PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 20:57 GMT, Thursday, 15th May 2014, by Agrimoney.com
Evening markets: wheat futures take a bath on US rain hopes

Often these days, when shares fall, agricultural commodities enjoy gains.

Take the early weeks of the year, for instance, when funds turned to crops and livestock for alpha as equities struggled to get into even first gear.

But on Thursday, shares tumbled, undermined by data showing eurozone economic growth of just 0.2% in the first quarter of the year, and that was down largely to Germany, with France stagnant and Italy showing slight contraction.

David Tepper, boss of closely-watched hedge fund Appaloosa Management, added to jitters by saying that he was "nervous" about the US stock market.

'Looking for a bullish input'

Wall Street shares were 1.1% lower in late deals, with stocks closing down 0.6% in London, 1.0% in Frankfurt and 1.3% in Paris.

And commodities were lower too, if by a more modest 0.3%, according to the CRB index.

Most agricultural commodities did their bit to ensure a negative finish for the index, bar coffee which enjoyed strong gains thanks to a cut by Conab to its forecast for this year's Brazilian harvest, and a caution over 2015, echoing comments made earlier to Agrimoney.com by analyst Judith Ganes-Chase.

Arabica coffee for July closed up 6.8% at 196.80 cents a pound in New York.

"The somewhat-oversold arabica market was looking for a bullish input, and Conab provided it," said Citigroup analyst Sterling Smith, adding that a rise to 200 cents a pound "to close out the week would not come as a surprise".

Ms Ganes-Chase has forecast prices heading for 300 cents a pound.

Soft export sales

But just as arabica coffee rediscovered its feet, wheat was continuing something of a freefall, ending lower in Chicago for a seventh successive session, over which it has lost more than 8%.

If the retreat was blamed earlier in the week on idea that US wheat was at risk of being over-rationed, too expensive versus foreign supplies for export markets and against corn for domestic livestock feeding, then Thursday provided some evidence to support this case.

US export sales last week tumbled to 54,900 tonnes for 2013-14 delivery, "down 83 percent from the previous week and from the prior 4-week average", the US Department of Agriculture said.

Although new crop sales were a bit better, at 197,000 tonnes, the combined figure was less than half some expectations.

Rain for the Plains?

Furthermore, the weather was not so bullish either (depending on who you listen to), with some ideas of rains for the drought-hit hard US red winter wheat belt.

At Country Futures, Darrell Holaday said that "the precipitation situation for next late next week and into the last week continues to get stronger in the models for the western Plains.

What is on the horizon could prove "by far the most significant event that has shown up in that region in months".

MDA concurred that the outlook is "wetter in south western areas" of the Plains in the six-to-10 day forecast.

'Spread out of whack'

Certainly, Kansas City hard red winter wheat took a bath, plunging 3.5% to $8.06 a bushel for July delivery, falling with ease through its 20-day and 40-day moving averages.

Mr Holaday said: "This is a move to change the spread that is out of whack," with hard red winter wheat premium over Chicago soft red winter wheat, the world benchmark, falling below $1 a bushel.

Soft red winter wheat for July dropped 1.7% to $6.78 a bushel.

Minneapolis hard red spring wheat for July also dropped heavily, by 3.0% to $7.75 a bushel for July, with sowing conditions improving for northern US areas where excess wet and cold has been a problem.

"Hard red spring wheat areas, after a wet start early next week, will open up for extended period of warmer/drier weather, allowing a major push in late-May planting," Richard Feltes at Chicago broker RJ O'Brien said.

And Paris wheat for November dropped 1.0% to E199.00 a tonne, little helped by Strategie Grains' assessment of a "rather bearish" outlook for European prices.

'Break from wet weather'

The improvement in northern US planting conditions was a negative for corn too, with the poor conditions in that area a threat to the idea of a record corn harvest, as espoused by the USDA last week.

"The break from wet weather is bearing down on corn and wheat markets," CHS Hedging said.

MDA said that "dry weather across north western areas of the Midwest through the weekend will allow planting to progress very well there".

In fact, there look like some rains around for now in Iowa and Illinois, but that will only help the large amounts of crop in the ground in these states.

'Less than supportive'

Export news was better than in wheat, but not upbeat, with the US selling 343,000 tonnes of old crop corn last week, "up noticeably from the previous week", the USDA said, but "down 39 percent from the prior 4-week average".

Furthermore, the new crop figure of 47,300 tonnes was weak.

"The corn export number was less than supportive," Mr Holaday said, adding that it "would not be an issue" had the USDA on Friday not raised forecasts for full-season US shipments.

And without support from wheat, corn dropped 2.3% to $4.84 a bushel, for July delivery, its weakest finish in three weeks and ending below its 75-day moving average for the first time since January.

Crush data

Nor did soybeans support bulls' interests this time,

There had been some concerns that the price firmness in recent sessions, attributed to ideas of a strong US soybean crush number in NOPA industry data today, would prove a "buy the rumour, sell the fact" event.

And so it proved.

US processors crushed 132.7m bushels of the oilseed last month, bang in line with expectations.

But this was not enough to prevent soybeans for July closing down 1.1% at $14.70 a bushel.

Spreads unwound

The decline was fuelled by the unwinding of bull spreads, with new crop November soybeans noticeably outperforming in ending down a more modest 0.4% at $12.17 a bushel.

Ideas of strong corn planting helped that too, reducing the threat of farmers switching instead to soybeans which can be later sown.

CHS Hedging also noted that "China expanded the exemption of the VAT tax to include soybeans bought from the reserve", improving the appeal to domestic crushers of buying locally, rather than from imports.

Weekly US export sales were actually OK at 73,600 tonnes for 2013-14 with the US already having sold more than the USDA has forecast for the season and of 324,700 tonnes for new crop, at the upper end of expectations.

'Resistance is firmly in place'

Back among soft commodities, the negative mood got to sugar too, after strong performances in the previous two sessions on bullish talk emanating from New York sugar week.

Many analysts have cut hopes for supplies in 2014-15, with Platts Kingsman now forecasting a small deficit, and the likes of Datagro raising their forecasts for the shortfall.

Sucden Financial flagged that the "trade in general has been bemoaning the lack of any sizeable physical demand, as it sits on unsold inventory", with stocks left over from previous years still plentiful.

Citigroup's Sterling Smith said that, thinking technically, "the 18.00-18.25 cents-a-pound resistance area is firmly in place.

Cotton for July dropped 0.4% to 90.36 cents a pound, on a drop attributed to the broader market malaise, with the crop, as an industrial commodity rather than a food source, more attuned to economic thinking.

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