US harvest fears send wheat prices flying, Coffee jumps too

Pity the poor wheat farmer in the US hard red winter wheat belt.

Having prayed for rains for months to resolve dryness which affected nigh on 100% of Kansas, the top US wheat growing state, it arrives.

But the precipitation is not only too late in many cases to restore crops. It may actually damage them, with moisture potentially meaning sprouting and quality downgrades for ripe crop, besides slowing harvesting.

'A legitimate concern'

The impact on futures was their best day in some two months on US markets, especially in hard red winter wheat itself, traded in Kansas City, which soared 3.2% to $7.37 a bushel for July delivery, recovering its 10-day moving average for the first time in nearly a month.

"There is significant buying in the wheat (and to some extent the corn) on concerns of too much rain," said Darrell Holaday at Country Futures.

"This is a legitimate concern in the hard red winter wheat area as harvest in Kansas would have likely started early next week, but that is not going to happen with the recent rain and the rain projections for the next 7-10 days.

"The prospect for doing any cutting is very low."

CHS Hedging said: "Some in the trade are concerned about hard red winter wheat quality after recent heavy rains in parts of Kansas."

'Slower than normal'

As a measure of the progress of combines, US Wheat Associates said that "cutting continues to be slower than normal due to isolated rain showers and high humidity in many areas, even though temperatures were at, or close to, 100 degrees Fahrenheit".

The harvest "has progressed as far north as the Oklahoma/Kansas border in northwest Oklahoma".

Yields so far have been in the range of 5-25 bushels per acre, 0.3-1.7 tonnes per hectare, which is hardly a strong crop, although US Wheat Associates, which promotes US exports of the grain, said that early test weights, one quality measure, were "encouraging", coming in at 59.1 pounds a bushel (77.8 kilogrammes per hectolitre).

"Generally, test weights have increased as harvest has moved northward," the group said, adding that "preliminary results confirm reports of very high protein", of 14%.

Prices soar

Still, when wheat futures were already well oversold, after their longest losing streak in Chicago in 20 years ended only on Wednesday, the bounce was intensified there too.

Chicago soft red winter wheat, a lower protein class, for July gained 2.1% to $6.18 a bushel.

Minneapolis hard red spring wheat for July, another source of higher protein grain for millers, gained 2.7% to $7.09 a bushel.

In Europe, Paris wheat for November bounced 1.0% to E193.00 a tonne, also regaining its 10-day moving average, while the London November contract added 0.4% to £143.10 a tonne.

'Basis bids firmed up'

The rise was reflected in corn too, encouraging a wave of covering of short positions which have been a good bet for the past month, even though the supply and demand reasons for lifting prices appeared sparse.

"Ideal weather outlooks and great initial condition ratings have about pulled the rug out from the corn bulls," CHS Hedging said early in the day.

However, one fundamental signal in favour of higher prices was a firmer basis in the US cash market, likely a sign of demand.

"We saw some Gulf basis bids firm up a little overnight and that has sparked some interest in buying futures as it indicated some export interest, which has been lacking recently," Mr Holaday said.

Chart help

There is also talk that a cargo of US corn was on Thursday unloaded at a Chinese port, potentially signalling a waning in the crisis over MIR 162, a Syngenta genetically modified variety grown in the US but as yet not cleared by Beijing.

And technical help kicked with, besides a correction of oversold conditions, the December contract retaking the $4.50 a bushel mark, whose loss in the last session had heralded an accelerated sell-off.

This time, the contract soared 2.3% to end at $4.57 a bushel, while the old crop July lot added 2.2% to end at $4.59 a bushel.

'Weather continues to be a negative'

It was soybeans, bulls' greatest friend for most of the last month, which underperformed this time, closing down 0.2% at $14.57 a bushel for July delivery, its weakest finish in a month, feeling the weight of a cocktail of negative snippets.

"Growing weather for beans looks very good for the next two-week period," CHS Hedging said.

And this ahead of official data on Monday which will show the first condition rating of the season for soybeans.

"Weather continues to be a negative" for prices, Sterling Smith at Citigroup said, foreseeing a "great condition number" on Monday.

Rapeseed upgrades

Furthermore, prices of soybeans eased on China's Dalian exchange overnight while, elsewhere in the oilseeds complex, palm oil dropped in Kuala Lumpur too, if my a modest 0.1% to 2,417 ringgit a tonne.

And, in rapeseed, ODA raised its forecast for the EU crop by 450,000 tonnes to 21.8m tonnes, matching a forecast from rival Strategie Grains earlier in the week, putting the French crop at 5.2m tonnes, up from 4.4m tonnes last year.

Separately, Sparks Polish raised the forecast for the Polish rapseed crop by 200,000 tonnes to 2.7m tonnes.

In fact, futures in rapeseed itself for August dropped 0.4% to E3244.25 a tonne in Paris, the lowest finish for a spot contract in 10 months.

In Chicago, soybeans for November did rise, by 0.7% to $12.18 a bushel, but this was fuelled by a technical factor, and the unwinding of spreads against the old crop contracts.

"There is still a lot of liquidation in the July soybean contract as many of the long July-short November soybean trades look for a chance to get out," Mr Holaday said.

Bullish coffee talk

Among soft commodities, arabica coffee, which like wheat has been under the cosh for the last month, like wheat enjoyed a strong recovery, bouncing 1.4% to 171.60 cents a pound for July delivery.

The revival was fuelled by a statement by Brazil's CNC producers' group that it was standing by its forecast for a Brazilian coffee crop of 40.1m-43.3m bags, contrasting with a recent round of more upbeat estimates.

Rains had been meagre and done little to improve prospects for production in Brazil's coffee belt, hit by drought earlier this year, and, if they ramped up, could even prove a setback in the harvest period, hampering the gathering and drying of beans.

Early harvest results had also shown low yields and small beans, the group added.

Weakness on its way?

Raw sugar gained, too, adding 0.5% to 16.92 cents a pound for July, helped by a touch of bargain hunting, and ideas that some cane growing areas require more rain, which tallies with the CNC observations above.

"The weather is still too dry" in Brazil, Jack Scoville at Price Futures said.

Furthermore, the International Sugar Organization gave a bit more detail on its forecast of unimpressive Brazilian sugar output and exports this season and next.

Still, the failure of the contract to regain the 17.00 cents-a-pound mark could prove a setback.

"The sugar bulls need the market back above 17 cents a pound in the short term and so far we have seen strong resistance," Sucden Financial said earlier in the day.

"Should we close below 17 cents a pound tonight then it seems likely we will test 16.50 cents a pound next week."

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