling the pressure from strong Corn Belt conditions for spring crops, but without the demand help that corn is enjoying.
Furthermore, concerns appear limited over the impact of strikes in limiting exports from Argentina.
“Some of the unions in Argentina have agreed to accept the governments offer for higher wages. The ones that not agreed are expected to next week,” CHS Hedging said.
And, elsewhere in the oilseeds complex, palm oil hardly helped by falling 1.1% to 2,135 ringgit a tonne in Kuala Lumpur, amid fears that a revival in Malaysian exports will not last.
Still, the drop in Chicago defied a strong performance by soybean futures on the Dalian exchange in China, the top importing country, where the best-traded September contract soared 2.0% to 4,393 yuan a tonne, a four-month closing high.
