PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 09:41 GMT, Thursday, 28th Aug 2014, by Agrimoney.com
Morning markets: wheat's premium over corn returns above $2

How far will it go above $2.00?

One of the underlying grain price trends of the last month or two has been the modest outperformance of futures in winter wheat, spared from harvest pressure, compared with those in corn, for which harvest it approaching.

Harvest brings pressure on values in part from a spike in supplies, which switches market power to buyers, but also the elimination of the last risk premium to account for eg weather risk.

Seasonal trend

The premium of Chicago wheat futures against corn, on a December basis, reached $2.02 a bushel at one point in early deals on Thursday, up 4.75 cents on the day, and approaching $0.40 over the past two months.

It is, in fact, not the first time above $2 a bushel. Indeed, the spread temporarily hit this level earlier this month, on Ukraine concerns.

But it is notable that, assuming corn futures do succumb to harvest pressure, the seasonal low in the spread may be still some two months off.

Last year, the corn-wheat spread, for the December 2014 contracts reached $2.00 a bushel in late September and peaked at $2.39 a bushel on October 23.

'Prices could seasonally decline'

There is some support for the idea that the spread will widen further, with Richard Feltes at RJ O'Brien, for instance, citing concerns that the US Department of Agriculture is "overstating 2014-15 European Union corn imports".

The EU rains have dealt a double blow to expectations for corn imports both boosting the amount of wheat downgraded to feed and boosting the bloc's own crop prospects.

"Look for further gains in wheat versus corn in coming days," he said.

At Futures International, Terry Reilly said: "History has shown corn prices could seasonally decline in September."

'Hefty premium'

Besides, results from the early US harvest are coming in strong, and prospects for crops abroad remain broadly good too, with South Africa lifting its 2014 corn production estimate to 14.307m tonnes, some 300,000 tonnes above the previous estimate and the Reuters forecast.

Meanwhile, wheat prices are finding some support from the Ukraine crisis and from concerns over the potential dent to quality of spring wheat from harvest-time rains.

"Ongoing US wheat quality problems are keeping US wheat futures at a hefty premium over corn futures, despite large 2014 US production," Mr Reilly said.

And, from a technical perspective, "with Thursday's firm close in the winter wheat contracts, it wouldn't take much additional momentum to spark more buying in the winter wheat markets," said Brian Henry at Benson Quinn Commodities.

"Short term momentum studies are firm in Chicago and Kansas City, while dailies are trying to firm."

Long weekend ahead

Still, one reason not to expect fireworks for now is the prospect of a long holiday weekend in the US, which celebrates Labor Day on Monday, meaning an extra day without being able to trade at a time of wheat when frost forecasts (currently nothing significant is on the radar for the US) are being much-watched.

For corn, "strong yield performance for early crops in the South and beneficial rains forecasted for the Midwest continue to negatively influence price, but no one wants to push to new lows ahead of the long holiday weekend", CHS Hedging said.

"The fundamental and technical inputs in the corn remain negative, but the market just doesn't want to test the recent lows," Mr Henry said.

"The corn market trades like it's oversold. Perhaps short covering anticipated ahead of the weekend is happening early as spec traders are looking to enjoy a longer weekend."

Corn for December was unchanged at $3.65 a bushel as of 09:40 UK time (03:40 Chicago time), while December wheat was 0.8% higher at $5.66 a bushel.

'Extremely impressive yields'

As for soybeans, they managed gained too, by 0.2% to $10.26 a bushel for the November contract.

Early US harvest results have proven positive,

"Soybean yields out of the Delta region have been extremely impressive with most reports revealing 50+ bushels-per-acre yields off the combine," CHS Hedging said.

And as for the Midwest crop, Richard Feltes said that he was "hearing more reports of soybeans adding plant height and pods following generous August rains".

'Economic losses'

Such talk is offsetting the growing chatter over the spread of sudden death syndrome and white mould, both fungal diseases, whose incidence has been growing.

In Illinois, the University of Illinois noted that "signs and symptoms of a few soybean diseases have begun to show up in the last few weeks in some areas of the state. 

"Two of these diseases, sudden death syndrome and Sclerotinia stem rot, aka white mould, certainly are going to cause economic losses in some growers' fields this year."

Chinese lending squeeze eases

However, soybeans had extra support too from the, unusual, net short that speculators have in Chicago futures and options, meaning pre-weekend position covering will lift prices.

Furthermore, there are signs in an easing off in the Chinese commodity lending squeeze deemed to have curbed purchases from the top soybean importing country, and as highlighted on Wednesday by Anglo-Eastern Plantations.

Shandong Changhua Food Group, China's second-largest palm oil importer, said that it had bought in 250,000 tonnes of soybeans and 20,000 tonnes of edible oils this week, and planned to import similar volumes next week, after banks resumed lending.

"Some banks that had stopped lending to us have started to gradually resume cooperation with Changhua, allowing our commodities trading operations to return to normal," the company said.

Palm oil gained 0.7% to 1,989 ringgit a tonne in Kuala Lumpur.

While soybean prices on China's Dalian exchange eased 8 yuan to 4,593 yuan a tonne, this could be taken as a sign of an increased competition threat from, cheaper, imports.

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