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.
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
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 ½ a
bushel on October 23.
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
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,"
At Futures International, Terry Reilly said: "History has
shown corn prices could seasonally decline in September."
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
"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
"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 ¾ a bushel.
As for soybeans,
they managed gained too, by 0.2% to $10.26 ¼ a bushel for the November
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".
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."
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
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
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.