PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 09:37 GMT, Tuesday, 4th Feb 2014, by
Morning markets: recovery stalls in wheat, but not coffee

Is wheat's longest winning streak since November a sign of a change of attitude on the grain?

Monday may only have been a third successive positive session, but that could look quite something for a contract which in January overall added losses of 8.2% to the 22% it lost in 2013.

Furthermore, Chicago's benchmark March contract closed above its 10-day moving average in the last session for the first time in two months (if still remaining below its other major moving averages).

And even though weekly US export data released on Monday were poor, at 11.7m bushels as measured by cargo inspections, well below the 17m bushels or so needed to meet US Department of Agriculture targets for the full year, foul weather may have had something to do with that.

"It was reported that [government] inspectors in New Orleans were unable to inspect barges for a couple of days to due ice along the river," Benson Quinn Commodities said, with soft data for corn and soybeans too consistent with such talk.

'Build winterkill protection'

As an extra bullish factor, data overnight showed a sharp deterioration in the condition of the crop in Kansas, the top US wheat producing state, where the proportion of winter wheat rated "good" or "excellent" tumbled to 35%, from 58% at the end of December.

However, this reflected largely dryness concerns, in a lack of snow cover to protect seedlings against cold, a void which looks like being resolved in coming days, in time to blanket crop ahead of the next freezes.

To repeat MDA's forecast, "snow cover has begun to build across the north central and southern Plains and Midwest, and should build further across the central Plains and central Midwest this week," MDA said.

"The increase in snow cover will continue to build winterkill protection for wheat as temperatures remain cold."

Wheat vs corn

Furthermore, there are technical reasons for caution too, with Richard Feltes at broker RJ O'Brien noting a "strong seasonal tendency for wheat futures to erode versus corn", to the end of April according to Moore Research.

This trend may gain support from a "more upbeat assessment of US corn export prospects in coming weeks", with Brazilian corn exports in February-March expected to fall short of those last year, and an "outlook for continuation of attractive US ethanol crush margin".

Indeed, there are those rumours, after all, of the Environmental Protection Agency postponing to the summer a decision on reducing the US ethanol mandate, while US exports of the biofuel are proving resilient, to the chagrin of European Union producers, who believe they may be entering the bloc through the back door of Norway.

'Understandably cautious'

Besides, there is some important data later on wheat, and many other crops, in Statistics Canada data on Canadian inventories as of the end of last year.

"Wheat bulls are understandably cautious about Tuesday's StatsCan update on wheat stocks," Mr Feltes said, noting that the figure could turn out to be "possibly a 22-year high".

The consensus (depending on which poll you believe) is for a figure of 28m tonnes, up 36% year on year.

Chicago soft red winter wheat, the world benchmark, for March stood 0.2% lower at $5.62 a bushel as of 09:30 UK time (03:30 Chicago time), with hard red spring wheat, of which Canada is a huge producer, down 0.2% at $6.09 a bushel for March.

Hard red winter wheat, as grown largely in Kansas state and traded in Kansas City, managed a gain of 0.25 cents to $6.24 a bushel.

Argentine rumours

Oilseeds markets will get some direction from the StatsCan data too, which are expected to show Canadian canola inventories ending 2013 at 13.1m tonnes, up from 7.3m tonnes a year before.

Also on the bearish side is talk of Argentina's government taking action to force producers to sell soybeans they have been hoarding, wisely, as a hedge against currency depreciation and domestic inflation pegged, unofficially, at 25% or so.

Soybean sales would hand Argentina valuable dollars at a time when its dwindling reserves of foreign currency are attracting international alarm.

And Brazil's exports seem to be proceeding relatively smoothly this year, in part thanks to the lower volume of competing corn shipments.

"Vessel line-ups at Brazilian ports continue to build, and early shipment execution appears improved," CHS Hedging said.

'Excessive moisture'

However, South America is emerging increasingly as a source of bullish information too, in part because it is not clear that Argentina will succeed in forcing its farmers to let go of soybeans except by creating the conditions for peso stability which it is not obvious the government is capable of.

Furthermore, Argentine rains, having initially been welcomed as resolving dryness, may now be proving a little too intense.

CHS noted "rumours of excessive moisture in Argentina", while MDA warned that "heavy rains across central areas over the next 10 days will increase wetness concerns and also result in some flooding".

Soybeans, while proving somewhat resilient to drought, "do not like getting their feet wet", as traders say.

'Dry weather expected to worsen'

Still, the dry weather in parts of Brazil is gaining more attention in soybean markets too, although in the main proving an issue for coffee and sugar markets.

"Dry weather conditions are expected to worsen in Brazil, top producer of soybeans, and this could provide stress to soybeans crops that are developing late," Vanessa Tan at Phillip Futures said.

"Brazilian harvest pressure is hanging over the oilseed market, however, the recent dry spell has raised some yield concerns for those crops which are still immature," Luke Mathews at Commonwealth Bank of Australia said.

Soybeans for March added 0.1% to $12.94 a bushel.

'Crop most impacted'

Corn sided more with fellow grain wheat, despite the seasons favouring corn (see above), and the grain also being affected by Brazil's dry weather - in fact, probably more so.

"As far as row crops are concerned, the full-season corn has probably been the crop most impacted by the hot and dry conditions," influential crop scout Michael Cordonnier said.

"The state of Minas Gerais has the most full-season corn acreage in Brazil and there have been numerous reports of significant moisture stress impacting the corn crop in the state."

'Willing seller on strength'

Still, one factor against corn is that US farmers, having been withholding crop sales so far in 2013-14, are being tempted by values now well above three-year lows below $4.10 a bushel seen last month.

"Firm cash markets remain a supportive factor in corn, but as we have seen, the producer is a willing seller on strength," Benson Quinn Commodities said.

"Positive price action did result in additional farmer selling on Monday," CHS said, adding that the US "farmer continues to be undersold on old crop production relative to history".

Does that mean sustained selling pressure ahead?

Chicago corn for March edged 0.1% lower to $4.35 a bushel.

Stronger softs

Back on the topic of Brazilian heat, and arabica coffee, which soared 8% in the last session largely on Brazil crop concerns, managed a further gain of 0.6% to 137.20 cents a pound in New York for March delivery, hitting a fresh eight-month high.

In fact, London robusta coffee for March was doing better, adding 1.6% to $1,896 a tonne, clawing back some of the ground against its rival bean that it lost in the last session.

Raw sugar, also potentially affected by the dryness, was flat at 15.74 cents a pound for March.

"A recent drying trend in Brazil, and forecasts that dryness will continue for at least another week, has supported the improved sentiment within the sugar market," CBA's Mr Mathews noted.

However, on the bearish side, while the Indian Sugar Mills Association has reported that sugar production at the end of January was running 17% lower year on year, "the year-on-year deficit is closing".

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