Morning markets: quality concerns extend wheat price rebound

Just as month ends, by repute, often prove weak for grain markets, month beginnings are supposed to bring in fresh cash.

And corn, at least, managed to hold its ground in early deals on Friday, and wheat made early headway.

As to whether resilience can last, there is one other calendar factor that may help futures hold onto positive territory until the weekend, with Fridays, and the prospect of two days without trading, often bringing some profit-taking, especially when weather and every change in the forecast carries weight.

Benson Quinn Commodities said that "there's a chance the trade wants to cover a few shorts ahead of the weekend.

"Investors may be leery of adding to short positions in the off chance next week's US rains to not materialise as advertised."

Midwest weather is proving a little less benign, with MDA noting that "dryness will continue to build in south west areas through early next week", although "some improvement is still expected later next week".

'High-risk crop report'

Not that there is much of an expectation of a sustained rally in prices, for corn and soybeans especially.

RJ O'Brien highlighted "no change in our long-term bearish outlook" for prices, of $3.25 a bushel for Chicago corn futures, and $9.50 a bushel for soybeans, once harvests are in the bag and risk premium further reduced.

However, the prospect of the US Department of Agriculture's Wasde report on August 12 gives another cause for sellers to hold fire, given that it often comes in with lower US harvest estimates than expected.

"Row crop markets may be reluctant to push dramatically lower until after the historically high-risk August crop report—especially given the trade's tendency in each of the last three years to overestimate corn and soybean production prior to the crop report," Richard Feltes at RJ O'Brien.

'Buyers can find value'

Demand is giving bulls some cause for hope too, with some decent weekly US export sales data on Thursday for grains.

For corn, "weekly export sales were marginal on old crop and pretty good for new, which indicates the traditional buyers can find value near the current levels", Brian Henry at Benson Quinn Commodities said.

Certainly, investors remained reluctant to send the December contract quite back to levels reached last week, with CHS Hedging noting that "support seems to be within pennies of contract lows".

Corn for December delivery was flat at $3.67 a bushel as of 09:10 UK time (03:10 Chicago time), reducing a touch its spread to new crop November soybeans, which fell 0.8% to $10.73 a bushel.

Many investors have forecast that the November soybean: December corn ratio, currently at a heady 2.92:1, will retreat assuming US weather stays benign for soybeans' sensitive pod-setting period this month, having already appeared ideal for corn's vulnerable pollination phase.

Tender results

Wheat remains more of a wild card, in being freed from downward pressure from the US winter crop harvest, which is nearly over, and with some concerns over supplies of quality wheat after drought in the southern Plains, and harvest-time rains in the EU.

There has been particular comment over the result, on Wednesday, of the latest tender By Gasc, the Egyptian grain authority, including over a lowball offer of US supplies, and the price paid for orders from Russia.

"The Egyptian tender showed US is competitive, only out on the freight rate," Gleadell, the UK grain merchant, said.

"And the fact that Gasc paid $2 a tonne more for Russian wheat, over a time when Chicago futures had retraced $2 a tonne, reflects the continued tightness of quality wheat."

Furthermore, only 2 cargoes of wheat were offered from Romania - a favoured origin for Gasc, but which has seen its crop hurt by rains – "and off the pace, leaving officials in Cairo crossing everything possible that no disruption to Black Sea exports occur as a result of the increased US and EU sanctions placed on Russia", Gleadell said.

'One of the few bullish items'

Mr Feltes, while downbeat on corn and soybean price prospects, said that "demand for US hard red winter wheat" – as traded in Kansas City, and higher protein than the soft red winter wheat traded in Chicago - "could rise further as EU quality deteriorates".

Citigroup's Sterling Smith, while also downbeat over the row crops, flagged wheat "quality concerns", and said that the spread between Kansas City and Chicago wheat "is one of the few potentially bullish items in the grain space".

The area around $0.90 a bushel "is showing itself to be solid support" for the spread.

In fact, the spread held at more than $0.95 on Friday, with Kansas City hard red winter wheat for September up 0.6% at $6.29 ¾ a bushel, while its Chicago peer gained 0.8% to $5.34 ¼ a bushel (with both contract rising 4 cents a bushel).

More fraying

In New York, cotton, however, remained out of favour 0.5% to 62.58 cents a pound for December delivery, continuing to feel pressure despite some decent US weekly export sales for new crop.

"The weather is still good" in the US, the top exporter, "and the Chinese stocks are still enormous", Mr Smith said, saying prices appeared to be targeting 60.00 cents a pound.

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