Changes in grain market money flows come in three-session
bursts, some traders say.
Which could mean that the recovery in wheat futures runs out of steam this time, after a three-session
rebound which has taken them 5.0% higher in Chicago to, in the last session, their
best close in seven months on a spot contract basis.
Certainly, there is some doubt over the case for further
price headway on a fundamental supply-and-demand basis, although the easing in the
dollar of late has helped improve the
competitiveness of US exports.
"The weakening dollar is a factor which needs to be fully
taken into consideration as most players were positioning for a stronger dollar
moving through 2017, not a weaker one," said Tregg Cronin at North Dakota-based
Halo Commodity Company.
In Paris, Agritel underlined the growing competitiveness of
US wheat, saying that "the decline of the dollar observed these last few days
is capping the rising [price] potential of European origins for the time being".
'Likely to be a drag'
Still, in fact, the dollar strengthened a touch on Friday against
a basket of currencies to remain, just, above its 200-day moving average, which
has offered some notable support to its value the last few sessions.
And it was not as if the latest US export sales data, on
Thursday, were huge, to offer support to ideas of demand switching to US
At 451,000 tonnes, at the top of the range of market
expectations, they were "good, but they were only half of last week's high
water mark", Joe Lardy at CHS Hedging said.
In fact, at Commonwealth Bank of Australia, Tobin Gorey said
that the export sales data "were only so so", adding that "a slowing export
pace is likely to be a drag" on Chicago prices, the world benchmark.
Still, he restated a comment from earlier in the week over the
role that short-covering may be having in supporting prices, and a trend of
hedge funds closing some of their large net short in Chicago wheat futures and
"Investors exiting shorts can easily overwhelm" an export slowdown
"in the near term", Mr Gorey said.
In fact, the idea of a short-closing wave gained more
support when revised Chicago exchange data showed that open interest in Chicago
wheat futures actually fell on Wednesday, by 3,798 contracts, rather than
rising by 7,971 lots, as initially stated.
A fall in open interest, ie the number of live contracts, in
a rising market does suggest a big role for closing of short positions in
For the last session, preliminary data show a further fall
in open interest, of 4,051 contracts - although the latest declines come after
a rise of more than 10,000 lots in open interest over the first two days of
Still, Chicago wheat traded lower in early deals, by 0.4% to
$4.32 ¾ a bushel for March, in the absence for now of any further developments
in potentially bullish stories such as Russian-Ukraine hostilities, or poor
weather for winter crops.
"World values have caught up with the US somewhat thanks to
the weaker dollar, but it is probably going to take a different bullish
development to keep the market going from these levels," said Benson Quinn
That said, recent buying has tended to come later in the day,
in line with typical fund behaviour.
Minneapolis vs Chicago
wheat for March shed a more modest 0.1% to $5.60 ¼ a bushel, to rebuild its
premium over Chicago winter wheat, a gap which has surprised some observers by
closing of late despite demand patterns (and potentially a sign indeed of
position closing in Chicago by hedge funds, which have a large net long in
"The spring wheat market has the lowest stocks-to-use ratio
of the different wheat classes," of 34%, Joe Lardy at CHS Hedging noted.
Yet "exports are at a recent high", with sales and shipments
for 2016-17 already having beaten what the US typically complete in spring
wheat for a marketing year, after a global wheat harvest big on quantity put
poor on quality.
"But surprisingly the spring wheat market is having trouble
keeping a premium above Chicago wheat," with the spread March basis "near the
lowest levels in two months".
Corn vs wheat
With wheat lower, corn,
competing for demand in feed rations, was undermined too, shedding 0.1% to
$3.67 a bushel for March delivery.
The Chicago wheat premium over corn faces, at its current
$0.66 a bushel or so, some potential technical turbulence, with the 100-day
moving average having shifted down to around that level.
Indeed, in the last session, the wheat-corn premium closed
above the 100-day moving average for the first time in nearly six months,
thanks to wheat's outperformance.
Ethanol retreat nigh?
While corn has in recent weeks found independent price support
from strong US ethanol production data, there are doubts over a run of record
For January, "three out of the four weekly grind reports
were new records," Benson Quinn Commodities said.
However, "I don't anticipate continued new record grinds in
February with ethanol margins decreasing as of recent.
"Continued support is needed for corn to close above current
resistance," from a chart perspective, weith the 200-day moving average at a
little under $3.67a bushel, and with farmers seen by some observers as likely
sellers should prices rise much further.
"US farmers still own a lot of old crop corn. We suspect
that if the market breaks out above $3.70 a bushel it may draw out some new
sellers," said CBA's Tobin Gorey.
'China has bought 12-15
however, outperformed the grains in managing marginal headway, adding 0.1% to $10.38
a bushel for March delivery, staying just above its 50-day moving average.
The gains came amid further talk of Chinese buyers being in
the market for US soybeans, despite this week's Chinese holiday.
(Perhaps they had the growing US-China tensions in mind,
with China unable for now at least to buy all its soybean needs just from South
While there is a seasonal swing in import demand from the US
to Brazil, where harvest is accelerating, "talk this week is that China has
bought an additional 12-15 US cargoes, while US Gulf values are near
competitive to South America for summer shipment", said broker Benson Quinn
Meanwhile, Argentina is poised for fresh rains, and not only
on areas which need it.
"Argentina will see rain into Saturday with at least half of
the growing areas impacted," said Terry Reilly at Chicago-based broker Futures International.
"There will be some risk for local flooding in portions of
central Argentina Friday and Saturday, with 90% coverage expected, with many
areas getting 0.1-0.9 inches, locally over 4 inches."
In fact, it was New York cotton's turn to underperform, after a 4% rally over three sessions
which gave the contract on Thursday its best close, on a spot contract basis, since
The rise in the last session was helped by US export sales
data which came in at 328,700 running bales for last week, figure which Ecom
traders termed "still very impressive", despite being down 28% week on week.
"US cotton was seen in India, Turkey, China, Pakistan and
Indonesia," the traders said.
"Weekly export sales only need to 69,500 running bales for
the remainder of the season to meet the current US Department of Agriculture
sales target" for 2016-17, which has six months left to run.
Still, not all commentators are quite so bullish, with Louis
Rose at the Rose Report pointing out the surge in certified stocks for delivery
against New York derivatives, stocks which overnight were pegged at 194,718
That was up more than 41,000 bales in a day, and the highest
in many months. Certified stocks ended 2016 at just 40,470 bales.
CBA's Tobin Gorey said that while the US export sales were "again
impressive last week, we continue to view this tightness though as a temporary
"The monetary disruptions in India have caused problems with
physical deliveries but the world is not actually short of cotton."
New York cotton futures for March stood down 0.8% at 76.31 cents a pound.