Improved US harvest hopes send wheat price to four-year low

Wheat prices plunged to a four-year low, with corn and soybean futures showing significant losses too, as weather forecasts continued to prove "ideal", reducing the call for risk premium to support values.

Wheat for July settled down 4.1% at $5.45 a bushel in Chicago at one point, the lowest for a spot contract since July 2010.

The better-traded September wheat contract ended down 3.9% at a contract closing low of $5.56 ¾ a bushel.

The declines reflected decreasing concerns for the US harvest, with drier weather seen allowing a pick-up in harvest progress besides lowering concerns over rain damage to ripe crops.

'Fields drying up'

"A weather forecaster we use described the outlook in one word - 'ideal'," said Sterling Smith at Citigroup, highlighting also the prospect of continued cool conditions supportive for corn pollination.

For wheat "the weather for the next 5-10 days looks like allowing farmers to make good progress on the harvest", he said.

Indeed, World Weather said that in the southern US Plains, where the early wheat harvest suffered particular rains delays, "will see little to no rain over the next week, and some areas may go 10 days to two weeks without much rain".

Industry group Kansas Wheat said that "fields across Kansas", the top US wheat producing state, "continue to dry up as farmers state-wide are scrambling to finish harvesting their wheat.

"Yields have continued to be lower than average, but have remained above expectations for the year's harvest."

And while the "quality of the wheat has dropped slightly due to the influx of rainfall, [it] still remains good overall".

'Harvest pressure hurting wheat'

At broker Country Futures, Darrell Holaday said that "harvest pressure is hurting wheat values as the harvest moves north and wheat yields improving every mile it moves north.

"Also, Russian winter wheat yields have started to come in and they are better than expected. All factors are pressuring world wheat values."

Actually, there are now some concerns over damage from harvest-time rains to some European Union crops.

And an estimate by the Deutscher Bauernverband farmers' group of the German winter wheat crop, at "almost" 25m tonnes, was a touch lower than other recent forecasts, and highlighted some setback from drought earlier in the growing season.

Less dismal performers

Furthermore, there was some sign of demand too, with Turkey tendering for 235,000 tonnes of wheat, and 200,000 tonnes of barley, and Jordan tendering for 100,000 tonnes of wheat.

US wheat exports, as measured by cargo inspections, rose to 417,063 tonnes last week, from 335,389 tonnes the week before.

And, from a technical perspective, Australia & New Zealand Bank offered some hope to bulls from the extent of the drop in hedge funds' net long position in ags, and increased net short position in wheat, proposing that this questioned the extent of further pressure on prices from this source.

Still prices dropped, if less so for Kansas City hard red winter wheat, which ended down 2.4% at $6.70 ½ a bushel for September delivery, a four-month closing low.

Paris wheat fared relatively well, offered some support by the wetness concerns for the European Union harvest, with the November lot shedding 1.1% to E182.50 a tonne, although this was still the lowest close for a spot contract in nigh on 11 months.

London wheat for November ended down 1.0% at a contract closing low of £133.20 a tonne.

'Conditions are just too good'

Back in Chicago, corn performed a little less dismally than wheat, but only just, ending down 2.2% for December delivery at a contract closing low of $4.06 ¼ a bushel.

"The reality is that conditions are just too good coming out of the July 4 holiday and the forecast is very favourable for the next 10 days," Country Futures' Darrell Holaday said.

"This reality has really hammered corn values."

US corn is beginning to enter in earnest the pollination process, which is heat sensitive, with hot weather and droughts such as that in 2012 sending yields tumbling.

Yield hopes

But, in fact, the temperatures forecast for the Midwest "has trended cooler today, with generally below normal temperatures expected over the Corn Belt for the next 10 days", MDA said.

"This cool outlook will limit the potential for heat stress and should be favourable for the crop," the weather service said, adding that there should be a few showers to keep soil moisture refreshed too.

Broker US Commodities said that "the current crop conditions report suggests that yields are likely to be above trend line.

"The 30 years of US and state yields from 1984 through 2013 suggest a US corn yield in the low-to-mid 170s bushels per acre, and US soybean yield in the 47-48 bushels per acre range are attainable with good weather throughout the growing season over most of the US."

Old crop September corn ended down 2.2% at $4.00 ½ a bushel, falling to $3.97 a bushel earlier – falling below $4.00 a bushel for the first time for a nearest-but-one contract for the first time since August 2010.

US exports last week were in fact decent, at 1.08m tonnes, up from 886,949 tonnes the week before.

Old vs new

Soybeans themselves fell 0.7% to $11.25 ½ a bushel for the new crop November contract, a relatively creditable performance, and potentially supporting ANZ's ideas of more limited selling pressure ahead in the oilseed for now.

Not that Morgan Stanley, which cut its rating on soybean futures, will feel out of sorts.

In fact, the relative outperformance of the November contract likely reflects the unwinding of long old crop-short soybean spreads, with the old crop August lot down 2.0% at $12.73 ¼ a bushel.

"We are seeing… major liquidation in the old crop soybean futures," Mr Holaday said.

"This has supported the November soybean contract. But in the end this liquidation of the old crop/new crop spreads is very negative for the complex and will be negative to November soybeans."

US soybean exports last week came in at 59,959 tonnes, down from 74,324 tonnes the week before, but taking the total for the season to 42.66m tonnes, nearly at the total of 44.34m tonnes the US Department of Agriculture has forecast for 2013-14 with two months to go.

'Needed rain'

The selling spread to cotton too, an alternative to corn and soybeans in many US farmers' spring sowings programmes, which tumbled 2.6% to 70.21 cents a pound in New York for December delivery, a fresh two-year closing low.

"New-crop prospects improved with needed rain in Texas," broker Doane added.

Raw sugar for October dropped 1.7% to 17.51 cents a pound, despite an increase by Platts Kingsman to its forecast for the world production deficit in 2014-15.

Still, Kingsman, also noted that forward prices for sugar "are still telling farmers to keep growing cane", while "if hydrous ethanol prices remain capped the Centre South Brazilian mills have a huge potential to produce sugar instead".

But against a more bullish backdrop of dry weather in Brazil, India and Thailand, three important producers, these dynamics together mean "it is easy to understand why prices remain rangebound".

Bouncing beans

Arabica coffee was the one agricultural commodity which, having shown large losses earlier, of more than 3%, managed a recovery, ending down 0.4% at 171.10 cents a pound.

The bean was sunk earlier by some bearish comments in an article by Barrons. However, not all commentators are quite so downbeat on prices, as revealed.

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