If ever wheat
bulls needed a reminder of the importance of backing the right variety of the
grain, in the right market, Tuesday provided it.
In a twist on the Goldilocks fairy tale (OK porridge is made
from a different grain, oats), US markets provided one wheat which cooled
significantly, one which heated up, and another which ended pretty neutrally.
The differing performances reflected the changes in US
fundamentals, with the other main factor supporting markets, the Ukraine crisis
remaining alive, with the reported killing of seven Ukraine soldiers in an
ambush and the escalation of Russia-US tensions into space.
Russia is to deny the US use of the International Space
Station beyond 2020, in a sign of the growing deterioration in the relationship
between the two countries, over the Ukraine crisis.
Softer soft wheat
Cooling off was Chicago-traded soft red winter wheat, the world benchmark, and a biscuit-making type
grown mainly in the Midwest, where conditions have been relatively benign.
Official data overnight showed the proportion of winter
wheat in Ohio rated "good" or "excellent" rising by 5 points to 55% in the week
to Sunday, implying higher yield potential, with the crop in Illinois lifted by
3 points to 55% good or excellent.
And with 111 deliveries overnight against the expiring Chicago
May wheat contract, hinting at futures being attractive for sellers, the July
contract closed down 0.8% at $7.09 ¼ a bushel, a fifth successive negative close,
run in which the contract has lost 4%.
The decline saw the July lot below its 20-day moving average
for the first time in three weeks.
'Moisture will remain
However, Kansas City hard
red winter wheat, a higher protein variety used in making bread and grown
largely in the southern Plains, managed to hold its ground, adding 1 cent to $8.25
½ a bushel.
The overnight US Department of Agriculture data showed a
further deterioration in the drought-pressed crop, with the proportion of
winter wheat in Kansas, America's biggest wheat-growing state, seen good or
excellent falling by four points to just 13%.
For Texas, the figure was 11%, down 2 points week on week.
Still, to keep prices in check, depending on which
forecasters you listen too, there is hope for some rain relief through Sunday,
with MDA forecasting "light showers" for parts of Nebraska, Colorado and Kanas.
The weather service added that "moisture will remain short
in south western areas" of the Plains.
Meanwhile, investors warmed to Minneapolis-traded hard red spring wheat futures, which closed
up 0.5% at $7.90 ¾ a bushel for July delivery.
Rather than crop condition, it is actually getting the crop
in the ground which is the worry here, given cool and wet conditions in its
northern growing heartland in the US.
US farmers had seeded just 34% of spring wheat as of Sunday,
19 points below the average pace, and the 40% figure that investors had
And weather does not look like getting more benign in the
northern Plains, with MDA cautioning that the six-to-10 day outlook is actually
wetter in the north eastern Plains.
Commodity Weather Group forecast rain early next week in hard
red spring wheat country, after a cold week this week which will curtail soil drying.
History also tells us that Minneapolis wheat, which traded
$12 a bushel over Kansas City wheat in the March 2008 heyday, has a habit of
trading at a premium to its peer.
'Generally good growth
Meanwhile, Paris soft milling wheat futures for November
eased 0.4% to E203.50 a tonne for November, with the contract closing below its
40-day moving average for the first time in three months, weakened by the drop
in Chicago wheat, but given some relief by a softer euro.
A weaker euro improves the affordability of eurozone exports
for buyers in other currencies.
European prices are also being undermined by broadly
favourable prospects for the crop, with the European Commission's Mars unit on
Monday forecasting an above average soft wheat yield for the EU of 5.58 tonnes
"In general, the current prospects for European Union [crop]
yields are above the five-year average and the forecast for total cereals increased
compared to [a month ago] reflecting the generally good growth conditions,"
London wheat for November dropped 0.7% to £153.50 a tonne,
undermined also by customs data showing a revival in imports, so boosting supplies
in the country.
Prices are also being hurt by expectations of an early UK
harvest, after a warm winter encouraged development.
Back in Chicago, corn
futures rebounded 0.6% to $5.02 ¾ a bushel, helped by further evidence of
demand for US supplies, with the USDA announcing the sale for export of 126,000
tonnes of the grain to South Korea during the current marketing year.
And overnight, the
USDA crop progress report showed that while US sowings had accelerated in the
main Corn Belt last week, they remained slow in the northern Plains, for the
same reason that wheat is not getting sown.
Plantings are especially behind in Michigan, Minnesota,
North Dakota and Wisconsin, states expected to sow between them more than 18m
acres of corn – one-fifth of the US total – but at best 31% complete with
seedings (Minnesota) and at worst just 3% (North Dakota).
And what has been sown is slow to emerge, with no crop poking
through in any of the four states, bar 1% in Michigan.
"The colder temperatures have emergence delayed," CHS said,
adding that the four states "will need a drier/warmer climate within the next
several weeks to keep all intended corn acres".
'Trade is leaning
In fact, the prospect of more cold and rain is spurring
ideas of farmers switching to soybeans.
Insurance dates, an indication of the end of the seeding
window, for delayed hard red spring wheat plantings kick in in North Dakota and
Minnesota from May 31-June 5, while for soybeans the deadline is not reached
until June 10, Richard Feltes at RJ O'Brien noted.
With corn prevent plant dates hit in the last week of this
month, "it looks like northern Plains soybean area will exceed expectations",
Mr Feltes said.
Still, investors found reason to buy the oilseed, with a
price rise on the Dalian exchange overnight on talk that China's auction tomorrow
of 300,000 tonnes of soybeans from state reserves will be at prices higher than
the market had expected.
Traders also anticipated industry data on the US soybean processing
volumes which are expected to show a decent number.
"Trade is leaning positive on the NOPA soybean crush report
tomorrow given excellent margins and ample soy crusher ownership," Mr Feltes
Soybeans for July closed up 1.3% at $14.83 ¾ a bushel.
In New York, raw
sugar for July added 2.9% to 17.80 cents a pound, lifted by a slow start to the Brazilian Centre South crushing season, and a change by Platts Kingsman to
forecasting a small sugar deficit in 2014-15, starting in October, rather than
a 2m-tonne surplus.
Meanwhile, the International Sugar Organization forecast a
potential return of the sugar cycle to a "deficit phase", while Brazil giant
Copersucar chipped in late with a forecast of a world production shortfall of
2m-3m tonnes for 2014-15, starting in October.
London white sugar ended up 2.6% at $485.80 a tonne for August delivery.
coffee for July dropped 1.2 to 186.95 cents a pound, following a relatively upbeat report from the US Department of Agriculture attaché in Brasilia on Brazilian
Still, the estimate noted considerable uncertainty over crop
prospects too, until the harvest is in the hand.
"It would appear that the USDA is caught in the same
quandary as the rest of us concerns Brazilian production," said Sterling Smith at
Citigroup, who has a less upbeat forecast for Brazilian output.
"If upside momentum develops a strong rally cannot be ruled