Grain prices soared in the first session of the week, as
bears lost control even of the Black Sea.
One of the intriguing tensions within the wheat market has been between values in
the former Soviet Union and those in the West.
As the offers to a tender by Egypt's Gasc authority last
Wednesday showed, the surge in US, and to a lesser extent, French values has
not been matched by those from the likes of especially Russia, where merchants
have been wary of the prospect of a large harvest on the horizon.
Would this conflict resolve in a shift downwards in Western
prices, or a move up in Black Sea values?
Certainly, bears won the early exchanges, with the Gasc tender
details being seen as a key reason for a significant retreat in Chicago futures
in the last two sessions of last week.
But Chicago soft red winter
wheat futures recovered a good bit of that lost ground on Monday, ending up
2.9% at $5.50 a bushel, as cracks appeared in Black Sea resolve, with Russian export
prices for 12.5% protein pegged by Ikar at $194 a tonne, up $5 a tonne week on
SovEcon estimated Black Sea wheat prices for supply in July-August
up $6 week on week at $190-193 a tonne.
This tallied with the results of a further Gasc tender, at
the weekend, which showed the grain authority for the world's top
wheat-importing country paying an average of $204.23 a tonne for crop,
That was up nearly $4 a tonne over three days.
"Russian export prices hit a 19-month high, with Black Sea
wheat up 3.2% last week," was how CHS Hedging saw the dynamic.
And the gains only added to the buoyancy in grain markets on
Monday, in which North American weather, as ever of late, was the main focus of
Minneapolis hard red spring
wheat for September closed up 4.4% at $8.00 ½ a bushel in late deals, if
remaining nearly $0.70 below four-year intraday highs hit last week.
"The spring wheat growing areas of the northern Plains are
expected to remain in an extended drought, and conditions deteriorate more
heading further west in the Dakotas and into Montana," said CHS Hedging.
'Yield potential will
US Department of Agriculture data later are expected to show
a further drop in the condition of the US spring wheat crop, of 2 points week
on week to 35% rated "good" or "excellent".
And in Canada, "rains should remain rather light in southern
Alberta, southern Saskatchewan, and southern Manitoba and very warm temperatures
should continue as well," said weather service MDA.
"This will maintain significant moisture shortages as and
stress on spring wheat and canola.
"Yield potential will continue to decline as well."
At RJ O'Brien, Richard Feltes said that "two-thirds of US
hard red spring wheat and one-third of Canadian hard red spring wheat is deteriorating
under heat/dry stress".
Still, back in the US, the key issue for grain investors was
of hot and dry weather in the Corn Belt, which matters particularly from now on
with July bringing the heat-sensitive pollination process for corn, and August the vulnerable pod-setting
phase for soybeans.
"Warm and dry forecasts, specifically for areas west of the
Mississippi River, continue to prompt significant buying in all of the grain
and oilseed markets," said Darrell Holaday at Country Futures.
Terry Reilly at Futures International said that "many
weather models are in agreement that a high pressure ridge will be over the
western Corn Belt and Great Plains during the middle-to-latter part of next
"We see this as more threatening than that of late last week."
CHS Hedging flagged "hot and dry extended weather forecast
that will likely hold through the pollination period".
The broker added that the "hotter, drier forecast is driving
soybeans higher" too.
News on the demand side was not too bad either, in terms of US
exports for last week coming in at 1.01m tonnes for corn, down nearly 140,000
tonnes week on week but still a respectable figure, while for soybeans,
shipments jumped by nearly 200,000 tonnes to 465,157 tonnes.
(Wheat exports, at 533,872 tonnes, were up some 15,000
tonnes week on week.)
That does not answer the worries over the pace of demand for
corn and, in particular, soybeans for 2017-18.
However, RJ O'Brien's Richard Feltes noted that "trade is
more worried about deteriorating corn and soybean yield potential than
faltering new crop demand.
'Hard to break row
Mr Feltes: "It will be hard to break row crops until Minneapolis
spring wheat corrects or trade is confident that remaining row crop managed
fund shorts are covered."
And Chicago corn futures for December, the best-traded
contract, closed up 2.3% at $4.14 a bushel in late deals, a one-year ending
high for the lot.
Soybean futures for September closed up 2.4% at $10.30 a
bushel, the lot's highest finish in four months, while the best-traded November
contract ended up 2.3% at $10.39 ¼ a bushel – the highest close for the
contract in nearly three years.
Still, if bears lost their grip on grains, they rediscovered
their grip on cotton, which for
December closed down 1.9% at 67.29 cents a pound, with conditions far more
favourable in the cotton belt in the south and east of the US.
"The growing weather in the US Delta and South East is
generally good and crop conditions are reported to be mostly good by producers
and observers," said Jack Scoville at Price Futures.
"Warmer temperatures have arrived to support development and
there has been more than enough rain."
At Commonwealth Bank of Australia, Tobin Gorey flagged that even
with a strong close to last weke, "not all weak momentum indicators have been
"Allied with a fundamental context that will see supply
conditions ease in the next six month, we still think prices have a weaker
And raw sugar
returned to the back foot, slumping by 4.2% to 13.56 cents a pound for October
delivery, amid observations that prices had rebounded far above the level of
ethanol parity – ie the level at which Brazilian mills have equal financial incentive
to turn cane into sugar or ethanol.
Trading above parity means sugar remains the more favoured product,
from a simple margin perspective.
"The fundamental outlook is still bearish as we are back
above ethanol parity estimated at 12.70 cents a pound for spot, and forward
positions showing a price advantage for sugar over ethanol of 140 points for
July/August and 50-70 points New York equivalent for September-December," said Sucden
CBA's Tobin Gorey said: "Both anhydrous and hydrous ethanol
prices are now sub-13 cents a pound in sugar equivalent terms.
"The sugar market is not trading at levels that will see a
lot less sugar production."