PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 20:27 GMT, Wednesday, 2nd Aug 2017, by Mike Verdin
PM markets: bears hold fire on ags, although wheat struggles

Ag markets came nowhere near the record-breaking performance of shares, which pushed the Dow Jones Industrial Average above 22,000 for the first time, helped by a boost to sentiment from well-received Apple results.

But gains were the order of the day, if not obligatory, in both grain and soft commodities markets, with arabica coffee notably firm, adding 1.8% to 140.35 cents a pound for September delivery, a fresh three-month high for the contract.

The December lot added 1.8% to 144.05 cents a pound.

The gains were attributed by, besides lingering concerns over the quality of Brazil's harvest following reports of insect outbreaks, technical factors.

"The indicators favour the upside," said Sucden Financial earlier in the session.

"Yesterday's spike below 140 cents a pound [December basis] and quick recovery suggests appetite for higher prices.

"However, resistance around 143 is strong," if not as strong as might have been expected to judge by the higher close.

'Some crops are lost'

Raw sugar futures were a bit more mixed – along with price recommendations, with Bcom taking a positive view, while Societe Generale analysis of risk pricing suggested easing in futures to come.

The October contract eased 0.6% to 14.79 cents a pound, but some more distant contracts performed better.

However, cotton fared better, adding 1.5% to 70.34 cents a pound for December delivery, closing above the psychologically important 70 cents-a-pound mark for the first time since mid-June, helped by worries over heavy rains in major Indian growing areas.

"Some crops are lost in the worst hit areas of the northwest parts of India," said Jack Scoville at Futures International.

Dollar factor

At Commonwealth Bank of Australia, Tobin Gorey also flagged the support to prices from a falling dollar, which indeed fell a further 0.2% against a basket of currencies, and at one point hit a 15-month low.

"Investors seem to keep on buying back earlier sales still and are bidding up prices to find pockets of producer and trade selling," Mr Gorey said.

"Those sellers seem to understand they can be patient while they have a dollar tailwind at their back," with a weaker dollar making dollar-denominated exports more competitive.

'Gaps the rainfall shield'

And it was a help too to cotton that fellow row crops corn and soybeans gained too in Chicago, as investors reckoned that enough risk premium had been removed from values for now to account for an improved Midwest weather outlook – although one which remains imperfect.

"During the next five days all areas of the Plains  and the Midwest will see some sort of be some rain and some areas will see significant rain," said WxRisk.com. 

"But there will also be some gaps the rainfall shield. The midday Canadian and GFS weather models indicate not much rain falling from western half of Iowa into central Nebraska, and some gaps in the rainfall coverage over the eastern Corn Belt."

This afternoon overnight rains disappointed some investors.

CHS Hedging said that "a couple of light showers brought rains, generally less than 0.25 inches, to about 20% of the US Corn Belt yesterday and last night".

Market clash

Besides, in soybeans, there is growing talk that the US Department of Agriculture will, in its next Wasde crop report, next week, trim its estimate for domestic soybean stocks at the close of 2016-17 (which finishes at the end of this month) to account for buoyant US exports.

Richard Feltes at RJ O'Brien said that the soybean market was in a bit of a quandary.

It was "grappling with the risk associated with sub-par precipitation in some areas, small soy plant height and late planting on one hand, versus better-than-expected soy yields in recent years amid improved genetics, and the ability of plants to capitalise on late-summer rains".

Meanwhile, Archer Daniels Midland boss Juan Luciano offered reassurance over US soybean exports for 2017-18.

Soybean futures for November added 0.4% to $9.77 ½ a bushel, climbing back over their 40-day moving average.

"The sell-off yesterday in the soy complex seemed a bit overdone considering we still have an entire month of weather to watch, and US export offers are competitive with South America during a time in which they shouldn't be," (ie just after the Brazilian harvest, and ahead of the US one), said Tregg Cronin at Halo Commodity Company.

'Significant amount of variability'

Corn futures added 0.6% to $3.79 a bushel for December, outperforming in part because the forthcoming US weather is a bit less significant for the grain – for which pollination, largely in July, is a big event.

And in July, "there was a significant amount of variability in the weather observed across the Corn Belt," as MDA reminded investors, "particularly with regards to precipitation.

While temperatures were "generally near seasonal levels across the eastern corn belt… above-normal temperatures prevailed across the western Corn Belt, especially in the northern Plains", MDA said.

"Heat stress during pollination of the corn crop was most likely in the Dakotas, Nebraska, southern and western Iowa, south western Illinois, Missouri, and Kansas."

On the demand side, US ethanol production data for last week were no so impressive, falling 10,000 barrels per day to 1.002m barrels per day.

'Improve moisture'

However, winter wheat futures failed to follow their fellow grain higher, with the Chicago September contract easing 0.5 cents to $4.60 ¾ a bushel - and that after a late session recovery.

And the loss came also despite a 0.6% rise to $7.35 ¼ a bushel in the best-traded Minneapolis December spring wheat contract.

Some weather improvements in Australia were not helpful for the Chicago contract, the world benchmark, with MDA saying that "rains should improve moisture for wheat in Victoria, South Australia, and New South Wales" this week, although "dryness will continue in Queensland".

And in Canada, where dryness has also been a problem, "showers should improve moisture a bit in south eastern Saskatchewan and central Alberta".

'Better conditions'

Then there are upgrades to Russia's crop to factor in too.

"Russia's wheat production is now expected to be a record 76m-78m tonnes, so no problems there," said Darrell Holaday at Country Futures.

"And the concern that was developing a couple of weeks ago about wet conditions in the EU wheat areas has subsided with better conditions."

It may be that funds are reverting to their favoured short position, of late, on Chicago wheat.

Still, Halo's Tregg Cronin flagged caution at getting too bearish, saying that the market "looks stout here after the correction, considering farmgate selling has slowed, northern Plains selling off the combine should be minimal, Canadian crop prospects are still getting smaller and US wheat is competitive against Europe".

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