PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 09:26 GMT, Thursday, 13th Apr 2017, by Mike Verdin
AM markets: dollar, weather offer grain bulls a helping hand

Grain bulls started the day with the benefit of two tailwinds.

The first was the tumble in the dollar following comments by US President Donald Trump that the greenback is "getting too strong" – a correction which came too late to affect markets in the last session.

The dollar stood at 100.2 against a basket of currencies as of 09:20 UK time (03:20 Chicago time), some 0.5% lower than when Chicago's grain market closed on Wednesday, and offering an immediate tailwind for ag values.

(A weaker dollar improves the affordability of dollar-denominated exports, such as many agricultural commodities, for buyers in other currencies.

'Close weather eye'

The second potential positive was the prospect of a long weekend, with Friday bringing the Good Friday break to many countries.

The prospect of three days without trading (or four in the UK, which takes Monday off too) is often a spur to taking profits while they are definitely on the table.

And, with hedge funds net short on grains (and, indeed, ags in general), position closing is likely to mean upward pressure on prices.

The urge to take profits ahead of a long weekend is often especially strong when weather takes a higher profile markets – as it is now - meaning that prices can spin on a turn in the forecast.

"Weather watchers are expected to keep a close eye on South America and US weather maps over the weekend and next week," said Ami Heesch at CHS Hedging.

Big rains

Indeed, one of the primary concerns tend to surround wetness in Argentina, brought back into focus by an estimate by the Buenos Aires grains exchange that more than 1m hectares of land has been affected this month by heavy rains which have brought flashbacks to similar crop-denting inundations last year.

"During the past weekend large sectors of the province of Buenos Aires received 200mm (8 inches) of rainfall that caused flooding of fields and rivers to overflow, bringing the loss of planted area and harvest delays," the exchange said

"The disastrous April floods of last year will still be fresh in the market's mind," said Tobin Gorey at Commonwealth Bank of Australia.

That said, the exchange stood by its estimate of a 56.5m-tonne Argentine soybean crop, after a strong start to yields in the early harvest, and restated a forecast of a 37.0m-tonne corn harvest too.

'Issue warrants watching'

In the US, rains are also on investors' minds, albeit far more modest ones, which are causing delays to early sowings of spring crops in the Midwest, with a particular focus on corn, which has a slightly earlier planting window than soybeans, so for which progress now is more important.

"The market is starting to worry about rainy conditions in the US Midwest over the next fortnight or so," Mr Gorey said, adding that "the issue warrants watching.

 That said, "it's still early days for US corn planting", he added, with delays from mid-May seen as more crucial.

"The midpoint of planting usually occurs between weeks 18 and 19 or the end of the first full week of May," said Mark Welch at Texas A&M University.

And even so, he noted that in 1984, when "a record slow pace of planting was set in weeks 16-20, yields that year were still +2% of trend".

'Price upside does exist'

Still, if these are the major weather issues that investors are worried about, they are not the only ones.

Benson Quinn Commodities, thinking of soybeans, flagged that the "mentality of the market going into US planting/growing season seemed to shift just slightly on Wednesday to one cognisant of potential summer weather risks".

While, price "upside looks limited and rallies will be selling opportunities for producers… some upside does exist with strong demand still forecast for US and world soybeans".

Soybean futures indeed led the way among Chicago's big three, gaining 0.9% to $9.56 ½ a bushel for May delivery.

Corn futures showed more modest gains, of 0.5% to $3.70 ¾ a bushel for May, although that was enough to take the contract back above its 50-day moving average, above which it has not closed for more than a month.

US, EU dryness

Weather concerns have gained some foothold in wheat markets too.

Sure, rains have eased worries over dryness in the southern US Plains, hard red winter wheat country.

"Winter wheat areas have benefited from recent rain events," said CHS Hedging's Ami Heesch, if adding that "there are still some dry areas in the western part of the south western plains".

(More will be known on US dryness later, with the release of the US Department of Agriculture's weekly drought monitor report.)

But dryness is growing as a worry in the European Union, the world's top wheat producer.

'Multi-month rain deficit'

"Markets are supported by the dry conditions in place in a good part of Europe," said Paris-based Agritel.

"We record now a multi-month rain deficit of about 30-50%" in parts of France, the EU's top wheat grower.

"This trend is also observed in other parts of Europe at various levels," and certainly in the southern UK, where is based, it has not rained for weeks, although crops do not appear to be showing ill effects yet.

Chicago wheat, the world benchmark, and in which hedge funds have a near-record net short in futures and options, gained 0.5% to $4.35 ¼ a bushel for May delivery.

Signally, that returned the contract back above its 100-day moving average, which it tried (and failed) in the last session to close above, for the first time in more than a month.

Data later

Still, grain market direction later may depend largely on weekly data from the USDA on US exports last week.

For wheat, export sales are expected to show at 250,000-450,000 tonnes for 2016-17 (a wheat marketing year which in the US closes next month), and 50,000-250,000 tonnes for 2017-18.

For corn, they are expected at 800,000-1.0m tonnes old crop, and 100,000-300,000 tonnes for 2016-17.

Soybean export sales are expected at 400,000-600,000 tonnes for 2016-17, and 150,000-350,000 tonnes for next season.

'Surely will have some impact'

The export sales data could affect, the cotton market too, given that strength in US exports has been a major factor in supporting values – although the prospect of huge sowings this year has undermined that prop in recent weeks.

While the forthcoming "export sales report does not seem to be as eagerly anticipated as last week's, it surely will have some impact", said Herman Kohlmeyer at Micheal J Nugent & Co in California.

"I know that the bulls would like to see sales back at the 300,000-bale level, with the bulk of the business falling into the current crop year."

For now, best-traded New York cotton for July added 0.7% to 76.73 cents a pound, gaining help from its fellow row crops.

The May contract stood up 0.7% at 75.24 cents a pound, appearing to find quite some support of late at its 100-day moving average, at 74.61 cents a pound.

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