(Agrimoney) – Grain futures started this week much as they ended the last one, trading lower, especially wheat which felt continued pressure from two sets of, delayed, US data.
External markets were largely neutral-to-positive, helped by ideas that the Federal Reserve will not – at a meeting this week, amid signs that Washington’s shutdown hurt the US economy – reveal moves to reduce its asset buying programme.
As Credit Agricole put it, “the ‘bad news is good’ philosophy at present means that data are helping to aid expectations that Fed tapering may be delayed”.
‘Improved conditions’
However, Chicago traders found little to excite them, with what news there was largely negative.
For instance, on soybeans, the Ministry of Commerce in China, the top importer of the oilseed, cut its estimate of buy-ins this month by 640,000 tonnes to 5.21m tonnes, while foreseeing a slump in November volumes to 2.97m tonnes.
And while rains this week will slow the harvest in the US, a potential support to prices in limiting the volume of fresh supplies, rainfall in Argentina is viewed as price negative.
“Forecasts for favourable rainfall across Argentina this week, up to 50mm, should support improved conditions for soybean planting,” Luke Mathews at Commonwealth Bank of Australia said.
WxRisk.com said that “models develop big clusters of storms over central Argentina of 1-3 inch rains over October 31-November 1.
There are also “good rains over central and west Brazil next five days,” the weather said, adding that the six-to-10 day outlook was “super wet over 80% of central and southern Brazil into north east Argentina”.
Soybeans for November fell 0.2% to $12.97 ¼ a bushel as of 09:10 UK time (04:10 Chicago time).
‘Damage is irreversible’
The rains in Argentina have helped wheat, in some areas, according to the country’s farm ministry.
“It rained in various areas of the country, alleviating the situation for [wheat] crops,” it said.
“But, in the north east and north west the damage is irreversible,” although in the area south of Buenos Aires which produces half the country’s wheat, crops are broadly in good condition.
Statement from Argentina’s farm ministry are being closely watched, given that it 10 days ago issued a lowball harvest estimate of 8.8m tonnes only to retract it saying it was based on “partial” data, leaving the market on tenterhooks as to what the updated figure will be, whenever it is released.
“Many traders are guessing that the revised production estimate is actually 9.5m-10m tonnes,” CHS Hedging said.
The Argentina issue is further clouded by the mid-term elections on Sunday, at which the opposition Renewal Front appears to have won considerable ground over President Cristina Fernandez de Kirchner’s Front for Victory.
President Fernandez has a history of intervention in agriculture, and there were suspicions, ahead of the farm ministry estimate withdrawal, that the government was poised to ban wheat exports to keep domestic food prices in check.
‘Raising production estimates’
The situation over the Australian wheat crop is not clear either.
“The Australia harvest has begun and early results have some traders raising their production estimates,” CHS said.
However, others haven’t, leaving estimates ranging from 23.6m-26.7m tonnes even as harvest progresses.
Reports on quality contrast heavily too, although there may be some signs of a consensus emerging that the crop will be good, although not as good as it might have been, with grain handler GrainCorp taking a little bit more of a negative stance in its latest update.
‘Some impact on yield’
While restating that “quality and protein levels remain good” in the Queensland crop, and noting some “good malting barley” too, GrainCorp also highlighted “dry conditions” in northern New South Wales, and the potential for freeze damage in the state too.
“Recent frosts, experienced from Parkes down through areas of southern New South Wales, are expected to have some impact on yield in these areas – this will be monitored as grain is delivered.”
In Sydney, January wheat futures closed unchanged at Aus$289.00 a tonne, firm in the face of weakness in Chicago in the last session and this one.
Chicago wheat for December was 0.4% lower at $6.88 ¼ a bushel.
Delayed data
The grain was little helped by an overhang from data last week, including weekly export sales data for the week to October 3 (delayed by the Washington shutdown) coming in at 653,600 tonnes for wheat, down 22% week on week.
Wheat has largely been supported of late by ideas of strong US exports
And, as an extra downer on this note, there is constant backchat about a potential cut by India to its floor price for shipments, a move which would bring a country with huge stocks onto the market.
“India is contemplating lowering its offer price as they attempt to sell wheat from state reserves,” CHS said.
‘Covered enough shorts’
The second piece of data came late on Friday, when the Commodity Futures Trading Commission revealed that hedge funds had slashed their net short in wheat in the week to October 1 by 38,000 contracts.
That was the biggest bullish shift in positioning since June last year.
India is contemplating lowering its offer price as they attempt to sell wheat from state reserve.
“The fact that the data is not current could limit the bearish effect, but the trade may and probably should infer that funds have covered enough shorts in Chicago,” Brian Henry at Benson Quinn Commodities said.
Discount declines
Both sets of data were less negative for corn, with weekly US export sales coming in at a hefty 1.34m tonnes, and hedge funds seen increasing their net short position, to a record high above 151,000 tonnes.
Still, in the face of pressure from the US harvest, and with rains refreshing seed beds in South America, corn struggled too.
That said, in falling 0.1% to $4.39 ½ a bushel for December, the grain at least outperformed wheat, and closed its discount back below $2.50 a bushel.
‘Optimistic outlook’
Some soft commodities opened weak too, including arabica coffee, which fell 0.1% to 109.05 cents a pound in New York for December delivery, if not quite enough to match the four-year low of 108.80 cents a pound reached in the last session.
The bean is being pressed by ideas of ample global supplies, both in 2013-14 and 2014-15.
“The optimistic outlook for the next Brazilian crop due to favourable crop weather in Brazil” is weighing on prices, Joyce Liu at Phillip Futures said, staying downbeat on price prospects.
“For the week ahead, we remain bearish on arabica coffee futures as the Brazilian crop continues to progress well through its flowering stage,” she said.
Cotton drops
Cotton extended its recent decline too, despite a downgrade by Cotlook to its forecast for world production, by 108,000 tonnes, thanks to weaker hopes for the Chinese crop.
With the world consumption forecast lifted by 70,000 tonnes, Cotlook cut its estimate for year-end stocks to 1.66m tonnes from 1.8m tonnes – although this would still be a record.
Cotton for December eased 0.1% to 78.98 cents a pound, a smidgen above a nine-month low reached on Thursday.
