When will investors know that the grain market rally has peaked?
It is a fair question to ask, after all, as corn and soybean prices tore away to fresh record in Chicago on Friday, continuing to be lifted by the threat of losses to US yields.
One signal is the spread between near-term contracts compared with later ones, which in peaceful times is negative – with markets allowing later lots some premium to allow for risk, interest costs and storage – but when crops are in short supply turns the other way.
This so-called bull spreading, favouring near-term lots over further away ones, looked at "extreme levels" earlier in the day, according to US Commodities, with November soybeans, for instance, trading at a $2.20-a-bushel premium to supplies for delivery in July 2013.
'In a panic'
"This means someone is willing to pay a $2.20-per-bushel premium, not counting carry cost, which would be about another $0.70 per bushel, just to secure a supply," the broker said.
"It is unheard of to basically to pay a $3-per-bushel premium to make sure you have a supply."
"Basically this signals the market is in a panic," US Commodities said, noting a similar, but less extreme, pattern in corn futures.
"The market will show signs of a top when bull spreads start to ease."
'Impending global supply problems'
On that basis, the markets were offering bears little solace on what should have been their day of the week, with the prospect of a weekend ahead proving a cue for profit-taking earlier in the course of this five-week weather market.
November soybeans, which had never touched $16 a bushel before this week, came $0.09 from hitting $17 at their intraday high before easing a little to close at $16.86 ¼ a bushel in late deals, up 2.0% on the day.
That was enough to extend their advantage over July soybeans, which rose 0.2%, to nearly$2.40 a bushel.
The old-crop August lot, meanwhile, ended 1.4% higher at $17.57 ½ a bushel, having earlier set a new record for a spot contract of $17.77 ¾ a bushel.
"Soybeans are trading as if some in the trade have realised the impending global supply problems," Benson Quinn Commodities said.
More rain, or hot and dry?
Not that corn was faring too badly either, setting a fresh record for a spot contract of $8.28 ¾ a bushel, for September delivery, and hanging around there to close up 1.2% at $8.24 ½ a bushel.
The best-traded, new crop December lot finished up 2.0% at $7.95 ¾ a bushel, also extending its gains over the July 2013 lot, which added 1.3%.
The catalyst was more weather concerns. Or were there?
"The updated forecast promises increased rainfall for the Midwest next week," Gail Martell at Martell Crop Projections said.
WxRisk.com said: "Next week looks hot and dry for most of the Midwest."
Whatever, Ms Martell concurred that "for much of the US Corn Belt, this [rain] is not a game changer due to the steep soil moisture deficits that have built up over the past two months".
'Quite hot and dry'
WxRisk.com added that latest models showed "heat rapidly expands back into the eastern Corn Belt, in the six-to-10 day horizon starting on July 21 and really moving in on the 22, 23, 24 and 25".
The weather service added: "Some rains will get into North Dakota, Minnesota and the northern Great Lakes into Ohio, west Virginia, Pennsylvania."
Heading into August, "the pattern basically remains quite hot and dry for most of the Plains and the central and lower portions of the Midwest as well the Delta and the Gulf coast states."
Given that this agreed with the pattern outlined by official forecasters on Thursday too, investors trod into the weekend with more confidence in poor weather than they have over the past month.
'So massive and fast'
As an extra help, concerns over dry weather in Romania too shifted up a gear too, with FCStone revealing expectations of a drop of some 2m tonnes in the country's corn harvest.
Romania is the second biggest producer in the European Union, and a top-10 world producer, with last year's 10.5m-tonne harvest comparable to Canada's.
That said, whether corn will be able to hit the $9-10 a bushel for corn, and $18-20 a bushel for soybeans, that the trade is "openly discussing", according to US Commodities – and Morgan Stanley on Thursday flagged potential double-digit corn prices – well, demand is a factor too.
"The livestock industry, ethanol users and exports could not function at these prices. Rationing should take place prior to these prices," US Commodities said.
"For now the crop is shrinking faster than demand. This is the real issue. The drought was so massive and fast."
Wheat, meanwhile, looked as though it would follow the recent pattern, using Friday as an opportunity to pause and take stock of its attainment on Thursday of its best close in Chicago since February 2008.
And there was a smattering of good news from a buyers' perspective, with Toepfer upgrading its hopes for the German crop, a big source of high quality wheat, to 23.18m tonnes from 22.71m tonnes, taking it further above last year's 22.70m tonnes.
That said, the rains and cool weather which have eased dryness concerns mean the ripening of wheat ""not particularly well-developed" in much of the country, the German-based trading house said.
But while there was some talk of some investors balancing long bets in corn with shorts in wheat, which is in greater abundance, the grain, as in the last session, put in a late spurt to end up 0.8% at $9.43 ¼ a bushel for September delivery.
That is hardly the way to go about pricing itself into feed rations, a scenario that Rabobank outlined in a report upgrading price hopes for a number of crops.
Among soft commodities, New York raw sugar put in a flier to close up 2.9% at a three-month closing high, for a spot contract, of 23.92 cents a pound for October delivery.
"Trade chat seems to be escalating a little on the concern regarding the weather damage to crops and potential lack of exports from India," Thomas Kujawa at Sucden Financial said.
Luke Mathews at Commonwealth Bank of Australia said: "Speculation that Indian officials may have a change in heart on sugar exports, given the weak monsoon, remains supportive for global prices."
And that besides the rains in Brazil which are weakening its sugar production rate, and hampering logistics, causing a lengthening queue at ports.
Lynette Tan, at Phillip Futures said: "The line-up of ships waiting to load sugar in largest producer and exporter Brazil now stands at 87, higher than 81 last week, further fuelling fears of a short-term supply shock in sugar."
"The two biggest producers in the world are still undergoing weather issues," Mike McDougall, at broker Newedge, said.
And as an extra booster, high corn prices have pushed the price of ethanol to an eight-month high, in turning lifting the price at which it becomes more favourable for Brazil's cane producers to make the biofuel rather than sugar.
Sweet and sour
Cocoa ended on a mixed note following some mixed grinding data – firm for Asia, but the worst for North America in three years.
London's September contract added 0.7% to £1,543 a tonne. But New York's September lot eased $1 to $2,229 a tonne, a reflection of a stronger dollar, which jumped 0.7% as a rise in Spanish borrowing costs renewed concerns about the eurozone.