PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 18:08 GMT, Friday, 16th Jun 2017, by Mike Verdin
Bulls tighten grip on grain markets, bears on sugar, cotton

Often, ag markets reverse heading into a weekend, as investors sitting on gains bank profits, rather than risking the newsflow turning against them in the days they are unable to trade.

But not this time.

Raw sugar futures, having closed the last session at their lowest since late February last year, set a fresh 15-month low in early deals of 13.29 cents a pound, before recovering a little ground in late trading to stand at 13.39 cents a pound, down 0.6% on the day.

'Bulging pockets'

"Sugar bears continue to have the 'story' in their bulging pockets with the general commodity weakness and little by way of threat to the fundamental sugar background supply picture," said Tom Kujawa at Sucden Financial, flagging too the negative impact of a further cut by Petroras to fuel prices.

Petrobras, Brazil's state-controlled oil company, lowered its average prices at refineries for gasoline by 2.3%, and for diesel by 5.8%.

A weaker gasoline price undermines value of rival ethanol too, in turn feeding through into weaker sugar prices, given that the sweetener and the biofuel compete for their portions of the Brazilian cane crush.

The move by Petrobras "effectively is music to the ears of sugar bears as the safety net of the sugar market's ethanol parity is lowered giving a suddenly larger potential opportunity for current shorts" in the sweetener, Mr Kujawa said.

Ethanol parity, ie the level at which making either ethanol and sugar is equally appealing financially for Brazilian cane crushers, had been reckoned at about 13 cents a pound in sugar terms ahead of the gasoline price cut.

Cotton's collapse

Also in New York, cotton futures extended their decline, standing down 0.9% at 68.88 cents a pound for December delivery, and giving the contract a fresh 2017 low.

That fall was contrary even to the expectations of Tobin Gorey at Commonwealth Bank of Australia, who has been for some while forecast downward pressure on prices, thanks to the prospect of stronger production in 2017-18, at a time when hedge funds have been sitting on large net long positions.

"Cotton prices are on a five-day losing streak that make the market, in technical speak, look oversold," he said earlier.

However, at Texas A&M University, Dr John Robinson, who has also warned over prices falls, flagged a negative technical indicator, in futures' fall below 200-day moving averages earlier this week.

"The approach to and violation of the 200-day moving average may explain some of the extra weight on prices in terms of short run technical selling and tripping buy stops," he said.

"Growers should be poised and ready to quickly take advantage of new crop price rallies."

Canada not so dry

In grain markets, meanwhile, investors' willingness to stick with the recent trend meant further gains for wheat prices.

Spring wheat, which has the focus of bullish sentiment, thanks to drought hurting crops in the northern US Plains, added a further 1.7% to $6.43 a bushel for July with a little over an hour of trading to go in Minneapolis.

That said, that remained a little below the two-year intraday high of $6.45 a bushel.

On the negative side for prices, condition ratings overnight for the Saskatchewan spring wheat crop (typically equivalent to about half US output) came in 75% "good" or "excellent", well down year on year, but also far ahead of the 45% rating attributed to the US crop earlier this week.

Furthermore, there have been some rains in parts of the northern Plains wheat belt to confront dryness.

'Parched'

But whether the rains are enough to do much in terms of repairing the crop is another matter. (Traders expect a gain of about 3 points in Monday's good or excellent rating for US spring wheat.)

And further dryness is expected.

"The technicals in Minneapolis are overbought, but conditions are expected to be dry which will hamper the areas that have struggled with dryness to this point," said Benson Quinn Commodities.

CHS Hedging said that "wheat markets continue to rally as weather concerns continue in the Dakotas and Montana.

"Some precipitation in the central and eastern areas of the Dakotas is expected going into this weekend, but this still leaves a large portion of spring wheat country parched."

'Slowing harvest and causing damage'

Meanwhile, weather has hardly been ideal for winter wheat either, which is being harvested further south in the US, in the central Plains.

"Reports of hail and rain in the winter wheat country are slowing harvest and causing damage to isolated areas in Kansas and Nebraska," CHS Hedging said.

Furthermore, there are worries over winter wheat crops elsewhere too, notably in Australia, the European Union (the top producer) and Ukraine, thanks to dry weather expected to continue in all three jurisdiction.

"Ukraine, EU, Western Australia and a portion of south west Canada are labouring under dry conditions which is providing support to wheat," said Richard Feltes at RJ O'Brien.

"Following the trimming of US hard red spring wheat yields and a low protein US hard red winter wheat crop, the wheat market is not in the mood for further problems."

'Crop conditions could deteriorate'

Mr Feltes added that he was hearing reports of "Midwest elevators upping bids for soft red winter wheat in a race to capture as mush harvest movement as possible to lock in wide board carries".

The strong cash market helped soft red winter wheat futures soar 2.8% top $4.66 a bushel in late deals for July delivery, setting a one-year high for a spot contract.

Fund buying has also been credited with fuelling the rise, given that Chicago wheat, the world's most liquid wheat contract, is the speculators' favourite.

In Paris, meanwhile, wheat for December closed up 1.4% at E177.25 a tonne, the contract's highest finish in four months.

European "crop conditions could deteriorate with high temperatures announced for next week, especially in most sensitive areas", Agritel said.

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