(Agrimoney) – Wheat futures rediscovered forward gear, as weather worries continued a gentle accumulation, although the size of inventories already in store kept bearish hopes alive.
Perhaps the biggest weather concern for the wheat market, that of dryness in the former Soviet Union, was kept alive by ideas of limited rainfall in the forecast, but frost entering the outlook, neither helpful to farmers sowing winter grains ahead of the 2016 harvest.
Former Soviet Union wheat establishment will “struggle the next 10 days due to dryness and a colder-than-normal pattern,” said Commodity Weather Group, foreseeing showers being limited to far southern areas, while “frequent freezes starting later this week [will] prematurely stall growth”.
Traders at a major European commodities house said: “There were also signs that central Russia might get some rainfall soon but more recent weather models forecast continuing dry conditions both there and in eastern Ukraine.”
‘Showers remain limited’
In the US southern Plains hard red winter wheat region, where rainfall has also been less than ideal, parts of Texas and south west Oklahoma will receive some rains by Thursday, “but showers otherwise remain limited in the belt through the next two weeks”, CWG said.
At ADM Investor Services, Steve Freed said that “US winter wheat planting is now behind average as the US south Plains could use some moisture”.
In Australia too, dry weather remains a concern in some areas where drops are still in the grain-fill period, although some have already been harvested in Queensland.
Meanwhile, excess rain is emerging as an issue in Brazil’s southern wheat-growing areas, where harvest is being delayed by falls which reached 2.5 inches in parts over the weekend.
“Rains return in the latter half of this week, with 0.5-2.5 inches, 5 inches locally, leading to renewed quality loss and localised lodging damage,” CWG said, lodging being the collapse of crops as the weight of weather bends stalks, making them hard to harvest and encouraging quality loss.
‘World supplies are plentiful’
Meanwhile, on the demand side, Egypt, the top wheat importing country, at the weekend bought 235,000 tonnes of the grain, equalling its biggest order out of 11 so far in 2015-16, at a price (excluding freight) 6% higher than at its previous tender, two weeks before.
(Including freight, the price was up a more modest 4% at $199.72 a tonne.)
Sure, there was some talk of the given the increase already factored into prices, Chicago ones especially.
“World wheat prices have not responded to the concern about weather as much as US futures,” ADM Investor Services’ Steve Freed said, adding that this had offered “key resistance” to prices moving higher.
CHS Hedging noted that “world supplies are plentiful and competition in the export arena remains strong”.
Gasc tenders, after all, continue to attract far more offers than historically, with the latest one for instance receiving 16, compared with 12 at an early-October tender a year ago.
Dollar ease
Still, wheat futures for December stood 0.7% higher at $5.17 a bushel in Chicago as of 09:25 UK time (03:25 Chicago time), but still remain comfortably below their 100-day moving average, at $5.22 a bushel.
The 100-day moving average has been providing something of a ceiling to upward movement.
However, a falling dollar, down 0.3% against a basket of currencies, offered extra support, in making dollar-denominated exports more competitive.
The greenback has been undermined by Friday’s weak US jobs report, showing 142,000 jobs created lad month month, fewer than the 203,000 predicted by of analysts, so indicating a weaker-than-thought economy and cutting the chances of a rate rise.
‘Surprisingly good’
Corn was ahead too adding 0.6% to $3.91 ¾ a bushel for December delivery, having broken above its 100-day moving average, at $3.88 ½ a bushel, a couple of weeks ago, which is now acting as something of a floor to downward movement.
The gain defied a somewhat expectations of open weather for the US harvest, further information on the progress of which will unveiled by the US Department of Agriculture after the market closes, in the weekly Crop Progress report.
And some brokers are taking an upbeat view of production too, with Informa Economics on Friday raising by 74m bushels to 13.561bn bushels its estimate of the US harvest, pegging the yield at 168.4 bushels per acre, above USDA’s 167.5 bushels per acre.
CHS Hedging added that “so far many early harvest reports in the western Corn Belt have been surprisingly good.
“The eastern Corn Belt reports are highly variable and it is tough to get a good sense of overall yields at this point.”
‘Production may be lower’
Still, futures are gaining support in part from a dearth of farmer selling, attributed to an unwillingness to sell at relatively low prices, by growers who, with harvest ongoing, have much else on their minds at the moment.
Furthermore, ADM Investor Services’ Steve Freed flagged a prop to prices from ideas that the ongoing South American planting period is seeing soybeansfavoured considerably over corn, which is a much more expensive crop to grow.
“Long term talk that world 2016 corn production may be lower than last year keeps managed funds net long corn and offers key support,” Mr Freed said.
“Some hope that if the South America farmer decides to drop his corn acres that the US might pick up some export demand in 2016.”
‘Off to a slow start’
Strong South American patronage of soybeans for plantings is of course a negative for the oilseed in pricing terms.
But the problems that Brazilian growers are having in getting the crop in the ground, with dryness presenting a problem in the key central growing states including Mato Grosso.
“Dry weather has soybean planting off to a slow start in Brazil,” said Futures International’s Terry Reilly, noting that sowings had reached 2% overall, two weeks after the (regulated) planting window opened in Mato Grosso.
Export demand for US soybeans has also picked up, although not to the extent that many forecast after China 10 days ago unveiled outline orders for 13.2m tonnes.
Announcements since of formal orders have “been less that the agreement” might have been expected to herald, Mr Freed said.
And further orders this week may be slow, given that China is on holiday for the first half of it.
‘Wild fires and droughty conditions’
Still, the oilseed sector is also getting help from palm oil, which added 1.1% to 2,414 ringgit a tonne in Kuala Lumpur, amid continued concerns over production losses in South East Asia to El Nino-inspired dryness.
CHS Hedging flagged talk of a 5% drop in output in Malaysia, where “a weakened ringgit is also supportive” to prices, in supporting export competitiveness.
“Drought in India is expected to lift palm oil imports by 6% to a record 9.6m tonnes,” the broker added.
At Futures International, Terry Reilly, looking forward to monthly Malaysian palm oil data, forecast an unusual month-on-month drop in output in September.
“Historically monthly production peaks around September/October but the region ran into production problems with wild fires and droughty conditions,” Mr Reilly said.
‘Severe flooding’
Among soft commodities, cotton futures also got off to a strong start, after damage over the weekend from Hurricane Joaquin to eastern US areas which, while not huge in corn or soybean growing terms, are a little bigger deal for the fibre.
South Carolina Governor Nikki Haley, after rains which had by Sunday night caused five deaths, said that “we are at a 1,000-year level of rain”, meaning a one-in-1,000 chance of rains of such magnitude happening in any given year.
“That’s how big this is.”
CWG said that “severe flooding”, causing by rains of 10-15 inches “so far, continue to focus on South Carolina.
“Significant losses are likely.”
Cotton for December was up 0.7% at 60.57 cents a pound.
