Morning markets: new month, new money into ag markets?

New month, new money?

There is an idea that the start of a month sees funds inject fresh cash, just as they tend to withdraw funds at month end.

However, there was little sign of that on the first trading day of June.

In fact, early deals were marked by some landmark price falls.

Weakness in Asia

In Asia, rubber dropped 3.6% to touch 191.50 yen a kilogramme in Tokyo, the weakest for a benchmark contract since August 2009.

Prices are being undermined by strong inventories in China, whose easing rate of economic growth is only adding to ideas that these stocks may take some time to work through.

Meanwhile, production is still growing, if with signs of a marked slowdown. World rubber output will exceed demand by 241,000 tonnes in 2014, a fourth year of oversupply, according to the International Rubber Study Group.

In Kuala Lumpur, palm oil dropped too, touching 2,386 ringgit a tonne, a seven month low, before recovering some ground to stand at 2,397 ringgit a tonne at 09:40 UK time (03:40 Chicago time), down 1.1% on the day.

The vegetable oil was undermined by data underlining a weak performance by Malaysian exports in the second half of May.

Malaysian palm shipments rose 7.8% overall last month, cargo surveyor Intertek said. But that implied a sharp slowdown later in May, given the 23% rate of increase reported half way through the month.

'Crusher woes continue'

Sticking in Asia, concerns about the appetite for soybeans by China, the top importer of the oilseed, were hardly helpful to prices in Chicago either.

"There is chatter that some Chinese firms run into credit problems and there are continuing reports that vessels loading in Brazil have no destination yet established," CHS Hedging said.

Benson Quinn Commodities said: "China crusher woes continue with spot margins negative and the small crusher unable to get credit on Brazilian cargoes."

Furthermore, there are ideas that China may at this week's auction of soybeans from state reserves put a bigger volume up for sale.

Rapeseed upgrade

Weakness in palm oil is hardly helpful to soy complex prices either, with the vegetable oil a major competitor to soyoil.

And, elsewhere in the oilseeds complex, Strategie Grains nudged its forecast for the European Union rapeseed crop, the world's biggest, higher by 200,000 tonnes to 21.8m tonnes, citing benign weather.

In Paris, November rapeseed was indicated down 0.4% at E353.00 a tonne.

Paris-based Agritel said that an "abundant European harvest outlook, progress sowing canola in Canada and weak palm oil prices do not support the rapeseed market".

'Near-ideal weather'

Still, Chicago soybeans themselves did worse, falling 0.6% to $14.83 a bushel for the July contract, and by 0.9% to $12.23 a bushel for the new crop November contract.

Also pitching again soybean bulls is favourable weather for US sowings,

"Weather remains near ideal for the already-planted crop as warmer temperatures and ample moisture allows for rapid emergence," CHS Hedging said.

And traders believe some 80% of US soybeans have been sown, although the US Department of Agriculture will later reveal the weekly official update on this.

As for old crop, Benson Quinn Commodities noted that US cash markets are "indicating there are still soybeans available".

The market will, in quarterly stocks data at the end of this month, "be looking for signal that USDA may have understated production last year", the broker said.

'Above-average start'

For corn too, the favourable US conditions have been giving power to bearish sentiment.

Indeed, speculators cut their net long position in Chicago corn futures and options by more than 29,000 contracts in the week to last Tuesday.

The USDA data is expected to show corn sowings 95% complete, with crop seen in good health too.

CHS Hedging said: "The first crop condition report is expected to show the crop in good condition."

"The rating could be at or above 70% 'good' or 'excellent', indicating an above-average start to the 2014 US growing season," Richard Feltes at RJ O'Brien said.

'Very wet looking pattern'

And there are expectations of further precipitation too to keep growth on track, with US farmers saying that, generally, "rain makes grain". said that a ridge centred "over the northern portions of Mexico, Texas and Louisiana" would provoke "ring of fire thunderstorms" about that, with a ridge over western Canada encouraging US rains too.

"Either one of these features by itself would bring about significant rain to much of the Plains and the Midwest," the weather service said.

"But when you combine these two features in the overall weather pattern, you end up getting a very wet looking pattern."

Corn for July was 0.9% down at $4.61 a bushel, with the new crop December lot down 0.9% at $4.53 a bushel.

'Rush to plant'

The one concern over this wetness is whether it will slow the last remaining plantings in the northern US, where growers have been behind.

CHS noted that late last week, "farmers across North Dakota [rushed] to seed wheat ahead of a possible major precipitation event with some areas forecast to see up to 5 inches".

Rain could also slow the harvest of winter wheat, which is in its early stages in the US south, the hard red winter wheat belt, besides presenting a quality threat, with harvest-time rains encouraging sprouting which reduces kernel's suitability for making flour.

US harvest results

In fact, the rains that fell on the southern Plains last week, while boding well for crops not yet ripe, did hamper harvesting, although there has been no talk yet of any quality damage.

US Wheat Associates, in its second harvest report of the year, said that last week "the 2014 hard red winter wheat harvest is moving at an extremely slow pace with only limited cutting in central and north Texas and extreme southern Oklahoma being reported, due to widespread precipitation.

"Scattered rain showers have continued through the week."

On quality, "preliminary" reports from show test weights "mostly between" 57-59 pounds a bushel, equivalent to 75.0-77.6 kilogrammes per hectolitre.

Moisture is seen averaging just over 12% with protein readings ranging from 11% to more than 175, "with the majority being 12.5-13.5%".

Prices fall

Still, with harvest typically a time when crop prices fall, as a ramp up in supplies gives buyers a little extra market power, Kansas City hard red winter wheat for July stood down 1.6% at $7.11 a bushel, earlier touching a three-month low of $7.11 a bushel.

The contract also dropped easily below its 100-day moving average.

Chicago soft red winter wheat for July fell 1.5% to $6.18 a bushel, touching a three-month low of $6.16 a bushel earlier.

The soft red winter wheat harvest has yet to begin, with the long winter slowing development.

"Arkansas harvesting likely will not begin until the end of the first week of June," US Wheat Associates said, adding that "North Carolina anticipates starting about June 9, and both states could be further delayed if rains continue".

Minneapolis hard red spring wheat for July was 1.3% down at $6.97 a bushel, falling below $7.00 a bushel for the first time since early March.

At least on the demand front there as some positive news, in that Jordan issued a tender for 100,000 tonnes of hard milling wheat, plus 100,000 tonnes of feed barley, although the country does have a habit of tendering and not buying.

For wheat, today marks the first trading day of 2014-15 for the US calendar, although for many other northern hemisphere countries the season will start on July 1.

Evening markets: grain prices drop, as soybeans scoop buyers
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