It seemed a fair bet that the rally in grains might lose a
bit of steam heading towards the close of play.
After all, Wednesday is a holiday in the US, Independence
Day, meaning no trading at a time when every weather forecast can make a
difference to pricing potential, in meaning more, or less, stress for
dryness-tested Midwest crops.
However, that was to reckon without the appetite for piling
on long positions in the face of the plunge in the condition of corn and soybean, and even spring wheat, crops, as revealed in US data overnight,
besides consistent readings, for now, of more heat and dryness.
"Grain markets continue to fire on all cylinders driven by
the continuation of hot dry weather in the states," traders at a major European
commodities house said.
'Drought has worsened'
"A strong ridge of high pressure [will] keep the majority of
the corn and soybean belt hot and mostly dry in the upcoming three-to-five
days," said Gail Martell at Martell Crop Projections.
"Drought has worsened in all but a sliver
of the northern Midwest," noting that June temperatures were set to "make a new
record", and "on the heels of the hottest spring on record".
"This explains the free fall in crop
ratings in the southern and eastern Midwest in late June," she said.
Corn condition has fallen particularly far
in Illinois, Indiana, Ohio and Missouri, although in the latest week the more
northerly states such as Wisconsin began to suffer too.
OK, it looks like cooler weather is on
"Toward the end of the week, the heat
dome [will] shift westward into the Rocky Mountains,
opening the door for cooling in the Great Lakes and reducing temperatures a bit
in Ohio, Michigan and Indiana," Ms Martell said.
WxRisk.com's David Tolleris said that, further
ahead, the GFS model is showing that for July 9-13 "a large cool high pressure
covers all of the Midwest and Upper Plains", with some "good rains" coming in
around July 13-14.
"There is no sign of the heat coming back."
But what damage has already been done,
especially to corn, which is undertaking its sensitive pollination period?
"As long as we do not get rain, the corn and soybean production
potential is deteriorating," Paul Georgy at Allendale said.
US Commodities said: "More private forecasters are pushing
corn yields down to 150-153 bushels per acre on corn versus the US Department
of Agriculture at 166 bushels per acre.
"Soybean estimates are down to 41-42 bushels per acre. The
market is now in the yield loss trading."
Indeed, at the University of Illinois, Darrel Good said that
"there is considerable risk" of a corn yield below 150 bushels per acre, with
Sal Gilbertie at Teucrium Trading noting widespread talk of a yield even below
last year's 147 bushels per acre.
The impact on prices was to send Chicago's December corn lot
to its best-ever close of $6.74 ½ a bushel, although earlier contracts did
The July lot soared 4.6% to $7.18 ¾ a bushel, albeit in thin
November soybeans closed up 2.4% at $14.74 ¾ a bushel, also
the contract's best ever finish, while wheat got a bit of help not just from
fellow grain corn, but by a surprise decline in the health of the spring wheat
crop, albeit to a still promising 71% good or excellent.
This, on top of lower-than-expected US sowings of the grain
as revealed on Friday, has trimmed expectations for production.
… and more contract
Minneapolis spring wheat itself soared 4.0% to $8.97 ½ a
bushel for September delivery, while Chicago's September contract added 3.5% to
$7.99 ¼ a bushel, earlier crossing $8.00 a bushel for the first time in nine months.
European contracts continued the roll of honour, with Paris
wheat for November adding 1.7% to E236.00 a tonne, a closing high for the
Ditto London wheat for November, which ended up 2.0% at
£178.00 a tonne.
'Producers caught out'
Among soft commodities, sugar
maintained its rally too on weather fears, this time in Brazil, where heavy
rains have hampered the cane harvest and lowered sucrose levels in the crop
besides fouling up logistics and leaving buyers waiting.
The structure of pricing, with the July lot expiring on a
high, "shows that producers have been caught out by the weather as well as
traders and that the so-called statistical surplus is, as usual, moving further
forward", Nick Penney at Sucden Financial said.
The complex "is beginning to reflect a growing weather risk
component… perhaps as worries that an El Niño event may affect the tail of this
year's Brazil Centre South crop and that this would shorten the current
campaign and further reduce the eventual cane crush numbers".
Macquarie said it saw prices "remaining above 21 cents a
pound short-term", although it acknowledged that, after what it termed "short-term
supply hiccups", there is "more selling pressure to come.
Raw sugar for October closed up 2.7% at 21.98 cents a pound
in New York, the highest close for a spot contract in more than two months.
Coffee rose on
weather fears too, soaring 3.4% to 180.45 cents a pound for October, amid
concerns for the impact of Brazil's rains on both the quality and quantity of the
crop – if with concerns about how far the rally can last for now.
And cocoa gained
ground too, adding 2.6% to $2,350 a tonne for New York's September contract, helped
by firming cash prices in Ivory Coast, the top producer, as supplies reaching
port from the mid-crop tail-off.