Morning markets: wheat extends rally but corn rebound stalls

Was the revival in wheat futures in the last session a one-off, or the start of something more sustained?

It certainly lasted into early deals on Monday, and it was the specialist varieties, hard red spring wheat as traded in Minneapolis and Kansas City hard red winter wheat, which outperformed speculators' favourite, Chicago soft red winter wheat.

'Possible quality damage'

After all, it is hard red winter wheat, grown in the central and southern US Plains, which is at the centre of fundamental concerns.

The crop has been hurt by drought for much of its growing season and, while rains have now arrived, these are now slowing harvesting and threatening quality.

"Concern has been raised about possible quality damage to hard red winter wheat due to rain," said CHS Hedging.

"Concerns related to potentially heavy rains in eastern portions of the hard red winter wheat belt are offering relative support to the Kansas City market," said Brian Henry at Benson Quinn Commodities.

Already, they have hampered harvesting in Texas and Oklahoma, and while the harvest in many areas of KS is likely a week or more away, "the timing of these rains is far from ideal".

Harvest time rains can encourage sprouting and reduce gluten levels, so reducing milling quality.

'Hot, dry conditions continue'

In slowing the harvest, the rains also mean less pressure from the seasonal ramp-up in supplies and farmer selling.

And another weather threat is maintaining a presence in the market too, in terms of the dryness in Russia which, while apparently easing in the Central district, is still a concern in Volga Valley.

"Hot, dry conditions continue in Russia's Volga Valley," CHS said.

While the region is in fact due for "light showers", this will provide only "some limited relief", weather service MDA said.

'Limits the aggressiveness'

Technical factors are also playing a part in wheat's recovery, with the Chicago July contract on Friday showing the key pattern of trading outside the range of the previous session, but closing higher.

"This type of price action typically limits the aggressiveness of would be fund sellers," Mr Henry said.

Furthermore, the contract on Monday touched its 10-day moving average for the first time in a month, in adding 1.0% to $7.16 a bushel as of 08:40 UK time (02:40 Chicago time).

Kansas City's July contract gained 0.8% to $7.41 a bushel, with its Chicago peer rising 0.4% to $6.21 a bushel.

There is some talk of a purchase by Brazil of US hard red winter wheat too, adding support from the demand side to prices.

But can the gains stick?

"Current technical structure favours a correction opposed to a rally from the current levels," Mr Henry said.

China data

Soybeans also managed a positive start, adding 0.4% to $14.63 a bushel for July delivery, with the new crop November contract gaining the same to $12.24 a bushel.

A positive session on the Dalian exchange in China, the top soybean importing country, helped, with the January lot up 0.6% at 4.503 yuan a tonne in closing deals.

And, in fact, China was broadly positive for markets, with data on Sunday showing its exports rising by 7% last month, more than had been expected, at a time of softening imports too.

"The big jump in trade surplus and robust export growth in May supports of our 7.5% year on year growth forecast for the second quarter of 2014," said BofA Merrill Lynch said.

Shares made a strong start in Europe, adding 0.7% in London, after largely positive closes in Asia.

Data later

There is also the prospect of the tight US soybean balance sheet coming to the fore again on Wednesday, when the US Department of Agriculture unveils its monthly Wasde report, which is expected to show a small drop, by 3m bushels to 127m bushels, in the estimate for domestic stocks of the oilseed at the close of this season.

For 2014-15, a downgrade of 8m bushels is expected, although to a still generous 322m bushels.

Still, on the bearish side, the USDA will later on Monday reveal its first condition rating for this year's domestic crop, expected to show 70% or more rated "good" or "excellent", which would be a flying start.

Furthermore, hopes for the Argentine crop are improving, with the Buenos Aires cereals exchange last week raising by 1.5m tonnes to 55.5m tonnes its harvest estimate.

Weather threat recedes

But corn failed to maintain its progress of the past session, in part thanks to easing concerns over a potential weather threat.

The rise in futures on Friday had been driven in part by ideas of a dry spelling hitting the US in mid-June, a little too early to provide a major threat to production, but jolting investors out of some complacency over the ideal nature of the weather.

Some maps were "indicating a ridge building in the Midwest June 17-20", CHS noted.

Still, there was not so much sign of that on Monday, with MDA saying the outlook over the weekend had turned wetter.

And, as an extra setback for the grain, there is talk that China has suspended imports of US distillers' grains (DDGs), the byproduct of corn ethanol manufacture used as feed, in the latest chapter over the fuss over MIR 162, a genetically modified Syngenta corn seed approved in the US but as yet not in Beijing.

Claims of traces of MIR 162 have already prompted a series of rejections of US corn cargoes, but imports of US DDGs had not been so affected.

Corn for July fell 0.8% to $4.55 a bushel, with the December contract dropping 1.1% to $4.52 a bushel.

Cotton frays

Among soft commodities, cotton eased in New York by 0.1% to 84.68 cents a pound for July delivery and by 0.8% to 77.40 cents a pound for the new crop December lot, undermined by the southern Plains rains, which bode well for spring sown crops.

Still, the market will be keeping one eye today on a monsoon update in India, where the rainy season has been a bit sluggish in its progress.

London robusta coffee looked like making a bright start, indicated up 0.7% at 1,920 a tonne for July, amid concerns for dryness in Vietnam, the top producer of the bean, and over supplies too from Indonesia, another major grower.

Robusta exports from Indonesia's main growing area in Sumatra fell to 7,610 tonnes (126,830 bags) last month, down 66% year on year, according to official data.

US harvest fears send wheat prices flying, Coffee jumps too
Agricultural Commodities
Agricultural Markets
Agricultural Companies
Agricultural Events