Did investors overdo the selling in wheat?
In the last session, futures fell 2% in Chicago to close
below $6 a bushel, while Kansas City hard red winter wheat tumbled nearly 3%,
after the US Department of Agriculture in its monthly Wasde report unexpectedly
raised estimates for world stocks at the close of 2014-15.
The upgrade reflected improved hopes for production in the
likes of the European Union, China and even Russia, where many investors have
been concerned over dryness, with the lifts only partially offset by raised
ideas on consumption.
However, the data alone did not appear as bearish as the drop
in prices suggested. Stocks as of the end of this season were pegged some 1.6m
tonnes above expectations.
OK, there were some other factors involved.
"Expectations of better US harvest progress in the winter
wheat classes into the weekend are also a negative input," Brian Henry at
Benson Quinn Commodities said.
Furthermore, charts played a big role
"Fund selling increased on fresh negative technical inputs
such as markets failing at their prior lows," Mr Henry said, adding that July
contracts "closed poorly from a technical standpoint".
At Citigroup, Sterling Smith said that "funds by our count
have moved into a small net short position", after selling an estimated 5,000
lots in the last session.
'Quest for value'
Still, with this clearing the overhang of the large net long
that funds had a month or two ago, this means the market is "perhaps a step
close to a more sustainable rally", Mr Smith said.
And prices indeed rose on Thursday, helped by a concept
raised by Mr Henry, that they "continue in a quest for value".
US cash basis rose on Wednesday, even as futures were
dropping, suggesting that end users were not quite as downbeat as hedge funds.
And that idea gained strength overnight when Gasc, the grain
authority, the world's largest wheat importing country, unveiled a tender for the
grain for late July shipment.
A tender at a time when Egypt is often focusing on mopping
up domestic supplies gave some hope that prices may have fallen enough for now.
Is Gasc worried that dryness in Russia, a major supplier,
may prove an issue after all?
Soft red winter wheat for July rose 0.5% to $5.92 a bushel
in Chicago as of 09:05 UK time (03:05 Chicago time), rebounding from its lowest
finish since mid-February.
Kansas City hard red winter wheat for July added 0.5% to $7.08
gains too, as investors reassessed the USDA's decision on Wednesday to cut US ending
stocks for 2013-14 by only 5m bushels, to 125m bushels, and more particularly
to raise by only 5m bushels the estimate for the domestic crush, while leaving
the export figure unchanged.
"This lack of action by USDA seemed to disappoint the longs
who were hoping USDA would have to use negative residuals to make the balance
sheet work out," Benson Quinn Commodities said.
The decision to leave the estimate for 2013-14 US soybean
exports at 1.60bn bushels "looks suspect, given the lack of any cancellations
so far" of orders, Richard Feltes at RJ O'Brien said.
With the US having already committed to far more than 1.6bn
bushels of soybean exports in 2013-14, with nearly three months left in the
season, cancellations (or an estimate upgrade) are needed to balance the books.
More will be known later, when the US reveals weekly data on
export sales (or net cancellations).
They are expected at a negative 100,000 tonnes for old crop
soybeans, and positive 300,000-500,000 tonnes for new crop.
'Nothing to mitigate
Still, Mr Feltes also pointed out that there was "nothing in
Wednesday's report to mitigate concern over tightening old crop US soybean
stocks", with 125m bushels the lowest supplies on records going back to the
1960s, as compared with use.
"Keep your eye on domestic soy basis in weeks ahead," he
There was the potential for the USDA to make a more thorough
revisions to the soybean balance sheet in the July Wasde, depending on what
comes out on a much-watched quarterly US inventory report due on June 30.
Soybeans for July gained 0.5% to $14.52 a bushel in Chicago,
helped too by a firm performance by futures on the Dalian exchange in China,
the top importer of the oilseed, where the benchmark January contract edged 6
yuan higher to 4,487 yuan a tonne.
for September, the best-traded contract nudged 4 yuan higher to 3,763 yuan a
tonne. In Chicago, the July soymeal lot gained 0.5% to 484.80 a short ton.
'Large boost in
Even corn got in on the recovery, although its revival was
more muted, against a backdrop of continued ideas of ideal US weather and a
record harvest ahead.
While the USDA in the Wasde "left the new crop balance
unchanged", this has "set the stage for a potentially large boost in yields on
the July report if the weather and crop conditions continue to be as good as
they are", Citigroup's Sterling Smith said.
"The market now looks to be targeting the $4.20-a-bushel
area as long as the weather stays bearish."
Richard Feltes at RJ O'Brien, which raised its own estimate
for the US corn yield by 1.0 bushel per acre, said that "corn bulls must
consider the risk that the 2014 US corn yield will edge higher.
"A 170 bushels per acre US corn yield suggests end-2014-15 US
corn stocks in excess of 2.1bn bushels," and the potential "continued erosion"
in December futures to the "low $4s-a-bushel area".
Still, demand is holding up too, with the 944,000 barrels a
day of ethanol produced last week in the US one of the strongest numbers on
record, and suggesting bumper use of corn on this score.
Although China's suspension of imports of US distillers'
grains (DDGs), a feed byproduct of ethanol manufacture, "may change the
economics for the corn processors, they are still seeing positive margins
despite lower DDG values" CHS Hedging said.
As for exports, data on these has improved of late. Weekly
export sales later are expected at 250,000-500,000 tonnes for old crop, and 300,000-500,000
tonnes for 2014-15.
Corn for July gained 0.1% to $4.41 ½ a bushel, bouncing from
its lowest close in nigh on four months, and outpacing the December lot which eased
0.1%, also to $4.41 ½ a bushel.
The old crop outperformance may also have been a result of
the wind-down of the fund rolling process, whereby they sell near-term
contracts, ahead of expiry, and reinvest in further-ahead lots.
Among soft commodities, it was too early to answer perhaps
the biggest question, of whether New York arabica
coffee futures will build on their 4% gain in the last session, amid
decreasing confidence of talk of a stronger than expected, or rather less weak
than expected, US harvest.
Mr Smith flagged a "steady stream of reports that overall
bean size is small and there are quality and condition issues as well.
"The questions about the size of the Brazilian crop continue
to mount and further volatility should be expected."
But raw sugar
maintained its downswing, dropping 0.4% to 16.74 cents a pound for July, the
lowest for the contract itself in nearly four months, if within the trading
range for the rolling spot contract graph.