Wheat leads grains lower, awaiting tender result

September 3rd, 2015

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Category: Grains, Oilseeds

SoybeanCorn450x299Low50(Agrimoney) – Help to agricultural commodity bulls can come from unusual sources.

In the livestock market in the last session, for instance, lean hog futures “turned higher in part on word that McDonalds will offer breakfast now all day”, Steve Freed at ADM Investor Services said.

That means more sales of sausage McMuffins. (Although at the expense of beef burger sales? Futures in live cattle certainly eased a touch on Thursday.)

But in grains, there seems little at the moment that can shift negative thinking on wheat.

‘Mechanism remains in place’

There have been some potential price positives for wheat, with the dispersal of one (Russian) cloud over wheat markets, which had been blamed in part for falls in the last session.

Alexander Tkachev, Russia’s agriculture minister, said that the country after all had no plans to alter its wheat export tax rules, which have been seen by some observers as a hurdle to shipments.

“For now the mechanism remains in place,” Mr Tkachev said.

Still, he added that the country would reap of a grains harvest of 100m-103m tonnes overall, approaching record levels, and manage healthy of exports of 25m-30m tonnes.

Gasc tender

Also a potential bull point was another wheat tender by Gasc, the grain authority for Egypt, the top wheat importing country.

But if this does indicate some demand, the orders are seen as likely to come from Russia or Ukraine (with some talk of Australian origin as an outside bet too, although that would be quite an ask given the elevated shipping costs.

Still, the premium of Australian wheat futures to Chicago has fallen, as Agrimoney.com noted last week, undermined both by a weaker Australian dollar, down more than 5% against the US dollar over the past month, besides by the extra kick to local grain prices from reduced El Nino fears.

Sydney wheat futures for January tumbled 2.3% to Aus$204.00 a tonne on Thursday, matching an 11-month low for the contract, and down 18.2% over the past month.

That represents an underperformance, currency adjusted, against Chicago wheat futures, down 20% over the past month.)

Russian prices fall

Returning to the strong competitiveness of the former Soviet Union exporters, official data from Ukraine underlined the decent start the country has made to grain exports for 2015-16, with shipments at 5.8m tonnes for July and August, including 2.64m tonnes of wheat.

In the same period of last year, the total was 4.8m tonnes, including 2.3m tonnes of wheat.

Meanwhile in Russia, while exports are actually down, a decline blamed on the export tax, prices are too in an effort to scoop up business.

Last week the prices of export wheat with 12.5% protein were seen falling again last week, by $3 a tonne, to $180 a tonne (FOB) according to Ikar and $181.50 a tonne according to SovEcon.

‘Catastrophic failure unlikely’

And if traders are not expecting a fillip to Chicago futures from the result of Gasc’s tender, nor are they expecting much from weekly US export sales data.

These are expected to come in at 250,000-500,000 tonnes for last week, below the 529,063 tonnes achieved the previous week.

And while there are some fresh weather concerns, over dryness in Russia and excessive damp in South America, they were not enough to shift bearish sentiment.

“Global wheat crops are on balance looking good, and a catastrophic failure appears unlikely in any export driven region,” Pentag Nidera said.

“It can be deduced the chance of a price shock or rally driven by limited supply to the export sector is diminishing.”

Hard vs soft

Chicago soft red winter wheat futures for December stood down 0.6% at $4.76 ¼ a bushel as of 09:00 UK time (03:00 Chicago time), earlier plumbing a fresh contract low of $4.75 ¾ a bushel, and down a little above 20% over the past month.

While it remains at an (unusual) premium to Kansas City hard red winter wheat, a reflection of the poor US soft red winter wheat harvest (as underlined by Agrimoney.com on Tuesday), that gap is diminishing.

Kansas City wheat for December stood down 0.1% at $4.74 ½ a bushel, potentially a sign of traders unwinding short Kansas City-long Chicago spreads.

Minneapolis spring wheat for December was up 0.2% at $5.09 ¼ a bushel, but will come in particularly under the spotlight later with the release by Statistics Canada of domestic stocks data.

‘Not supportive’

Wheat’s malaise was hardly helpful for corn, a rival in many uses such as feed, and the yellow grain was down 0.4% at $3.66 a bushel for December delivery.

Corn values are being pressed by the start of harvest in the US, which brings a surge in supplies, although combines have yet to roll in the Midwest proper (and some early results from the South are said to be mixed).

Furthermore, on the demand side, weekly US ethanol output data on Wednesday were soft, coming in at 948,000 barrels a day, down 4,000 barrels a day, while stocks of the biofuel grew by 374,000 barrels to 19.0m barrels.

“This was viewed as not supportive for corn,” said Terry Reilly at Futures International.

“Extrapolating July and August weekly ethanol production out, we estimate crop-year corn for ethanol use will ends up at USDA’s 5.20bn-bushels projection, not 20m bushels higher than what we previously projected.”

Corn vs soymeal

Soybeans fared best of Chicago’s big three, adding 0.2% to $8.76 a bushel for November delivery, helped by some reduction in China fears which were also seen as fostering a 1.8% rebound in Wall Street’s S&P share index overnight.

(Chinese markets themselves were closed on Thursday, and will be on Friday too, for national holidays.)

That said, China fears have not disappeared.

At ADM Investor Services, Steve Freed underlined the “talk that China may drop their domestic corn support price”, which could reduce the need for alternative feeds such as soymeal, and thus soybean imports.

He added that ideas that “Argentina may increase soymeal exports after their October elections may also suggest that the USDA estimate of the US 2015-16 crush may be high”.

Separately, CHS Hedging noted that “cash soymeal in Des Moines, Iowa traded at its lowest level since June 15”.

Monsoon worries

Soymeal for December eased 0.1% in Chicago to $310.00 a short ton.

But soyoil, the other main soybean processing product, fared better, adding 0.9% for December delivery, to hit 27.33 cents a pound.

And in Kuala Lumpur, rival vegetable oil palm oil rebounded 0.8% to 2,004 ringgit a tonne.

Futures International’s Terry Reilly noted that in India, a major vegetable oil importer, “monsoon rains are expected to fall short of the official forecast of 88% of the long-term average, according to the India Meteorological Department, the driest since 2009”.

Indian Minister of State for Finance Jayant Sinha on Thursday said that “it is still a concern if monsoon will be adequate or not”.

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