PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 09:29 GMT, Wednesday, 27th Aug 2014, by Agrimoney.com
Morning markets: prospect of long US weekend bolsters grains

It is only Wednesday, but already many investors are looking to the weekend.

That is because in the US, it will be a three-day one, with Monday bringing Labor Day, and the prospect of an extra day without being able to trade tends to instil a little nervousness in fast-moving markets.

That is especially so at a time of year in grain markets when weather forecasts are crucial, with markets currently hanging on every word about the potential for an early US frost, which might turn mega US corn and soybean crops merely into huge ones.

Frost factor

Not, it has to be said, that there is a sign of an early frost at the moment, even though some crops in Alberta, Canada suffered freeze losses over the weekend.

Indeed, Midwest forecasts indicate a "warm finish to the growing season and no sign of early frost", Richard Feltes at RJ O'Brien said.

However, with the three-day weekend ahead, some investors chose to take profits on short positions.

"We have the long weekend coming up due to Labor Day and we can sometime see this trigger market moves," one US broker said.

'Limited potential'

This tendency was least apparent in corn, which for December delivery stood down 0.5 cents at $3.65 a bushel in Chicago as of 09:30 UK time (03:30 Chicago time).

But then "the potential for a short covering rally is limited by the fact that the fund community isn't carrying a large net short position", Brian Henry at Benson Quinn Commodities said.

Hedge funds retain a net long position in Chicago corn futures and options of some 65,000 contracts, according to the latest regulatory data (accurate as of last Tuesday).

That said, on fundamentals, the grain is getting a little support on ideas that, even if weather is near ideal, sowings may have been lower than the US Department of Agriculture is banking on.

Besides interpretation of Farm Services Agency insurance data from the likes of Macquarie, a Farm Futures survey has pegged corn sowings 1.1m acres below the USDA forecast.

Last week's Pro Farmer crop tour also came in with an acreage estimate 600,000 lower than the USDA, on a harvested basis.

Sellers' strike?

And there is growing talk that farmers will support prices through a sellers' strike, hoarding crop in the hope of forcing buyers to pay up, although there is limited expectation that this might succeed.

At Country Futures, Darrell Holaday said: "We agree that farmers will attempt to put this crop away.

"But a 14.5bn-bushel corn crop and a 3.86bn-bushel soybean crop, or bigger is both cases, cannot be put away without a lot of storage. And we feel the higher production numbers will become reality."

Chinese prices rise

However, soybeans, in which hedge funds had a net short position of more than 16,000 contracts as of last Tuesday, fared better, bouncing 0.5% to $10.32 a bushel for the November contract.

Again US crop conditions appear favourable, and in fact there are reports of strong yields from the early harvest in the US South.

However, it was some help that soybeans on the Dalian exchange in China, the top importing country, added 1.0% to 4,601 yuan a tonne, indicating a potential revival in crush rates, which at 1.42m tonnes in the week to August 22 were down 4.4% from a week before.

Crush capacity, at 48.3%, was down 3.2 points.

Price volatility

There are also some spreading moves going on in the market, ahead of the approach of the expiry of the September contract, which are proving hard to fathom.

The spread between the September and November contracts has within the past week bounced above 150 cents a bushel back to current levels below 50 cents, volatility that Jerry Gidel, chief feed grains analyst at Rice Dairy, termed "totally crazy".

In fact, on Wednesday the September contract stood down 0.5% at $10.70 a bushel this time, going the opposite direction to the November lot, but also to September soymeal, which stood up 1.0% at $392.60 a short ton.

Much is depending on the US cash market, and when crushers find supplies of low-priced new crop soybeans, but even here, movements are somewhat diverse.

At Futures International, Terry Reilly noted that "Gulf [export] soybean basis apparently dropped 105 points to 265 cents over the November futures, while Decatur [Illinois] basis shot up 55 cents to 375 cents over the November.

"Later in the day we were hearing Illinois soybeans fell to 200 over the November."

'Various reports of vomitoxin'

Wheat has arguably the best (least bad) fundamentals, for supplies of quality grain at least, with the US spring wheat harvest joining those in Europe and the Ukraine to be tested by late rains threatening downgrades as well as slow progress.

"To date this is the third slowest US spring wheat harvest in the last 20 years," CHS Hedging said, noting that "there are various reports of vomitoxin issues as harvest moves forward".

Still, "US wheat remains uncompetitive in the world market with Russia and Romania being the cheapest sources to Egypt," the broker said, noting the results on Tuesday of a tender.

Spring wheat added 0.3% to $6.27 a bushel in Minneapolis for December delivery, while Chicago soft red winter wheat for December stood unchanged at $5.56 a bushel.

One negative, from a pricing perspective, is the move by Ukrainian President Petro Poroshenko and his Russian counterpart Vladimir Putin to agree to work on a ceasefire plan.

Wheat prices have moved in line with Ukraine-Russia tensions, given that both countries are major exporters of the grain.

Coffee cools

Among soft commodities, arabica coffee suffered some early profit-taking, after its 5% gain of the last session, standing down 0.3% at 196.80 cents a pound.

The 200-cents-a-pound mark may, from a technical perspective, prove tricky to move above.

But raw sugar extended its recovery on a reduced forecast from Unica for Brazilian Centre South production.

New York's October contract jumped a further 1.1% to 15.88 cents a pound.

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