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
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
'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
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
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".
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".
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
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
"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."
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."
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".
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