Wheat trims quartely losses, sugar rallies

October 1st, 2015

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Category: Grains, Oilseeds, Sugar

CornSoybeanWheat450x299(Agrimoney) – Wheat enjoyed a strong close the quarter, as US stocks and harvest data fell short of analyst expectations.

The US Department of Agriculture’s quarterly stocks report forecast this year’s domestic wheat harvest at 2.051bn bushels, down 85m bushels from the USDA’s previous estimate, made three weeks ago, and well shy of analyst expectations of 2.133bn bushels.

Hopes for hard red winter wheat, traded in Kansas City, were cut by 30m bushels to 826.9m bushels.

Prospects for soft red winter wheat, traded in Chicago, were cut by the same amount, to 359.1m bushels respectively.

Offsetting negativity

US wheat inventories as of September 1 were seen at 2.09bn bushels, exceeding market expectations by 51m bushels, indicating lower demand.

Mike Zuzolo of Global Committee Analytics said the wheat harvest figure “was very near the low-trade estimate, and I think completely offsets any negativity” for the market from factors such as improving weather for autumn sowings ahead of the 2016 harvest.

December Chicago wheat ended up at $5.12 ¾ a bushel, up 1.8% on the day.

But Chicago wheat is still down 16.7% on the quarter.

Kansas wheat closed up 1.5% at $5.02 ¼ a bushel.

Production estimates raised

The European Commission sharply raised its estimate for EU wheat production, but left its forecast of exports unchanged.

Soft wheat production in 2015-16 was seen at 144.6m tonnes, up from the 140.7m tonnes forecast last month.

But the European commission left 2015-16 exports largely unchanged, at 27.9m tonnes, compared to the 28.9m tonnes forecast last months. This would leave soft wheat exports well below the 32.5m tonnes achieved last season.

Chinese quotas

China announced its 2016 low-tarrif import quotas for wheat, corn, cotton and rice, unchanged from last year.

Wheat imports quotas will remain at 9.636m tonnes.

And the Russian government announced that it would lower the country’s wheat export tariff, effective from October 1.

Russian tariff lowered

The move was widely expected, after it was proposed by the country’s deputy prime minister and the agriculture ministry, but has now been confirmed by the prime minister.

The new export tax will run at half the customs price, minus 6,500 roubles a tonne, with a minimum levy of 10 roubles a tonne, replacing a previous tax of half the customs price, minus 5,500 roubles a tonne, with a minimum levy of 50 roubles a tonne.

The move is expected to support exports and make Russian wheat more competitive.

December Paris wheat closed up 0.3% at E174.25 a tonne.

Big stocks

The USDA’s figure for US soybean inventories also came in below market expectations, at 191.4m bushels, against analyst’s forecasts of 205m-bushel figure.

But stockpiles are still twice last year’s levels.

Mr Zuzolo said: “I would suggest that this was a good report, and that the soybean futures rallying toward $9 a bushel has been justified.

“But is it enough to take beans even higher? I don’t think so.”

Focus on yields

Indeed, soybean prices quickly fell back, to below the level they were trading at before the data was released.

“The market reacted lower after digesting the number,” said Darrell Holday of Country Futures.

“This is because the focus is now on the soybean yields, which continue to be very good.”

November soybeans closed up 1.0%, at $8.92 a bushel.

Soybeans are down 8.3% on the quarter.

EU corn trimmed

US corn stocks were in line with market expectations, at 1.73bn bushels,

The European Commission trimmed its estimate for corn production, to 58.4m tonnes, from the 58.7m tonnes seen last month.

Chinese corn import quotas for 2016 will be 7.2m tonnes.

December corn futures were ended down 0.1%, at 3.87 ¾ a bushel.

Corn futures are down 7.8% on the quarter.

Indian dryness

Sugar prices rose to 2-months highs, helped by weather worries, and competition from ethanol.

India is experiencing the first back-to-back drought in three decades, as data from the Indian Meteorological Department shows that the rains over the June-September monsoon period were just 86% of their normal level, where the department had previously forecast the monsoon at 88% of its normal strength.

The weakness in the monsoon, which is tied to the ongoing El Nino effect, will raise further concerns about Indian sugar production.

The state of Marashtra, which is India’s key cane growing region has suffered particularly low levels of rain, which is bringing Indian prospects into focus.

Thomas Kujawa, of Sucden Financial, said “there seems to be a little more chat than normal on next year’s sugar production in India”.

Brazilian demand

And sugar prices also got a boost from the news that Brazil will be increasing gasoline and diesel prices.

Higher fuel prices will encourage consumers to favour ethanol fuel.

And a greater demand for ethanol means that can mills will favour the biofuel over sugar production.

Big delivery

The October raw sugar contract expired on Wednesday, and Wilmar is reported to have snapped up 1.2m tonnes of sugar for delivery against the contract.

This is the third expiry in a row that Wilmar has taken a large physical delivery against the futures market, with a record 1.9m tonne delivery in in May, and 0.5m tonnes in July.

Wilmar has extensive sugar refining facilities, and is believed to have absorbed the previous physical deliveries into its supply chain.

December sugar rose 2.3%, to settle at 370.0 cents a pound.

Front month sugar prices finished the quarter down 0.1%.

Honduras recovers

Honduras’s national coffee institute said exports could rise by 9% in the coming 2015-16 season, to 5.52m 60kg bags.

Coffee plantations in Honduras, Central America’s biggest exporter, are recovering from the rust fungus.

Honduras exports primarily arabica beans.

December arabica coffee rose 0.3%, to 121.35 cents a bushel.

November robusta coffee fell 1.2%, to $1,557 at tonne.

Cotton falls

China’s tariff-free cotton import quota was announced at 894,000 tonnes.

December cotton futures settled down 0.9%, at 60.49 cents a pound.

Cotton prices are down 11.0% on the quarter.

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