PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 09:57 GMT, Tuesday, 10th Oct 2017, by Mike Verdin
AM markets: wheat dips as rains ease Russia dryness worries

Last week we wondered whether Mother Nature was long on cotton.

This week we ponder whether she is Russian too.

Certainly, Russia's wheat farmers, having enjoyed a record harvest, again, this year, are seeing their prayers answered for rain to improve conditions for winter sowings (ahead of the 2018 harvest).

'Beneficial rains'

"Beneficial rains are improving the plantings perspectives in Ukraine and precipitation should hit the south of Russia later," said Agritel.

"These rains should bring about 20 mm in the main Russian winter wheat areas which did not receive any precipitation for more than one month."

At Commonwealth Bank of Australia, Tobin Gorey said: "Persistent rainfall in the western parts of the old Soviet Union stretched into central Ukraine over the weekend.

"And weather forecasters have added a little more rain to their forecasts for dry Black Sea wheat regions to the east later this week."

He added that "the rainfall forecast needs to be realised of course, but some are already scratching the issue off the watch list".

In Australia, rains too are reviving crop prospects a bit, fuelling a 3.4% slump to Aus$266.50 in Sydney wheat futures for January.

Gasc tender

However, with notable risk premium already knocked out of Chicago wheat prices in the last couple of weeks, traders were reluctant to remove too much more from values in early deals on Tuesday.

Especially as there are signs of demand around too.

Besides the 400,000-tonne tender by Ethiopia announced on Monday, Egypt's Gasc authority unveiled a tender overnight.

Will anyone else bar Russia get a mention this time?

(Of the 3.27m tonnes of wheat Gasc has bought so far in2017-18 at tender, 2.32m tonnes have been of Russian origin.)

'The competitive edge'

One hope for other origins is that Russian prices do keep rising, even as values in other markets struggle.

Last week, Russian wheat with 12.5% protein for export from Black Sea ports cost $193 a tonne FOB, up $2 a tonne week on week, according to Ikar.

US broker Benson Quinn Commodities said: "Black Sea values have risen with help from good demand and limited producer selling.

"However, this origination continues to have the competitive edge in the global wheat export market."

Chicago wheat futures for December eased, but only by 0.1% to $4.35 a bushel as of 09:50 UK time (03:50 Chicago time).

'Wetter outlook'

Weather issues are also a factor for the soybeans, in terms of rains slowing the US harvest and with a particular focus on dryness in Brazil, where moisture is needed for sowings.

In fact, CBA's Tobin Gorey noted that "weather forecasters' outlook for dry soybean regions in Mato Grosso", Brazil's top soy-growing state, "is perhaps now a little wetter".

However, the "predicted rainfall, given current temperatures, will probably do little to raise soil moisture for planting.

"And forecasters, peering more intently into the tea leaves, think there is a bias to that pattern continuing for longer than usual.

"Another fortnight largely like the last one will raise the worry level considerably."

Data ahead

That said, traders may be reluctant to move prices too far on soybeans for now given the slew of data ahead, with Conab later to issue first forecasts for many Brazilian crops for 2017-18, and the US Department of Agriculture on Thursday to release its latest monthly Wasde crop supply and demand report.

The Wasde is actually expected to raise its US soybean yield forecast by 0.1 bushels per acre to 50.0 bushels per acre, although that is the subject of some debate, with the range of market estimates a wide 49.1-52.1 bushels per acre.

Furthermore, on a less bearish note, the Wasde is seen cutting the estimate for end-2017-18 stocks, to reflect the weaker carry-in inventories highlight by official stocks data two weeks ago.

Weaker oils

Perhaps the clincher in helping soybean futures for November gain 0.3% to $9.69 a bushel in early deals was a firm performance overnight by prices on China's Dalian exchange, where the January contract gained 1.2% to 3,852 yuan a tonne.

Does this signify demand, and perhaps herald an announcement later from the USDA of a US export sale of soybeans to China?

Elsewhere in the oilseeds complex, it was notable that soyoil for January dropped 0.5% to 6,088 yuan a tonne on the Dalian, where soymeal eased a smidgen (ie soy crushing margins took a dent).

In Chicago, soyoil for December eased 0.5% to 33.08 cents a pound.

It was little help that Kuala Lumpur palm oil for December dropped 1.2% to 2,703 ringgit a tonne, undermined by data showing bigger-than-expected Malaysian inventories.

'Unable to find a buyer'

Back in Chicago, corn futures for December eased 0.1% to $3.49 a bushel, easing a little further below the psychologically important $3.50-a-bushel mark.

Signals from China are certainly not helpful here, with Dalian corn futures for January falling again (just) to take declines this week to 1.2%.

And,as Benson Quinn Commodities noted, China is proving "unable to find a buyer for any of the 136,634 tonne of state-owned auction reserve stocks offered this week".

Meanwhile, the Wasde is expected to raise the estimate for the US corn yield by 0.2 bushels to per acre to 170.1 bushels per acre.

Pre-Wasde wobbles

In New York, cotton for December gained by a modest 0.1% to 69.02 cents a pound, extending a late recovery to the last session, which had followed an earlier tumble.

"We believe some longs decided they wanted to liquidate their position on the open after the weather spike at the end of last week turned out to be mostly nothing," traders at Ecom said.

The trading house added: "We are still well within the 67.40-69.97 cents a pound trading range, so this type of trading will be expected for the next few days, as traders square up positions before the Wasde.

"We expect the market to hold this range until Thursday's data is out."

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