futures the oomph to go much higher?
It is worth asking, as the rally in the last session which gave
wheat futures their highest close since before Christmas in Chicago in the last
session - and took Kansas City-traded hard red winter wheat and Minneapolis spring
wheat to full two-month closing highs - bumped them up against a key technical
In Chicago, the rise took the March contract up nearly to
its 75-day moving average, which it has not closed above since October.
For Kansas and Minneapolis wheat, March contracts were taken
nearly to 100-day moving averages, which the lots have not closed above for
three months or more.
Can they break above them?
It helps that the grain is being seen more positively by
funds, or at least less negatively, with upward price movement encouraging them
to close some of their large net short position in wheat, so creating more
It is a vicious, or virtuous, circle, depending on which
side of the fence you are.
"Fund activity" has been "playing a big part of late", Brian
Henry at Benson Quinn Commodities said.
"Upward momentum continues to force short position holders
to cover positions."
'Severe signs of
However, there is also more talk on the US fundamentals too,
with the declining condition of the winter wheat crop as highlighted by monthly
US Department of Agriculture data released two weeks ago.
Texas, which produces weekly statistics, in overnight data actually
showed a further decline in condition over the past week, by one point to 17%
rated "good" or "excellent".
"Small grains in the Cross Timbers show severe signs of
drought," USDA scouts said, adding that the state was "rated mostly in a moderate drought, with
parts of the Panhandle in a severe to extreme drought".
"The recent cold fronts in the Blacklands took a toll on
wheat fields, causing them to grow at a slow pace."
'Weather will be a
And dryness matters, even in winter when seedlings are,
"Weather will be a factor for the US central and southern
Plains because there's a threat that unseasonably warm temperatures may trigger
winter wheat to break dormancy prematurely under severely dry topsoil
conditions, which would increase the risk of winterkill," said broker Doane.
The more immediate risk, however, appears to be more of cold
temperatures, with the last week of the month expected to bring fresh frosts to
"The forecast has trended colder in the central and southern
Plains," MDA said, adding that "the precipitation outlook is drier in the central
"Cold temperatures across the central and southern Plains
wheat belt will increase winterkill threats."
According to Commodity Weather Group, some 15% of the US
winter wheat crop is at risk of bitter cold.
At broker Phillip Futures, Vanessa Tan said that "unfavourable
weather conditions in the US that could put the winter wheat crop at risk of
Benson Quinn's Mr Henry highlighted that the cold was coming
after this week's warmer weather which had melted snow.
"Despite recent snowfall in many key hard red winter wheat
growing areas, the generally drier trend experienced much of the winter is
raising concerns," he said.
Indeed, Kansas City hard red winter wheat, grown on the
central and southern Plains, added 0.2% to $6.87 ¼ a bushel for March,
outperforming Chicago soft red winter wheat, produced in the Midwest, which
edged 0.1% higher to $6.12 ½ a bushel as of 09:40 UK time (03:40 Chicago time).
Minneapolis spring wheat did best, up 0.4% at $6.81 ¾ a
bushel for March.
It will not be long, of course, before the melting of the northern
US snowpack raises concerns about flooding and spring wheat seedings...
Oats vs corn
With poor North American weather back on the radar, it was
no surprise that oats rediscovered
upward movement, having been driven to record highs two weeks ago by the
difficulty of getting the grain from Canada to the US.
(The US relies on Canadian imports for half its oats.)
Oats for March soared 4.1% to $4.46 ¼ a bushel, threatening
once again to gain a premium over corn,
which eased 0.2% to $4.49 ¼ a bushel for March delivery.
Corn is being supported by ideas that stocks are not as huge
as had been thought, sapped by strong US exports which were underlined in cargo
inspection data of 827,610 tonnes released on Tuesday.
Furthermore, "with the recent buying spree, money managers
are thought to be building perhaps a small long position in corn futures," CHS
Hedging said, with speculators having last week turned net long for the first
time in seven months.
However, higher prices are also encouraging sales by US
farmers still sitting on a large quantity of supplies left over from last year's
South American weather has taken centre stage, with concerns particularly over Brazilian
drought, but also over Argentine wetness too.
And all this against a backdrop of silence in terms of
cancellations by Chinese importers of their orders of US soybeans in favour of
South American ones, a dynamic which had been expected now that decent harvests
look on their way, even if weather has taken the highest forecasts off the
"News out of South America isn't typically supportive, but to
this point the trade hasn't seen evidence that South American supplies are
going to take the pressure off tightening old crop supplies in the US," Benson
Quinn Commodities said.
"In the absence of prior sales being cancelled and supplies tightening
due to an extended period of strong crush and weekly inspections coming in at
five times what needs to be averaged to meet USDA estimates, fundamentals
continue to offer support."
However, the Argentine crop, for which harvest has yet to
start, may prove to be strong despite mixed conditions.
"The Argentine soybean crop is said to be rated near 87%
good-to-excellent despite recent less than perfect weather," CHS Hedging said.
At RJ O'Brien, Richard Feltes noted that the rise in soybean
prices is "triggering stepped-up Brazil farmer selling in addition to a modest
pick-up in movement by US farmers and soy resellers".
Soybeans for March eased 0.1% to $13.60 ¼ a bushel, with the
now better traded May contract easing 0.1% to $13.46 ¾ a bushel.
'Lack of conviction'
Of course, South American weather is a huge factor for soft
commodities too, with Brazil the top producer and exporter of the likes of arabica coffee, orange juice and sugar.
Softs in early deals proved unwilling to repeat their heroics
of the last session, when arabica coffee enjoyed its strongest session since
Raw sugar for May was down 0.4% at 16.44 cents a pound, although
May arabica coffee edged 0.% higher to 155.15 cents a pound.
Cotton edged 0.2%
lower to 89.29 cents a pound for May delivery, undermined by a China Cotton Association
report that Chinese imports of the fibre tumbled 36% last month, compared with
January 2013, to 292,500 tonnes.
On the technical front, Luke Mathews at Commonwealth Bank of
Australia noted that "prices remain trapped within the previous two sessions
trading ranges, signalling a current lack of conviction within the cotton