(Agrimoney) – Wheat futures rallied on Monday, amid ideas that a massive ramp-up of short positions by speculators last week has left the market oversold, while soybean futures edged down from an 8-month high, after weather fears in Argentina eased a touch.
Oil prices showed surprising resilience on Monday, after a failed bid by producing countries to negotiate a production freeze.
The talks, held by major oil producers in Doha over the weekend, stumbled as Saudi Arabia refused to countenance a production freeze without the participation of Iran, which is set on ramping up its output after the end of Western sanctions.
But oil prices, which initially sunk more than 7%, managed to find traction later in the day, sharply trimming losses, and even breaking higher at one point.
June Brent crude oil futures were down 0.5% on the day as Chicago agricultural markets closed, at $42.88 a barrel.
Hedge funds hold huge wheat net short
Managed money, a proxy for speculators, raised its net short in futures and options in Chicago wheat by a record amount in the week to last Tuesday, according to data from the Commodity Futures Trading Commission (CFTC) regulator.
Speculators appear to have been betting on wet weather reaching the US Plains, in a period when weather models were giving contradictory signals over the likelihood of moisture.
It was the right call. The Plains saw ample rains over the weekend,
“Heavy rainfall developed over the weekend in the Great Plains, boosting wheat prospects,” said forecaster Gail Martell, noting that in Kansas and Oklahoma, the top two winter wheat states, there was 2.5-4 inches of rain.
“Drenching rains were badly needed, following a dry March in the Great Plains,” said Ms Martell.
Too wet?
But with weather models in agreement by the end of last week, the weekend rains were old news by Monday.
In fact, there were even concerns the rain may have been too heavy.
Jennifer Webester, at CHS Hedging, saw “many wheat growing areas receiving too much rainfall over the weekend”.
Disease fears
High rainfall can encourage the spread of fungus and other diseases in developing crops.
Over the weekend Dr Bob Hunger, a plant pathologist, noted some concern over rust, a fungal disease, in Oklahoma.
“Although rust (stripe and leaf rust) didn’t appear to increase this past week, conditions reverted to being more favourable for stripe rust development with rainfall, increased dews, and favourable temperature,” he said.
“With more rains and cool temps in the forecast, stripe rust could “reactivate” again, and leaf rust will start to come into the picture.”
Short-covering threat
And the speed of hedge fund short selling last week added support to prices, as it raises the possibility of a rapid short-covering rally.
CHS Hedging warned that “if and when the speculators change direction and start to cover, the short could make the wheat market very dynamic”.
Chicago wheat prices rose 3.1%, to $4.72 ¾ a bushel, their strongest level
Argentina fears ease
Soybean futures broke lower, after touching fresh eight-month highs earlier in the session.
Markets had been rallying, in part, on heavy rain in Argentina, which was threatening crop losses.
But Darrell Holaday, at Country Futures, noted that “Argentine weather over the weekend was slightly drier than expected”.
May soybean futures finished down 0.2%, at $9.54 ¼ a bushel.
Brazilian dryness continues to add support
In corn, meanwhile, there was continued strength, helped by some spill-over support from wheat markets, as well as concerns for the Brazilian safrinha, or second, corn crop, which is planted after the soybean harvest.
Kyle Tapley, at MDA Weather Services, noted that “dryness, along with above normal temperatures, is leading to some increased stress on the safrinha crop”.
“While this is not breaking news by any means, boots on the ground seem more confident in assessing how much production can be lost if conditions remain static,” said Tregg Cronin, at Halo Commodities.
May corn futures finished down by 0.7%, at $3.81 a bushel.
Sugar rally extends up
Raw sugar futures extended their rally, after Friday’s surge.
Sugar prices are gaining support from a fresh focus on the global sugar deficit, the degree to which demand outstrips supply.
The rally even shrugged off some weakness in the real, which is treated as bearish as Brazil the world’s top sugar exporter.
The Brazilian real was down 1.1% against the dollar in afternoon deals, at R$3.5711 to the greenback.
The move had some commentators scratching their heads, as a vote by Brazil’s lower house over the weekend bought President Dilma Rousseff one step closer to impeachment.
The prospect of Ms Rousseff’s removal has been treated as bullish for the real, as speculators expect a more market friendly regime to step in.
Raw sugar futures for July, the most widely traded contract, settled up 2.2%, at 15.54 cents a pound.
Chinese auction plans provide some surprising support
Cotton futures rallied, as markets focused on quality concerns over Chinese stocks, and ideas of heavy US sowings.
The Chinese government on Friday announced that it will release 2m tonnes of cotton from its huge reserves.
But it will also purchase high-quality cotton, to improve the quality of its reserves.
“That is a major issue,” said Louis Rose at the Rose Report.
“It seems to everyone that the quality of China’s stocks is very questionable,” he told Agrimoney.com.
And changes to a US government loan system will effectively make cotton less profitable for growers who take the loans, discouraging plantings.
July cotton futures rose 3.7%, to settle at 62.23 cents a pound.
