Morning markets: ag selling pressure wanes, even in wheat

Will wheat futures choose today to fall back below $6 a bushel in Chicago?

There are many who believe it will.

"Price action continues to be poor and we can readily put a $5 in front of the July Chicago futures contract to close out the week," said Sterling Smith at Citigroup, noting that "while the export wire is busy, little of the action is translating into US business".

Most high profile wheat import orders continue going to Black Sea origin, including the purchase by Pakistan of 100,000 tonnes or so of wheat for August-September shipment, and Turkey's purchase of 165,000 tons of milling wheat Black Sea origin for July- August shipment.

On Friday, Indonesian millers bought 200,000 tonnes of Russian wheat.

However, an order by Thailand, for 50,000 tonnes, did go to the US, although the country is a bit of a North America-phile when it comes to its wheat purchases, buying from Australia too.

 Mixed blessing

Still, as of 09:20 UK time (03:20 Chicago time) the decline in futures hadn't got too far, with the July soft red winter wheat contract down 0.2% at $6.04 a bushel.

The contract was also offered something of a lifeline by its peer Kansas City hard red winter wheat, which has found some support from weather scares.

For farmers in the southern Plains, where hard red winter wheat has suffered drought for much of its growing season, the recent rains come as something of a mixed blessing.

Sure, they will boost prospects for spring crops, but for many farms, the rain has not just come too late to rescue winter wheat, but could actually harm the quality of what is there, with harvest-time moisture sapping protein levels and encouraging sprouting cutting milling specifications.

'Issue of heavy rains'

Benson Quinn Commodities flagged the "issue of heavy rains in hard red winter wheat growing regions as harvest approaches".

"Some concern has surfaced around rain in hard red winter wheat regions," CHS Hedging said.

At Market 1, Mike Mawdsley said: "Heavy rains in Kansas could affect the wheat quality for hard red winter wheat this week."

For spring wheat, rains are an issue too, in slowing remaining plantings in some areas of the northern US and Canada.

Kansas City wheat for July added 0.1 to $7.14 a bushel.

 'Tide is finally turning'

For soybeans, meanwhile, the issue is not whether selling will end, but whether buying already has.

As Citigroup's Sterling Smith said, "good weather in US growing areas is negative, and the fund longs have become burdensome".

The notable drop in the last session fuelled by technical selling, as the July contract dropped below its 50-day moving average for the first time in four months

At Benson Quinn Commodities, Kim Rugel said that "it feels like the tide in the bean market is finally turning lower, with positive weekly export sales garnering selling this time around rather inciting a fresh bout of buying.

"Technical selling from the fund community developed across the soy complex."

'Lots of volatility to come'

Still, there remains the issue that US stocks are tight and not being eased by a greater-than-expected pace of exports, and slower-than-expected rate of imports.

Indeed, when the US Department of Agriculture next week unveiled its monthly Wasde report, "trade is looking for USDA to raise exports by some 10m-20m bushels", Ms Rugel said.

"Crush usage is also expected to be increased," after data from industry group Nopa indicated a "high crush rate through April".

The extra use could be resolved through lower stocks, or through a negative "residual" - a somewhat amorphous number which, when negative, typically indicates an underestimate of the previous harvest, for which a late upgrade can be expected.

"There is still lots of volatility [in prices] to come as we work through these next reports, with the Wasde on June 11, Nopa crush data on June 16, and then planted acres and quarterly stocks on June 30."

Dalian decline

Not that much of it was evident in early deals, when soybeans for July were 0.3% higher at $14.64 a bushel, while the November contract was 0.1% down at $12.09 a bushel.

That relative calm in fact defied some weakness in external markets, with soybean futures on the Dalian exchange in China, the top importing country of the oilseed, falling by 1.1% to 4,475 yuan a tonne for January.

Elsewhere in the oilseeds complex, palm oil for August dropped 0.6% to 2,402 ringgit a tonne, with a strengthening ringgit and ideas of rising Malaysian inventories, putting a drop to the latest attempt at a recovery.

'Another day in paradise'

Corn, meanwhile, extended its own decline into a seventh session, undermined by continued ideas of benign US growing weather.

"It is just another day in paradise as weather is nearly ideal for crop development," CHS Hedging said.

"Good weather combined with weak technical structure continues to force funds out of a net long position," Benson Quinn Commodities said, noting that "good weather combined with weak technical structure continues to force funds out of a net long position".

Another broker said that "the weakness still revolves around the fact that too much risk premium was added early in the year and now it is coming back out from favourable growing conditions".

China auction

As an extra potential pressure, demand for corn declined at China's latest weekly auction from state reserves.

The country sold 1.05m tonnes of corn, 30% of the volume offered, compared with 53% of the 3.5m tonnes offered at the previous auction, last week.

That said, the price this time, at 2,206 yuan a tonne, was 23 yuan a tonne higher.

In Chicago, corn for July eased 0.1% to $4.48 a bushel, with the new crop December lot down 0.2% at $4.46 a bushel, in territory it has not trod since January.

Evening markets: wheat renews downswing. Corn, soy drop too
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