How low can wheat
They extended losses in early deals on Friday. This after in
last session ending 2.9% lower in Chicago at their weakest finish of 2017, for
the best-traded July contract.
The spot May lot, for which expiry is approaching, set a
contract closing low.
The trouble for wheat is of course the extent of world
supplies, which look like remaining ample for 2017-18, despite historically
weak sowings in the US.
Market forecasts for April 21 StatsCan data on Canada's 2017 sowings prospects, (2016 area)
All-wheat: 22.4m acres, (23.212m acres)
Range of forecasts: 21.4m-23m acres
Includes durum: 5.0m acres, (6.19m acres)
Range of forecasts: 4.7m-5.7m acres
Canola: 21.3m acres, (20.367m acres)
Range of forecasts: 19.5m-22.5m acres
Barley: 6.0m acres, (6.39m acres)
Range of forecasts: 5.7m-6.4m acres
Soybeans: 5.9m acres, (5.467m acres)
Range of forecasts: 5.6m-6.1m acres
Lentils: 5.1m acres, (5.86m acres)
Range of forecasts: 4.5m-6.1m acres
Sources: StatsCan, Reuters
And this is being reflected not just in selling by hedge
funds, which have raised their net long within record highs (weekly regulatory data
after the close of trading in Chicago will reveal any changes in that situation.
The dynamic is also being seen in a lack of enthusiasm among
importers for buying.
Analysis of US Department of Agriculture estimates for
2016-17 shows the world's wheat inventories are being built up in exporting
countries, and China.
By contrast, "carryout stocks in the world's wheat importing
countries are expected to fall 16% year over year to 67.1m tonnes," a figure
11% below the five-year average, US Wheat Associates noted.
Presented as a proportion of world stocks, the trend looks
even more stark, with importers expected to end this season with 27% of world
wheat inventories, "down 10 percentage points from the 5-year average".
US Wheat Associates, which promotes US wheat exports, added
that the decrease in importer stocks "is due in large part to a shift in
"Four consecutive record production years have enticed many buyers
to adopt a 'just-in-time' approach to take advantage of the lower prices and
reduce storage costs where possible," US Wheat Associates analyst Stephanie
"That is why ending stocks in the top 20 markets for US
wheat, excluding China, are expected to cover just over two months of
Both this dynamic, and the large hedge fund short, hold out
the potential for quite some buying pressure ahead, if – in fact, when - these
investors are tempted to reverse their stances.
But it looks like it will need more than the current threats
to production to inspire such second thoughts, especially with rains easing
concerns over dryness in the US southern Plains, hard red winter wheat country.
The proportion of Kansas, the top wheat-growing state, rated
in drought has fallen to 0.3%, from 8.6% last week, and 31% at the start of the
year, US Department of Agriculture data on Thursday showed.
'Dry and cold weather
Where there are live concerns is in Europe, where Agritel
reported a "worrying climatic context", thanks to late frosts and dryness.
"Dry and cold weather is persisting," the Paris-based
consultancy said, adding that "operators are hoping that conditions will change
with the new moon from April 26".
UK-based CRM AgriCommodities flagged forecasts of frosts for
north eastern France and Germany, "although greater risks lie in the persistent
dry conditions observed across western Europe".
Agritel flagged "erratic" weather in Ukraine, and some parts
of Russia too, saying that "the recent snow fall in oblasts of Dnepropetrovsk,
Zaporojie and Kharkov is delaying the progression of sowing, raising fears of a
negative cold impact on spring crops which have just germinated.
"Same thing in the region of Lipetsk in the middle of Russia
where a 10cm snow layer was observed at the beginning of the week."
There are also some spring wheat concerns in the northern US
and Canada too, with wet weather seen slowing the pace of early seedings.
The issue of Canadian plantings will come into focus later,
with data from Statistics Canada on farmers' seeding intentions, expected to
show all-wheat area of 22.4m acres, below the 23.3m acres planted last year.
This figure includes durum sowings pegged by the market at
5.8m acres, down from 6.4m acres in 2016.
In fact, spring wheat futures for July added 0.1% to $5.35 ¾
a bushel in Minneapolis as of 09:20 UK time (03:20 Chicago time), rebuilding
premium over Chicago winter wheat, the world benchmark, which fell by 0.2% to $4.20
¾ a bushel for July delivery, closer to a contract low of $4.20 a bushel.
Tobin Gorey at Commonwealth Bank of Australia flagged as a "likely
catalyst" the tensions between Russia and Turkey – Turkey being a major market
for Russian wheat exports.
"Some [Russian] wheat cargoes have been diverted elsewhere
which will drag prompt pricing down sharply for a short period," Mr Gorey said.
Canola vs soybeans
Where the rains soaking Canada's Prairies have been more successful
in raising flat prices, as well as spreads, is with canola, which added a further 0.2% to Can$516.60 a tonne in
Winnipeg for July.
That took to 5.8% the contract's gains so far this month, or
4.6% in dollar terms, outperforming a flat start to the month for rival oilseed
soybeans in Chicago.
"The market is pricing itself as though wet conditions in
Canada's Prairies are a significant problem," CBA's Tobin Gorey said.
"Canola's premium to soybeans in the old crop contracts has rallied
to extremely high levels," going in the May contracts "from $2 a tonne to near $40
in the space of a month".
Soybeans did manage some headway themselves, although by a
marginal 0.1% to $9.57 ½ a bushel in Chicago for July delivery.
This reclaimed only part of the losses of the last session,
when the oilseed was pressed by poor US weekly export sales data, at 211,000
tonnes for 2016-17, down 48% week on week, and just 14,000 tonnes for next
Joe Lardy at CHS Hedging, terming the data "underwhelming",
said that 2016-17 soybean export sales were the second lowest of the marketing
"What is more concerning is the pace of new crop sales. At
2.6m tonnes, the total is only slightly ahead of last year, but well behind
every year going back to 2010.
"This is especially concerning since South America is
harvesting a record crop and if their export tail is longer than usual, it could
really cut into US export potential."
Corn vs wheat
sided with fellow grain wheat and fell in early deals, by 0.3% to $3.63 ¼ a
bushel for July delivery, amongst its lowest levels of 2017.
As well it might.
Sure, rains in the Midwest are slowing sowings, and offering
some cause for risk premium.
"Slow planting in the US Midwest remains on the market's
radar," Mr Gorey said, if adding that "forecasters say some key growing regions
should get some respite from the wet weather over the next few days.
"Planting should have a chance to advance before more
significant rains return next week."
But on the demand side, wheat's tumble has left it looking tempting
for uses, such as feed, where it is an alternative to corn.
tightness of US stocks'
One commodity which in the last session broke ranks with
bearish feel in other row crop markets was cotton,
which in the last session added 1.0% in New York for July, and gained a further
0.2% to 79.27 cents a pound in early deals on Friday.
Louis Rose at Rose Commodity Group flagged "constructive" US
weekly export data released on Thursday.
While sales of 237,000 running bales, upland and pima cotton
combined, were lower week on week, it remained a decent figure.
And actual exports pf more than 367,000 running bales
The data released "continued to illuminate the tightness of
US old crop stocks", Mr Rose said.
"Our calculations show that only around 1.35m bales remains
available for sale from the 2016 crop," with much of this already accounted for
– eg through 300,000 bales certified for delivery against New York derivatives,
and 540,000 bales "listed as committed on-call" for pricing against futures.
May vs July
Indeed, there may be some technical factors in play, if some
investors feel the imminent expiry of the May contract, on May 8, could force,
say, a squeeze on those with cotton to price.
Mr Rose said that the jump in the May contract to a premium
over July in the last session "suggests that there are takers of ICE
certificated stock against the May contract".
The May contract added a further 0.1% to 80.15 cents a
Elsewhere, back in the oilseeds complex, palm oil added 0.4% to 2,513 ringgit a
tonne, gaining support from canola, an oil-heavy oilseed, as well as hopes for
a pick-up in demand ahead of Ramadan.
"Ramadan typically sees higher consumption of palm oil for
cooking purposes in regions such as India and the Middle East, as day-long
fasts end with communal feasting," Oriental Pacific Futures said.