(Agrimoney) – Wheat futures have now closed higher for six successive sessions.
Can they make it a seventh?
They were struggling in early deals, when Chicago’s May contract was trading lower, albeit by a modest 0.1% to $4.68 a bushel as of 09:45 UK time (03:45 Chicago time), extending the theme of a somewhat lukewarm reaction to Wednesday’s US Department of Agriculture Wasde report.
While the briefing was viewed largely bullish, although not excessively so, in terms of revisions (or not) to estimates for world crop supply and demand balance sheets, markets did not react as firmly as some investors expected.
At Chicago broker RJ O’Brien, Richard Feltes flagged a “rather tame response to a less-bearish-than expected crop report”, a reaction he said was a “sign that market is bored with old crop fundamentals”.
Threats to 2016 harvests
But what of new crop?
Some worries over 2016 crop production have been long in the market, eg drought in South Africa (which will actually effect the country’s 2015-16 corn harvest), the knock-on effects of a weak Indian monsoon, and dry sowing conditions late last year which curtailed Ukrainian winter grain sowings.
More recently, there have been the growing worries over dryness in North Africa, a major wheat importing region, and in the US Plains, the epicentre of US winter wheat production, and in particular of hard red winter wheat (as traded in Kansas City).
However, new crop prospects will really come into focus at the end of this month when the US Department of Agriculture releases annual US prospective plantings report which, being based on a farmer survey, will begin to see if the theoretical forecasts for crop sowings are likely to be matched in reality.
‘Question of the hour’
“Despite the data dump over the session it seems like the trade has already moved into a holding pattern ahead of March planting intentions report,” said Benson Quinn Commodities.
Richard Feltes noted the prospect of the spring sowings season, which in bringing uncertainty typically sees the injection of risk premium into prices, with the fact that hedge funds have a large net short in ags.
Indeed, it was a record net short as of last week, and reflected in particularly positioning for falls in grain and soybean prices.
“The question of the hour is how long will large managed fund shorts in everything, but soyoil, maintain positions ahead of an uncertain growing season,” Mr Feltes said.
South African orders?
Certainly, they appeared happy enough with the short positions in early deals on Thursday, with corn falling too in Chicago, by 0.4% to $3.58 a bushel for May delivery, right on its 10-day moving average.
This despite some expectations that drought-hit South Africa may turn to the US for corn, although other origins seem to be doing the supplying for now.
“Some traders are waiting to see if big US corn export announcements to South Africa will hit the tapes,” said Terry Reilly at Futures International.
“It’s a possibility but for now, other exporters are supplying South Africa with corn.”
‘Threatened with replanting’
Another potential support to prices is coming from heavy rains in the US South, where early planting is taking place, although it has to be said that the area is dwarfed by the Corn Belt in its importance as a producing area.
“The Delta and lower Midwest will see flooding this week,” Mr Reilly said.
“A second storm system of lesser intensity will develop late next week, creating more fieldwork delays. Early planted fields will be threatened with replanting.”
Still, on the downside for prices, oil made a negative start, with Brent crude down 0.5% at $40.85 a barrel, a slight downer for corn in that much of the grain is used for making ethanol – of which the US is sitting on large stocks, data on Wednesday showed.
‘Jury is out’
Returning to the US rains, questions remain about how much will hit the southern Plains, where dryness is the issue.
Mr Reilly said that “the US southern Plains will see rain March 21-23 that should improve winter and spring crop conditions”.
However, that is a while away yet, and prospects for moisture from the current front are uncertain too.
“The jury is out as to how much benefit the Kansas farmer will receive from this system,” said Nidera Australia.
At Commonwealth Bank of Australia, Tobin Gorey said that “weather forecasters continue to expect that [southern Plains hard red winter wheat] crop to receive scattered rain, but it will largely be missed by rainfall events in crop areas to the east”.
Furthermore, the crop “is exposed so it is at risk from cold conditions”, although chilly weather next week “may not be cold enough to do much damage”.
Kansas City hard red winter wheat futures for May were, like Chicago soft red winter wheat, trading easier, by a marginal 0.2% to $4.75 a bushel.
‘Beans are overbought’
As for soybeans, they dropped 0.3% to $8.83 a bushel for May delivery, running into some technical headwinds.
“Beans are now overbought and running up against strong resistance at top end of its sideways trading range,” said Benson Quinn Commodities.
“I don’t see a catalyst for this market to move much higher other than funds are still holding onto sizeable short position as US planting season nears,” the broker added, returning to the theme mentioned earlier.
Palm stocks fall
In fact, much of the excitement in the oilseeds sector of late has been centred on palm oil, and the damage that El Nino-inspired dryness has done to output in Indonesia and Malaysia, the top two producing countries.
That came into focus on Wednesday, when a series of leading analysts flagged the potential for Kuala Lumpur palm oil futures to move higher, potentially to 3,000 ringgit a tonne or more.
And again on Thursday, the market was in the limelight, although to more bearish effect, when data from the Malaysian Palm Oil Board showed Malaysian stocks falling last month, by 6.1% to 2.17m tonnes, but not as far as to the 2.10m-tonne figure that investors had expected.
‘Prices should have traded lower’
Some separate data on Thursday was more upbeat, with cargo surveyor SGS saying that Malaysian palm exports in the first 10 days of March were up 57% month on month.
Rival cargo surveyor ITS put the increase at 31%.
Still, palm oil futures for May fell by 0.6% to 2,542 ringgit a tonne, in a drop fuelled by profit-taking on gains earlier in the week.
And in Chicago, futures in rival vegetable soyoildropped too, by 0.6% to 31.55 cents a pound, returning some of the gains of the last session which had defied an ostensibly bearish Wasde for the vegetable oil.
Then, May soyoil “rallied 60 points on ideas palm oil prices will appreciate over the next few months”, Futures International’s Terry Reilly said
“But in reality we think prices should have traded lower, given that the USDA increased 2015-16 soyoil stocks by 120m pounds from the previous month.”
The broker lowered to 29.00-32.00 cents a pound its forecast trading range for May soyoil futures.
