Wheat zips above key price level. Corn falters

October 30th, 2015

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Category: Grains, Oilseeds

corn field at sunset 450x299(Agrimoney) – Can corn and wheat futures set camp back above key price levels?

For December corn futures, “prices finished Thursday convincingly, trading daily highs into the close,” said Nick Sax at Benson Quinn Commodities.

“Charts are bumped up against a strong level of resistance at the 50-day moving average,” at $3.80 ½ a bushel.

The December wheat contract, meanwhile, “was stopped in its tracks at the 100-day moving average,” at some $5.17 ½ a bushel the broker noted.

And the contract, to maintain its rally, “probably needs to get through the 100-day on the next test,” unless supply and demand worries appear to offer the lot support from a fundamental perspective.

Fund question

Of course, for wheat, there is the extra technical issue to worry about, of whether funds have, or have not, covered a stack of short positions, which latest regulatory data (a week ago) showed far higher than the market had expected.

In fact, as Agrimoney.com has discussed, there are some doubts, sparked by open interest data, as to whether the strong gains in wheat prices this week have indicated as much fund short-covering as might have been expected.

Data on open interest (the number of live contracts) for Thursday showed a drop in Chicago wheat futures, but of a modest 1,442 lots, leaving the total at 389,764 contracts – a small rise (less than 2,000 contracts) for the week so far, compared with a decline which might be expected if short-covering was prevailing.

(Fund short covering could, of course, be being matched by extra positions being taken out by other investors.)

‘Markets could work higher’

Still, “absent a better sign that the funds have liquidated more short positions, there’s a chance these markets could work higher” on Friday, Benson Quinn said.

And that’s what happened for wheat futures, which gained 0.8% to $5.19 a bushel in Chicago for December delivery, as of 09:30 UK time (04:30 Chicago time).

That pushed the lot clearly through its 100-day moving average, above which it has only closed once since mid-July.

It may have been a help that Friday represents the last trading day of the month – a time when funds, by repute, close positions and tidy up portfolios – a process which for wheat would involve covering short holdings, putting upward pressure on prices.

‘Substantial soil moisture deficit’

There was some hope from the fundamental side too, with some doubts as to whether rain in the southern US Plains will be enough to resolve issues with newly-sown crop.

“The forecast rainfall amounts are unlikely to be enough to eliminate the concerns about pre-winter establishment of hard red winter crops because the region has a substantial soil moisture deficit,” said Tobin Gorey at Commonwealth Bank of Australia.

And the former Soviet Union remains on watch too, thanks to dryness in some areas at a time when winter now looks upon the region, meaning crops have no further chance to develop.

“Forecasters continue to expect Black Sea wheat to mostly see temperatures below growth thresholds for wheat crops, so problems with poor establishment are likely,” Mr Gorey said.

Furthermore, in Australia itself, grains handler CBH cut its forecast for the West Australian grains harvest by 500,000 tonnes to 13.0m tonnes, citing “recent frost and hail events”, rather than the dryness which investors have been viewing as the key threat to Australia this year, given the El Nino.

‘Might warrant additional concern’

Corn, however, failed to break through its key technical level, the 50-day moving average, with the December lot easing 0.1% to $3.79 ¼ a bushel.

There remains continuing comment on an apparent slowdown by Chinese importers of purchases of US distillers’ grains, or DDGs, the corn-derived feed ingredient, amid a government probe into allegations of dumping.

“The trade experienced similar accusations in 2010, but this time might warrant additional concern because of the degree of corn stocks the [Chinese] government is currently stuck with at above-market prices,” Benson Quinn said.

China is expected to end 2015-16 with corn inventories of 103.7m tonnes, out of a world total of 200.0m tonnes, the International Grains Council said on Thursday.

Furthermore, funds remain long in Chicago corn futures and options, meaning end-of-month position closing might weigh on values.

‘No deliveries are expected’

In fact, soybeans, in which funds had only a small long position according to latest data, fared better, adding 0.4% to $8.83 ½ a bushel.

There remain some concerns about deliveries against the November contract, for which Friday is first notice day, starting the expiry process, and which Agrimoney.com discussed more fully on Thursday.

“No deliveries are expected on first notice, but with cash values trading just either side of delivery, look for some receipts to be put out during the delivery process,” Benson Quinn said.

Still, there are expectations that the US Department of Agriculture may, in its November Wasde crop report, raise its forecast for US exports of the oilseed in 2015-16, following a series of strong weekly performances.

The question is whether the USDA lifts its estimate for the US yield too following some good harvest results, and lifts its production figure.

Richard Feltes at RJ O’Brien said, talking of ad hoc farmer reports, that “only 15% of soybean yields submitted to date clock in below respective [USDA] state yield forecasts” .

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