PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 09:35 GMT, Tuesday, 14th Mar 2017, by Mike Verdin
AM markets: wheat prices stabilise as dryness tests US crops

So it looks like the dryness in the southern Plains is causing some damage to winter wheat seedlings after all, now that it has emerged from dormancy.

OK, the crop rating for Texas improved week on week, by 1 point, taking it to 35% rated in "good" or "excellent" condition (although that is still below the year-ago figure).

But Texas is not where the dryness concerns are centred on, with just 4.7% of the state seen as in drought, according to the latest US Department of Agriculture drought monitor.

'Three large wildfires'

In neighbouring Oklahoma, 74.3% of which is in drought, the winter wheat crop rating dropped by 1 point to 42%.

USDA scouts in the state reported a "continuation of dry warm weather", besides "three large wildfires started in the northwest and burned over 800,000 acres".

Meanwhile, in Kansas, 39.3% of which is in drought, the rating dropped by 3 points week on week to 40%, amid temperatures 4-6 degrees Fahrenheit above normal for most of the state, and precipitation of "generally less than a half inch", and "limited to eastern counties and a few northern areas".

"Warm and windy conditions affected the entire state," the USDA added.

'Can't be ignored'

And this when, according to Tobin Gorey at Commonwealth Bank of Australia, "there is now no weather premium in the market".

Indeed, "we can see the market eventually stabilising around these levels", which represent the "the middle of the range traded from late August last year", he added.

While southern Plains weather looks like remaining dry for the next week or so, there is some hope of rain relief afterwards.

"Weather forecasters are starting to add a storm system to US hard red winter wheat regions in forecasts seven-to-10 days ahead."

Benson Quinn Commodities said that "the extended forecasts offer the potential for better precipitation in the southern Plains during the last week of March.

"It is too far out to have much confidence. However, the prospects of seeing measurable totals can't be ignored."

Importers sated?

And indeed they were not, with Chicago soft red winter wheat, the world benchmark, flat at $4.30 a bushel as of 09:30 UK time (04:30 Chicago time).

Kansas City-traded hard red winter wheat, as grown in the southern Plains, was also flat, at $4.42 a bushel.

Richard Feltes at RJ O'Brien flagged not just the "improved moisture prospects for the US hard red winter wheat belt", but also a "suspicion that the pace of international wheat tenders will slow following the announced wheat business by Algeria, Tunisia and Saudi Arabia" in recent days.

Egypt's Gasc also bought big last month, raising ideas that it could now be out of the market for the rest of 2016-17.

'Highest of the year'

Furthermore, chart factors are not so encouraging either.

"Momentum studies are pointing lower and may be gaining momentum," said Benson Quinn Commodities.

And if wheat, which had some kind of helpful story to rally around in terms of the overnight USDA crop rating data, could not gain in early deals, there was not much hope for the other Chicago majors either.

Corn futures for May fell by 0.2% to $3.60 a bushel, setting a fresh two-month low and continuing to defy the apparently strong signal from Monday's weekly US export inspection data of 1.55m tonnes.

"Corn inspections were the highest of the year," said Joe Lardy at CHS Hedging, adding that they have been very good for the past six weeks".

'Down sharply'

Meanwhile, soybean futures for May shed 0.6% to $10.00 a bushel earlier, briefing dropping below the $10-a-bushel mark (to $9.98 a bushel) for the first time in nearly four months.

(The new crop November lot did break below $10 a bushel, falling 0.5% to $9.97 a bushel, so trimming its much-watched ratio against December corn futures to 2.60.)

USDA officials underlined the idea of a seasonal slowdown in US soybean exports as importers to Brazil and without the relief of a summer uptick, as last year.

"Compared to a month ago, the current weekly rate of shipments is down sharply," the USDA said.

"With much brighter crop prospects in Brazil, the odds for a repeat of last summer's unusually strong [US] exports are diminishing.

"Even with an abundance of [US] soybean stocks remaining, new export sales are now expected to shrink with the accelerating foreign competition."

Auction results

In New York, cotton defied its fellow row crops to post gains, albeit minimal ones, adding 0.1% to 76.93 cents a pound for May delivery.

The gain also defied a 0.9% fall to 15,390 yuan a tonne in futures on China's Zhenghzhou exchange overnight (although that in turn followed the last session's drop in New York.)

Investors will be looking keenly at the latest results from China's auctions of stocks from its huge state stockpiles, with Monday's result showing a slightly higher price than Friday, up 46 yuan at  14,905 yuan a tonne, but a sale rate cut to 84.7% of fibre offered.

On Friday, 93.7% of cotton offered was sold.

While Monday's figure is "obviously not a poor result, it is somewhat low by historical standards," CBA's Tobin Gorey said. 

"And particularly given it's only the start of the second week of China's 2017 auction programme.

"Question is, is that simply a one off result or a sign of something more sinister," with ideas that the quality of cotton being offered may be on the low side.

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