Morning markets: US wetness fears extend grain price revival
By - Published 23/06/2014

Wheat futures had two reasons for a strong start, and took them.

The first was on the demand side, with the weekend bringing thunderstorms to the Plains and the Midwest and fresh cause for concern over the winter wheat harvest.

Already on Friday, US Wheat Associates reported some deterioration in the quality of the harvest, with test weights nudging lower to 59.3 pounds a bushel (78.0 kilogrammes a hectolitre), and the proportion of shrunken and broken kernels rising "significantly this week compared to last week from 1.1% to 1.5%.

"These changes are consistent with extreme drought stress growing conditions and recent excessive rainfall after crop maturity in the areas that have been harvested," US Wheat Associates, which promotes use of the US wheat crop, said.

'Big rains'

Meanwhile, "harvest progress in Kansas continues to be significantly slowed not only by continuous rain showers, but also because many fields are saturated with water. Mud is becoming a major issue".

Farmers will hardly have been helped by storms over the weekend (although these actually looked worst over north east Texas, besides yet more in the Iowa, Nebraska, Minnesota triangle of the Midwest which really does not need them either).

And there is more rain due this week, with saying that a "complex" weather system will drive a "cold front south" of the I-70 highway.

That will bring "big rains, 1-3 inches, 70% coverage next the next five days over central/ east Texas, Oklahoma, southern Kansas all of the Delta and over Mississippi, Alabama, Tennessee, Kentucky, south Illinois, south Indiana", the weather service said.

Wheat tenders

The second reason was evidence of demand, with Saudi Arabia buying 780,000 tonnes of hard and soft wheat at tender on Monday, after Egypt's Gasc grain authority purchased 180,000 tonnes on Saturday.

Not that the Gasc tender showed US wheat competitive, with soft red winter wheat offered at $264 a tonne, excluding shipping, well above the winning Black Sea offers, priced at $252.50 a tonne or less.

It is not known where Saudi Arabia bought from, although it specified North and South America, Australia and the European Union as potential origins.

Wheat for July gained 0.9% to $5.90 a bushel in Chicago as of 09:30 UK time (03:30 Chicago time), climbing back above its 10-day moving average.

Kansas City hard red winter wheat added 1.1% to $7.28 a bushel, also regaining its 10-day moving average.

It little hurt that regulatory data late on Friday showed hedge funds having extended their net short position in Chicago wheat to a four-month high of nearly 29,000 lots, so increasing scope for some short covering.

'Wet weather is of concern'

The rain has been seen as a problem for row crops too, with soybeans potentially worst affected, being by repute a crop that does poorly in damp conditions.

 "Wet weather is of concern to the new crop trade as beans stand in excessive water in several locations across the Corn Belt," CHS Hedging said.

And, as an extra fillip, elsewhere in the oilseeds complex, palm oil gained 1.5% to 2,479 ringgit a tonne, lifted by strong crude oil prices. (Palm oil is linked to energy markets as a raw material for biodiesel.)

Rival vegetable oil soyoil took on 1.4% to 40.69 cents a pound in Chicago for July delivery.

The influence from China's Dalian exchange was positive too, with the best-traded January contract closing up 0.6% at 4,529 yuan a tonne.

'Last minute surge'

Soybeans themselves were up 0.9% to $14.28 a bushel for July delivery, extending a surprisingly strong close to the last session.

Then, "it took a last minute surge in soybeans to bring them to positive territory," one US broker said.

"About 7,000 contracts of July soybeans were bought in the last five minutes of the trading session which resulted in a 12 cent rally.

"This was over 10% of the day's entire volume packed into the most crucial point of the day, the settlement," which affects most charts and account balances over the weekend.

"Clearly someone wanted it to settle on new highs or else they would have used the previous 17.5 hours of trading to buy those contracts."

The new crop November contract was 0.6% higher at $12.38 a bushel and, as with wheat, gains came against a backdrop of more bearish hedge fund positioning, with their net long falling below 47,000 contracts for the first time since August.

China factors

Corn gained too, adding 0.6% to $4.55 a bushel for July delivery, and 0.7% to $4.55 a bushel for the new crop December contract, again with the concerns over US wetness providing some support.

There was also some continued idea of China going easier on imports of distillers' grains (DDGs), the byproduct of corn ethanol manufacture used as a feed ingredient, which has come under a cloud in China over a genetically modified corn variety grown in the US, but not approved by Beijing.

"There has been no formal announcement yet, but the US may soon be allowed to resume exports of DDGs to China, relaxing their recent suspensions," CHS Hedging said.

Furthermore, trade data showed that China despite the dispute took in some US corn last month, 64,530 tonnes worth, out of 79,264 tonnes imported altogether, up 19.0% year on year.

That said, not all the news from China was positive, with the CNGOIC think tank trimming by 2m tonnes to 186.98m tonne s its forecast for domestic corn consumption in 2013-14, and by 1.4m tonnes to 4m tonnes its estimate for imports over the season.

Data later

In New York, cotton gained too, by 0.4% to 77.42 cents a pound for December delivery.

The rains in Texas have been viewed as good news for the crop, after the long-standing drought. But will that perception change?

More on US crop condition will be known after the close of markets, when the US unveils its weekly crop progress report.

Chinese import data actually showed 191,535 tonnes bought in last month, down 45% year on year, although that decline was expected, and in with the rate of fall earlier in 2014.

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