Grain futures, which went into the weekend on an upswing, emerged
from it in weaker form – for two main reasons.
The first was the turn a little less threatening in the US
Corn Belt weather outlook, so curtailing somewhat concerns over, in particular,
prospects for the country's corn
crop, which is undergoing the heat-sensitive pollination process.
Not, it has to be said, that the outlook is benign, with
south western areas set for "frequent 95+ degrees Fahrenheit days into the
weekend", according to Commodity Weather Group.
Parts of southern Illinois, central Missouri, central and
north eastern Kansas, central Iowa and the centrals Dakotas, areas containing
some 15-20% of US corn are "at most risk of heat and moisture stress over the
next week", the weather service said.
However, heat will struggle "to expand east in the Midwest",
and there are "multiple rain chances to reduce dry spots" in north western
Iowa, south western Minnesota, the eastern Dakotas and northern Nebraska.
MDA put it that in the Midwest, "showers in northeast crop areas
are maintaining soil moisture but very warm and dry conditions in southern
areas will increase stress".
'Channel of drought'
Meanwhile, Mike Zuzolo at Global Commodity Analytics described
the outlook in terms of a "break in the weather which allows rains to enter the
driest areas of the crop belt.
"This is expected on both GFS and European models to move
into these areas as early as midday Tuesday," a factor which would ease worries
about any decline in crop condition shown later on Monday in the weekly US
Department of Agriculture Crop Progress report "with the thought that
improvement is likely right around the corner".
Still, Mr Zuzolo also noted wide gaps between the weather
models in the amount of rain they see falling.
He highlighted too the importance of a "channel of drought"
stretch from south eastern South Dakota to south western Illinois "that must be
eradicated by this week in order to not lose a minimum of 1.5-2.0 bushels per
acre from the US national yield".
Hedge fund buying
The improved weather outlook comes at a time when
speculators have already bought heavily into futures and options in the grains complex
(including soy contracts).
That is, over the week to last Tuesday, they turned from a
net short position of some 67,000 lots to a net long of more than 270,000 contracts,
in the most bullish swing in their holding on records going back to 2006.
The shift reflected in the main a net bullish swing in corn
of nearly 150,000 lots.
However, it also included a lift to a record high in the net
long in Kansas City hard red winter
wheat, and the biggest ever bullish shift in betting on Chicago soybean futures and options too.
'Having a hard time'
Granted, many of those bullish bets have now been cashed in,
fuelling the tumble in prices late last week.
The raise in the net long "fed the selling pressure on Wednesday
and Thursday from funds", said Water Street Solutions.
But enough remain to wonder how much buying appetite funds have
left, especially given the less threatening turn in US weather.
"The market is having a hard time finding the right risk
level for a [Corn Belt weather] forecast that has moderated a little from very
hot to more of a warm one," said CHS Hedging.
Terry Reilly at Futures International cautioned that corn,
soybean and wheat futures "may trade lower" to start the week "after the CFTC
report showed funds and managed money added a large amount of longs as of last
Tuesday, and a lightly wetter US weather outlook".
And that was pretty much how it looked, with corn futures
for December down 1.2% at $3.84 ¾ a bushel as of 09:40 UK time (03:40 Chicago
time), back below their 200-day moving average.
Soybean futures for November were down 0.4% at $9.97 ½ a
The market later will digest monthly US crush data for June,
expected at 143.093m bushels, down from 149.246m bushels in May, and down 1.3%
year on year, although still the second highest for the month.
Winter wheat fell
too, by 1.1% to $5.05 ¼ a bushel in Chicago for September delivery.
"The winter wheat markets simply do not need to trade to
higher values," said Benson Quinn Commodities.
"I expect the winter wheat markets to work lower in choppy
trade. Domestic cash doesn't support the current futures values," and there
remain forecasts of large world supplies of wheat overall.
Still, Minneapolis spring
wheat did remain more resilient, down 0.2% at $7.58 ½ a bushel for
September delivery, with weather for the northern Plains, and indeed parts of
Canada, still worrying.
Commodity Weather Group noted that this weekend saw
temperatures in the "mid-90s, low 100s Fahrenheit for the mainly north western
Plains, far south western Canada, again stressing wheat".