When will the wheat
price rally lose steam?
The grain on Friday had second thoughts about rising for
what would be a fifth successive session - and the best week for gains since
July last year, amid a broad array of niggles over global supplies.
The grain had started Friday firm, with Chicago's December
lot coming close to its 100-day moving average for the first time in 2013.
However, Chicago wheat for December standing down 0.1% at
$6.77 ¾ a bushel for December as of 09:20 UK time (03:20 Chicago time).
(It was also interesting that oats, which have a record as a leading indicator, including in the
last session, this time opened weak, down 0.5% at $3.17 a bushel for December.)
Sure, prices continue to find support from concerns over
frost in Argentina, the southern hemisphere's second-ranked supplier, and the
default source of import supplies for Brazil – which has itself had a frost affected
crop, now being threatened by rains.
"Showers will develop across southern Mato Grosso, southern
Goias, southern Minas Gerais, Mato Grosso do Sul, Sao Paulo, Parana, Santa
Catarina and northern Rio Grande do Sul this weekend and early next week," weather
service MDA said.
While boding well for sowings of corn and soybeans – although
"rains will still need to increase further in Mato Grosso" – the precipitation
is not so helpful for wheat harvesting.
'Demand has yet to
Whatever, the market is talking of an Argentine crop of
about 9.5m tonnes, below the US Department of Agriculture estimate of 12.0m
tonnes, and the International Grains Council estimate downgraded by 1.0m tonnes
to 11.0m tonnes on Thursday.
Investors are concerned that a poor harvest "may trigger the
second Argentine wheat export embargo in two years, thus escalating the risk of
even larger Brazilian purchases of US hard red winter wheat", Mr Feltes said.
It is the prospect of further strong demand for US wheat,
when the country's export sales have already hit 59% of the USDA forecast for
2013-14 (which closes at the end of May), which has really impressed bulls –
and provoked hedge funds into covering some of their huge net short in wheat.
"Much of the reason US wheat hadn't taken off to this point
is its large premium to competing world origins and the implied steep decline
in export demand over the second half of the marketing year," Jonathan Watters
at Benson Quinn Commodities said.
"But to this point demand has yet to let up."
However, the market, and row crops too, faces a key US grain
stocks numbers on Monday, with ideas of the number falling below expectations
also fuelling price rises this week.
But will data meet expectations? The uncertainty encouraged
some selling pressure.
Furthermore, demand ideas took a small dent from a fall by benchmark
January wheat futures on China's Zhengzhou exchange, which is being closely
watched, actually eased a bit on Friday, ending down 0.2% at 2,858 yuan a
"China's domestic wheat prices have reached record levels
and the world market is watching for cues on their import needs," a US broker
'Downside is limited'
Softness in wheat implied less support for corn too, which many investors believe has
been saved from setting fresh three-year lows, for the benchmark December lot,
by buoyant prices of its fellow grain.
"Although we are still bearish corn we can see this
cross-commodity strength provide some measure of support from the wheat," one
US broker said.
Still, there are ideas too that it has gained support from already
having factored in the kind of better-than-expected results coming from the early
"Downside on corn is limited until evidence mounts that the
national corn yield is 160 bushels per acre or higher," RJ O'Brien's Richard Feltes
said, estimating that a yield of 157 bushels per acre had already been built
The USDA earlier this month estimated the yield at 155.3 bushels
Besides, there is talk that some Iowa feed mills, "along
with ethanol plants enjoying attractive spot margins) are having difficulty
sourcing corn", albeit in an area in which the harvest is in its infancy.
"We'll need more evidence of better-than-expected yields,
along with stepped up farmer selling, before rechallenging December corn's mid-August
low of $4.45 a bushel," Mr Feltes said.
Corn for December eased 0.1% to $4.56 ¼ a bushel.
'Record US export
the market leader among Chicago's big three, if by adding all of 0.3% to $13.20
½ a bushel for November delivery, again in part thanks to some profit-taking, on
short positions this time, ahead of Monday's US stocks data.
Furthermore, with demand remaining strong, investors have a
limited impact for now for pressing prices much further down, at least until prospects
for South American sowings become clearer.
"A record US export sales pace is offering support as
harvest activity starts to ramp up," Benson Quinn Commodities said.
"Seasonal hedge pressure could mean one more leg down in the
coming weeks, but a large export commitment to fill, and tight pipelines,
appear to offer floor just under market with first support seen at $12.90 a
Among soft commodities, raw
sugar pulled back, in part for concerns over what Monday's expiry of the
October contract might bring, in terms of physical deals, but also after
Thailand pegged output at a record 11m tonnes, reminding of ample global
The International Sugar Organization has forecast the country's
output in 2013-14 at 10.7m tonnes, although some commentators have already
taken a more rosy view.
Kingsman this month raised its forecast to 11.7m tonnes
"Sugar prices are around 8% higher over the month, although
it is uncertain how much higher prices will be afforded to run given very
strong production prospects in India and Thailand," Luke Mathews at Commonwealth
Bank of Australia said.
Raw sugar for October fell 1.7% to 17.21 cents a pound, with
the March lot down 1.0% at 18.01 cents a pound.