PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 10:07 GMT, Friday, 30th May 2014, by
Morning markets: wheat heads for worst month since 2011

Will wheat ever rediscover forward gears?

The grain, which has closed lower for 15 out of the past 16 sessions, on Friday had a crack at extending its losing run.

Month ends, after all, have a reputation for prompting weakness in Chicago, and there appeared little reason, fundamental or technical, to buck the trend.

"The Chicago wheat chart does not set the stage for much in the way of bullishness heading into the last trading day of the week," said Sterling Smith at Citigroup. 

'Probably grasping at straws'

Fundamentally, "heavy rains, up to 7 inches, over the last week through the US southern Plains should halt further declines in their hard red winter wheat crop, whilst rains through the Volga have alleviated early concerns of potential Russian production setbacks," Australian broker Pentag Nidera noted.

"With European crops well advanced and in good condition, the only apparent bullish supply side story left for the northern hemisphere milling wheat market in the next few months is the possibility of a weather related wheat event as they hit the harvest slot," prompting quality downgrades.

"But in reality, that's probably grasping at straws."

In Australia itself, Queensland-based Pentag said that while problems remained in some eastern areas, the country "as a whole is in pretty good shape.

"It's been hosing down in the West Australian wheat belt, with Narrogin, for example, picking up almost 100mm (4 inches) for the month to date."

Tour results

Back in the US, a crop tour by the Illinois Wheat Association of the winter wheat crop in the Midwest state, a major producer of soft red winter wheat, showed an above-average yield of 64.68 bushels per acre, up from 61.60 bushels per acre. (The average is 62 bushels per acre.)

Meanwhile, harvest has begun in southern areas of the US, meaning a rise in supplies, handing some market power to buyers.

Chicago wheat for July stood down 0.4% at $6.30 a bushel as of 10:00 UK time (04:00 Chicago time), down nearly 12% on the month so far, on a front contract basis, leaving it looking at its worst monthly performance since September 2011.

Minneapolis hard red spring wheat for July fell even further, by 0.5% to $7.11 a bushel, bucking a relatively firm trend so far this month, helped by the growing demand needs for higher protein supplies, given the drought troubles which have affected the hard red winter wheat crop.

Furthermore, there are ideas of the loss of some 500,000 acres of northern US sowings to a planting season which was unusually wet and cold early on, and has limited to 6% the loss in Minneapolis wheat this month.

Good growing conditions

Wheat's weakness was hardly positive for corn, which faces the additional pressure of near-ideal growing conditions, extending on the forecasts well into June.

"Even if most of the negative news on an average to above-average start to the 2014 US growing season is fully discounted, there is also the possibility that the 2014 US corn yield could approach 170 bushels per acre," said Richard Feltes at broker RJ O'Brien.

This would add "another 420m bushels to the US Department of Agriculture's US corn carryover forecast of 1.726bn bushels" for the close of 2014-15.

Sure, there is talk of a 500,000-acre loss in northern US corn area too, and basis levels are firm, with the country's exports holding up well.

Still, corn for July added a modest 0.1% to $4.70 a bushel, while the new crop December lot fell 0.2% to $4.62 a bushel.

'Slow Argentine sales'

This time, new crop November soybeans did not manage to exploit corn's fall to its advantage, in lowering further the November soybean: December corn ratio, which ended the last session at an elevated 2.69: 1, the highest indeed for the spread for 2014 lots.

"This is very high for this time of year with the entire growing season still ahead of us," one broker said, noting continued talk of slow crop selling by Argentine farmers, in the face of a depreciating currency and high inflation, against which dollar-denominated assets offer some protection.

"Some believe that the slow Argentine sales have something to do with the strength in soybeans."

At Benson Quinn Commodities, Kim Rugel said: "The Argentine farmer has turned defensive and is holding soybeans in face of government's request they step up soybean sales in order to bring in much needed income to the state.

 "Argentina has agreed to plan to repay the Paris Club $9.7bn in debts that had gone unpaid since the country's 2001 default."

Extra supplies?

Furthermore, with 1m acres of northern US corn and wheat lost, will some of that end up with soybeans, boosting production expectations?

Mr Feltes said: "Lower hard red spring wheat and corn area, along with a historically high November soybean: December corn ratio, collectively suggest a 750,000-acre gain in US soybean area," above the 82.25m acres farmers intended to plant, according to a USDA report in March.

That would "add another 32m bushels to an already record 2014 US soybean crop".

Soybeans for November fell 0.3% to $12.40 a bushel, with the old crop July lot down 0.1% at $14.97 a bushel.

Softs soften

Soft commodities saw some end-of-month selling too, giving back some of the ground gained in the last session.

Sure, in sugar, Datagro has cut to 560.5m tonnes its forecast for cane production in Brazil's Centre South.

But in Thailand, the world's largest sugar exporter after Brazil, output will probably hit a record 12m tonnes, from 110m tonnes of cane, in the year from November, a rise of 6.3% year on year, according to Thai Sugar Millers Corp.

Raw sugar for July eased 0.2% to 17.45 cents a pound in New York.

And arabica coffee for July 2.0% to 178.40 cents a pound, as the bounce in the last session encouraged a little producer selling.

Evening markets: soft commodities soar. But grains flounder
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