Wheat futures are
beginning to put together a bit of a rally.
Chicago's September contract stood up 1.2% at $5.59 a bushel
in early deals on Wednesday – looking for a sixth successive positive session,
a winning spree not seen since April, just before the tumble in prices began
from levels over $7.50 a bushel.
The contract, which last session recorded its highest finish
in nearly a month, has gained 6% so far during its recovery, and set camp
firmly above its 10-day and 20-day moving averages.
Even London feed wheat futures are showing signs of life,
closing the last session at £123.50 a tonne for November delivery, 3.3% above a
four-year low reached on Friday.
And London feed wheat has the worst fundamentals of all,
given that wheat prices are being boosted largely by European quality fears –
of milling wheat being downgraded to feed, boosting supplies of the latter.
Furthermore, feed wheat faces competition in livestock
rations from corn, of which there appear more than ample world supplies.
Has wheat's revival got legs?
This kind of rebound "usually means a trend change", Mike
Mawdsley at Market 1 said.
"Let's be a tad careful but it this market could find some
buyers, don't rule out [crossing] the 50-day moving average," something the
contract has not seen in a while.
(Since May 14, to be exact, for Chicago's September
The contract in fact touched its 40-day moving average on
Wednesday for the first time since May 14.
At Citigroup, futures specialist Sterling Smith said that another
technical indicator, retracement levels, "take the market back to the $6.00-a-bushel
level", a price not seen in the September contract since late June.
Still, he added that "while this possible, we do have out
serious doubts about much in the way of extended bullishness, given the state
of the row crops", the prices of which are being depressed by strong US
And it is worth remembering that the round of gains in
futures is being fuelled, especially in Chicago, in part by a temporary factor –
the covering of short positions, which hedge funds have ramped up over the last
Indeed, as of last Tuesday, they had their second biggest
net short position in Chicago wheat futures and options ever.
'Uncertainty of war'
Still, there are fundamental supports too, especially the
quality downgrades to EU wheat, thanks to rains which show no signs of
Rainfall on harvest grains encourages sprouting, meaning
downgrades, potentially below milling standard.
And the concerns have spread to Ukraine too, where ProAgro
has estimated that feed wheat will account for 35% of the domestic harvest, up
from 25-30% last year.
That said, in Russia, 77.5% of wheat is of milling grade, with
the balance feed, according to Russia's Veterinary and Phytosanitary
Still, on the bullish side there are the Ukraine political
concerns to factor in too, and Russia's growing troop numbers at the border.
"Ukraine is still a large portion of the world's wheat
supply and the uncertainty of war has the market on edge," one US broker said.
Data revisions ahead
The market is less on edge about corn supplies, even though Ukraine is a big exporter of that grain
too, but with the US looking set for back-to-back record harvests.
Still, the low prices caused by the strong US production
expectations are, besides encouraging demand – more on which will be known
later today in weekly US ethanol data – choking off output too.
The US Department of Agriculture attache in Buenos Aires pegged
the Argentine corn crop in 2014-15 (harvested in earlyish 2015) at 23.5m
tonnes, well below the USDA's official estimate of 26m tonnes.
Official estimates may be changed next week in the monthly
Wasde report, the prospect of which, in encouraging uncertainty, is also seen
as potentially curtailing further notable price losses.
"We are unwilling to think that there will be aggressive
trade in front of the report," Citigroup's Sterling Smith said.
The biggest focus will be on the US corn yield, which the USDA
is expected to upgrade from its current figure of 165.3 bushels per acre (to
168 bushels per acre, Informa forecast on Tuesday).
Corn for December actually rose 0.1% to $3.68 a bushel,
given a help by fellow grain wheat.
'Continues to ease
It was soybeans
which lagged, with the November contract shedding 0.2% to $10.63 ½ a bushel, as
continued benign US weather encouraged the removal of risk premium.
For the oilseed, August is the crucial month, bringing
pod-setting, rather than July for corn, the pollination month, meaning that
soybean futures often see a little later price deflation assuming non-adverse
In fact, "the US weather continues to ease nerves," Mr Smith
Elsewhere in the oilseeds complex, palm oil dropped 0.4% to 2,262 ringgit a tonne in Kuala Lumpur, earlier
hitting 2,239 ringgit a tonne, the lowest in nigh on a year, undermined by
concerns of soft Malaysian exports, thanks to a strengthened ringgit and competition
from other vegetable oils.
Furthermore, the waning chance of an El Nino has reduced the
concerns of damage to South East Asian production from dryness which typically
accompanies the weather pattern.