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.
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.
This tendency was least apparent in corn, which for December
delivery stood down 0.5 cents at $3.65 ½ 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.
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
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 ¾ a bushel for the
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.
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
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
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 ½ a bushel in Minneapolis
for December delivery, while Chicago soft red winter wheat for December stood
unchanged at $5.56 ½ 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.
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
New York's October contract jumped a further 1.1% to 15.88
cents a pound.