PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 21:03 GMT, Thursday, 13th Jul 2017, by Mike Verdin
'One-two punch' floors grain futures. But coffee, sugar soar

The early retreat in grain markets extended into a rout as improved US weather forecasts added to the reason to withdraw risk premium from prices, following larger-than-expected supply data unveiled in the latest Wasde report.

Investors late to put in long positions were "scrambling for the exits, as traders contemplate possibility that usual growing season weather rally has come and gone," said Richard Feltes at broker RJ O'Brien.

The Midwest weather outlook "leans negative [for production] with less severe heat next week, and for shorter duration, while areas labouring under short moisture fade from 20-25% to 10-15% over next 10 days".

'Heavy rain'

And this after unexpected rainfall this week too.

Tregg Cronin at Halo Commodity Company, based in North Dakota, noted "rains on the radar again this morning, which look to be dropping decent totals in eastern Nebraska, southern Iowa, northern Missouri and just making their way into western Illinois.

"Separately, there is also a system dropping moisture in Ohio and south eastern Michigan.

"Heavy rain has already fallen in northern Missouri, with totals there based on radar showing returns of 1.0-6.0 inches."

Certainly, that took the edge off data from the US Department of Agriculture showing spreading drought in Iowa, the top corn and soybean producing state, where 16.2% of area was rated in drought, up 7.3 points week on week.

In northern Plains spring wheat country, North Dakota was rated 72.8% in drought, up 6.0 points week on week, with South Dakota 72.4% in drought, a rise of 14.7 points.

'One-two punch'

"The combination of unexpected rains in the western reaches of the Corn Belt this week along with a lack of bullish surprise in yesterday's USDA reports seem to be combining to give the ag markets a one-two punch," Mr Cronin added.

Certainly, grain futures were floored, with spring wheat futures, the figurehead for the recent rally, plunging by 4.3% for September delivery to $7.49 a bushel, their weakest close of July so far.

Chicago winter wheat futures for September plunged by 4.2% to $56.11 a bushel, also a July low (and, pleasing for technical purists, closing a gap in the chart dating from July 3).

'Severely damaged'

Corn futures slumped by 3.8% to $3.69 a bushel for September delivery, slicing through a clutch of moving averages around the $3.80-a-bushel mark, and now down 7.7% in two sessions.

December futures ended down 3.8% at $3.83 a bushel, also below all major moving averages.

"The trade questions just how much weather premium is needed," said Benson Quinn Commodities, adding that the "technicals in corn are severely damaged".

"Technicals in wheat had already rolled over."

And funds "have plenty of room to sell in all three markets" having worked off plenty of short bets during the rally.

'Nothing to brag about'

Meanwhile, weekly US export sales data, while overshadowed by the focus on weather and the estimates in Wednesday's US Department of Agriculture Wasde report, were "nothing to brag about in wheat and corn", at 357,500 tonnes and 279,700 tonnes respectively for 2017-18.

Corn export sales were 161,000 tonnes for this season, well below market expectations for at least 300,000 tonnes. (For wheat, 2016-17 is already over.)

"Corn export sale numbers were weak this morning," said CHS Hedging.

Soy selling

CHS Hedging added that "soybean export sales were decent in the new crop year", at 455,000 tonnes, with 2016-17 sales at 228,000 tonnes.

"The combined old and new crop soybean number was decent," said Benson Quinn Commodities.

Still, soybean futures were trampled too in the stampede for the exits, and for November ended down 2.5% at $9.87 a bushel although, thanks to their longest winning run in 37 years preceding the selling of the last two session, the contract remains above major moving averages.

August soybeans dropped 4.4% to $9.75 a bushel.

'Heavy stress'

By contrasts, soft commodities enjoyed a strong session, helped in part by further firmness in the real, which raises the value in dollar terms of assets, such as coffee and sugar, in which Brazil is a major player.

Arabica coffee futures for September jumped 2.8% to 131.20 cents a pound closing back above its 50-day moving average for the first time in nearly three months - amid further talk of disappointment at Brazil's harvest, now past the halfway mark.

Earlier this week, Judith Ganes-Chase noted "worries over smaller bean sizes and the final crop coming up short from projections.

"Reasons for the disappointing screen sizes vary from the heavy stress of last year, a brief episode of dry weather earlier in the year and untimely rains prior to that," she said, if seeing weather for flowering ahead as a more important market focus.

Sugar, cocoa sweeten

Meanwhile, raw sugar for October soared 4.8% to 14.14 cents a pound, amid talk of the weaker prices of late spurring demand.

And New York cocoa for September settled up 2.8% at $1,872 a tonne, helped by Nielsen data, reported by chocolate giant Barry Callebaut, showing a return to growth in chocolate markets in Europe and the Americas.

Barry Callebaut also showed healthy industry cocoa processing margins, boding well for demand for the bean, especially with prices not far from decade lows.

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