(Agrimoney) – Was that it for the wheat rally?
Actually, futures did extend losses on Thursday, but not by much in early deals, with investors reluctant to push the boat out on sell orders.
Chicago’s March contract down 0.1% at $5.89 a bushel as of 09:00 UK time (03:00 Chicago time), but yet to breach its low of the last session.
One of the problems with removing all the risk premium injected to prices of the past couple of weeks is the amount of speculation, rumour and counter rumour, largely over Russia, involved.
In the last session, for instance, while the results of Egypt’s Gasc tender appeared to show Russia moving away from wheat exports, with only two cargos of Russian wheat tendered, down from seven the previous time, temporary support to prices failed with talk of an agreement by Moscow to delay any decision on curbing shipments.
The Russian government apparently, after a meeting with the grain lobby, agreed to the “postponement of any decision on changes to export programmes, either on phytosanitary certification or export taxes,” Kim Rugel at Benson Quinn Commodities noted.
Crop dangers receding?
As for the level of damage to Russian winter grain seedlings wrought by dry weather, which has hurt development, leaving crops ill-prepared for winter cold, well, opinions differ massively.
Terry Reilly at Futures International noted an estimate from one weather service that “the cold temperatures this week in northern Russia could affect up to 15% of the winter wheat crop.
Still, while “there will definitely be crop loss from lack of precipitation last fall and poor establishment before winter set in across the former Soviet Union region, to quantify the amount of additional destruction is impossible until the crop comes out of dormancy in the spring”.
At Commonwealth Bank of Australia, Tobin Gorey said that, for wheat, “some of the crop dangers are receding.
“Weather forecasters continue to expect former Soviet Union temperatures to rise from critical levels into the weekend so, for now, there’s unlikely to be further crop damage.
“Moreover, more analysts are concluding that the extent of damage in the past few days is probably not extensive.”
Early estimates
He too, though, agreed that “we’ll only know the reality in the northern hemisphere spring”.
Not that some commentators aren’t trying to put a number on Russian wheat production next year.
Informa Economics pegged the harvest at 55m tonnes, down 5m tonnes or 8% year on year, on its data.
Still, that is a bigger crop than implied by a SovEcon forecast of a potential 86m-tonne Russian grains harvest next year – a drop of 17%.
Data later
Wheat investors will be offered greater certainty later in data from the US Department of Agriculture on US crop exports, expected to show wheat sales at 300,000-500,000 tonnes, compared with 431,493 tonnes last time.
That said, the Gasc tender results showed US wheat so out of the market, hurt by a muscular dollar as well as a firm flat price.
“The strength in the dollar continues to keep the US uncompetitive in the world export market,” CHS Hedging said.
The greenback was little changed in early deals, although it did earlier nudge to a fresh five-year high against a basket of currencies.
Also on the way are fresh estimates from Statistics Canada on the Canadian wheat harvest, expected to show an upgrade of 300,000 tonnes to 27.8m tonnes in the figure for all-wheat.
Wheat vs soybeans
Not that Benson Quinn’s Kim Rugel was upbeat on chances of wheat futures finding fresh legs.
“Technicals are pointing lower and with Russian situation taken off the table, all directions point to lower trade on Thursday,” she said.
Richard Feltes at RJ O’Brien was downbeat on wheat too, recommending a bet of selling the grain against buying soybeans, March basis.
“Looking ahead, we think soybean demand fundamentals are more compelling than wheat and that the rally in wheat is far more tenuous than the recent plunge in soybean prices,” he said.
This dynamic “will self-correct to some extent as soybean processors’/exporters’ stocks shrink into year-end”, as farmer selling slows for the year-end holiday period.
‘Loath to get too short’
The trade actually wasn’t showing much life in early trading, with soybeans easing in line with wheat, down 0.1% at $9.97 ¾ a bushel for January futures, and down 0.1% at $10.01 ½ a bushel for the March contract.
As far as StatsCan data go, the Canadian soybean crop is seen coming in at 5.9m tonnes, a marginal downgrade from the existing figure, although the country’s most important oilseed, canola, is expected to see an increased output estimate.
The current figure of 14.1m tonnes is expected to be raised by some 500,000 tonnes.
But perhaps more important are the weekly US export sales data, whose surprising strength for much of 2014-15 has caught out many investors.
“For the beans and corn though it seems the market is loath to get too short ahead of weekly export sales data,” Ms Rugel said.
‘Sales will slow’
That said, he also flagged recent signs of “slack demand” for US soybean exports, “and talk US sales will slow going into South American harvest”, which will bring fresh supplies online.
Terry Reilly at Futures International flagged lower crush margins in China, which were running at about $0.22 per bushel on Wednesday, down from $0.41 per bushel the day before, $0.78 per bushel late last week, and $1.29 per bushel at the end of October.
Chinese soybean imports in the first half of 2014-15 “could still end up falling 1.5m tonnes below the previous first half of the season to 31.5m tonnes”.
And even if they then sped up to meet the USDA’s 74m-tonne estimate for the full year, South America would pose a bigger competitive threat in that period, after its harvest.
The US export data later are expected to come in at 650,000-850,000 tonnes for last week, implying investors are prepared for quite some slowdown from the 1.49m tonnes last time.
Monsanto signal
In fact, corn was faring best of Chicago’s big three, in edging 0.3% higher to $3.83 a bushel for March delivery, given some support by evidence that prices were low enough to deter sowings.
Monsanto on Wednesday said that, while its US orders for soybean seed for 2015 were “very strong”, those for corn were down year on year.
Statistics Canada is expected later to raise its estimate for the Canadian corn crop by some 200,000 tonnes to 11.6m tonnes.
As for US corn export sales, they are seen coming in at 600,000-800,000 tonnes, down from 944,914 tonnes last time.
Break-out on the way?
Still, for price gains, cotton did better, adding 0.7% to 60.04 cents a pound in New York for March delivery, crossing back over its 20-day moving average, above which it has not closed for nearly a month.
The fibre, as an industrial commodity, is being helped by the broader market confidence evident in share prices, which closed on Wall Street last night at a record high, their 48th record close of the year.
Signally for cotton, sentiment has recovered in China, the top importer and consumer of the fibre, where the Shanghai composite share index soared 4.4%, taking above 18% its gains since the People’s Bank of China unexpectedly lowered interest rates on November 21.
But can cotton escape the price trap evident in its chart?
“The market seems to have reverted to the narrow 59-60 cents a pound band, admittedly with fuzzy boundaries,” said CBA’s Tobin Gorey.
“A range that narrow does not normally persist for very long but there is simply a lack of impetus to overcome the inertia for now.”
Even in the last session, while “futures prices rallied a little… yet again, the cotton market could not hold above 60 cents a pound” for the March contract.
