PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 08:43 GMT, Monday, 12th Jun 2017, by Mike Verdin
AM markets: does US cool mean spring wheat rally is 'over'?

The US weather did not turn out as hostile to spring crops as forecasts had expected.

And that was pretty much all grain investors needed to know in early deals on Monday, being a signal to withdraw risk premium and send prices lower.

Indeed, at Chicago broker Futures International, Joe Davies said that "I believe the Minneapolis spring wheat rally could be over following the rain in the Dakotas" over the weekend.

'Not hot as expected'

To recap, heading into the weekend, the market was worried over expectations of temperatures reaching 100 degrees Fahrenheit in parts of the northern Plains spring wheat belt, although some much needed rain was expected too, besides forecasts of 90 degree temperatures in the western Corn Belt.

As it is "it was not hot as expected over the weekend across the Midwest," Futures International said.

"Traders were looking for 100s Fahrenheit across the northern Great Plains and central Great Plains but only a handful of acres saw 100 Fahrenheit."

Furthermore, "the northern Great Plains saw welcome rain" as, north over the border, did Canada's Prairies, albeit that "much more is needed to ease drought conditions" in the northern Plains and also "for the oats, canola, and spring wheat crops for Western Canada".

Weather outlook

Indeed, it has to be said that the weather threat to US crops is not over.

"We did see the 90s Fahrenheit in the western Corn Belt," bad news for corn and soybean crops, although in the main in the low 90s rather than the high 90s investors had expected.

And WxRisk.com said that "even though there are going to be significant heavy rains and thunderstorms over the next three days across the eastern portions of Minnesota and Wisconsin, most of the Midwest and the central Plains will be dry into Thursday".

Furthermore, in the six-to-10 day outlook, while the eastern Corn Belt will see "significant rains", the western Corn Belt and northern Plains will see a "drier pattern even though temperatures are much cooler".

World weather

Furthermore, weather worries are not over in other parts of the world too, with MDA forecasting that "dryness will continue across far north western and southern portions of North East China stressing soybeans and corn".

In Australia, "dryness will continue to build across most wheat areas this week", bad news for newly-seeded wheat crops, which are deteriorating in Argentina and, further along in development, in Europe too, where "hotter and drier weather this week will allow moisture to decline".

Still, wheat futures declined, by 1.0% to $6.00 ¾ a bushel for Minneapolis spring wheat as of 08:40 UK time (02:40 Chicago time), although not all observers were quite so convinced that the rally in the contract was indeed over.

"Minneapolis spring wheat is extremely over-bought, but the fear of a tighter-than-expected balance sheet has warranted the strength," said ag advisory group Water Street Solutions.

"Look for support around $6.00 a bushel for now with the next upside target in the $6.36-6.40 area."

'Seasonal bottoms'

Winter wheat for July fell by 0.6% to $4.33 ¼ a bushel in Chicago, with drier weather expected in the southern Plains early this week to "favour harvesting and maturation of winter wheat", MDA said.

Water Street Solutions also flagged "good soft red winter wheat yield reports out of southern Illinois," a major growing state, while the USDA's Wasde report on Friday was somewhat negative for prices.

That said, the group also noted that "seasonal bottoms in the winter wheat market", caused by pressure from harvest supplies that typically occur "in early June".

Furthermore, the weekly Commitment of Traders report on investor positioning did not show a huge fund short-covering in Chicago wheat futures and options, with the speculative net short down 7,624 lots at a still-high 106,136 lots as of Tuesday (although more short closing was noted in the rest of last week).

That, then, curtailed somewhat the scope for short bets.

'New round of anxiety'

For corn futures and options, the short closing was more significant, by 62,223 lots - the biggest swing bullish in positioning in a year.

What that leaving plenty of scope for fresh short bets, and with the better-than-expected US weather, corn futures for July fell by 0.5% to $3.86 a bushel.

The new crop December lot - which saw a particular pick-up in trading volumes late last week, attributed in part to farmers selling into the rally - eased by 0.4% to $4.04 ¼ a bushel, although staying above the $4.00-a-bushel mark seen as something of a watershed for producers.

That said, Water Street Solutions advised investors to "watch December opportunities in the $4.15-4.25-a-bushel area.

"A miss of rains late this week could add a new round of anxiety to the market."

Resilient soy

Soybeans fared best of Chicago's big three, in standing unchanged at $9.41 ½ a bushel, with Water Street Solutions saying that "if we miss the rains late in the week, look for more short covering in the soy market".

In fact, there was not much short-covering in the latest week, with the net short rising by 5,427 lots, led by a rise in the gross short bet to a record high of 176,791 contracts.

Could this fuel short-covering ahead?

Water Street noted that "typical soybean summer price tops come June 15-July 15, unless August ends up hotter/drier than expected".

'Bearish'

In New York, meanwhile, cotton futures for July dropped by 0.3% to 75.51 cents a pound, and for the new crop December lot by 0.2% to 72.34 cents a pound, feeling more affect from Friday's Wasde report, which was deemed negative to price prospects.

Rabobank, for instance, termed it "bearish", noting that a 500,000-bale downgrade by the USDA to its forecast for US exports in 2017-18 left the stocks forecast a 5.5m bales, a nine-year high.

"Higher global production… mainly in consumer countries like Pakistan and Mexico, is lowering thir import demand," the bank said.

On the more positive side for prices, the fund positioning data showed that many of the large number of long bets in cotton had already been closed, with the net long in futures and options falling to a two-month low.

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