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PM markets: US wheat futures jump, eroding discount vs Paris

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futures in the US, having spent much of the last month get itself back into contention on world export markets, did its best to price itself back out again by recording strong gains.

The Chicago wheat futures contract for September closed up 1.9% at $4.63 ½ a bushel, with the December lot, while recording a smaller gain, adding 1.7% to $4.90 ¾ a bushel, potentially making it a more momentous one.

The headway put the December lot back above its 100-day and 200-day moving averages.

Yet this came at a time when Paris futures remained on the slide, dropping 0.6% to E168.00 a tonne for December delivery, and earlier setting a contract low of E167.50 a tonne.

'Concern is definitely manifesting itself'

This after a marked underperformance by US futures, which had provoked ideas of the origin picking up extra export business.

Tregg Cronin at Halo Commodity Company noted that as of late last week Paris wheat was trading at a $31.59-a-tonne premium to the hard red winter wheat traded in Kansas City, compared with a $3.67-a-tonne advantage early last month, and a 200-day moving average of $22.25 a tonne.

"The concern over continued rainfall in Germany and other Baltic states impacting production and quality is definitely manifesting itself in these price spreads

"US hard red winter wheat has closed the gap with many of its key competitors into destinations like Morocco, Algeria and Saudi Arabia."

'Trimming some risk'

But as of Monday evening, after the session's wheat moves and Friday's recovery in the dollar, that premium had fallen below $20 a tonne, both September and December bases, on calculations.

(Kansas City wheat futures for September ended at $4.66 ¾ a bushel, and for December closed at $4.94 ½ a bushel.)

While Paris wheat futures were depressed by an upgrade to the French crop, and by a little firmness in the euro, which cuts the competitiveness of eurozone exports, those in the US found strength in factors such as data showing a rebound in speculators' short bets in Chicago wheat futures and options.

"These fresh shorts have markets technically oversold, and with the big US Department of Agriculture crop production report on Thursday, the market is trimming some risk," Benson Quinn Commodities said.

(The USDA will on Thursday release its monthly Wasde briefing on world crop supply and demand, a key date in the grain trader's calendar.)

Corn gains

Furthermore, USDA data on crop exports last week showed a wheat figure of 586,149 tonnes, towards the top end of market expectations.

(Although how much longer this will last if US wheat prices itself back out of the market…)

And then there was the support from the


complex to factor in, with Chicago corn futures for December ending up 1.4% at $3.98 ½ a bushel, as markets began to wonder whether a bit more risk premium was warranted again, given a somewhat negative twist in the Midwest weather outlook.

'At some point you need some rain'

Darrell Holaday at Country Futures noted a market theme on Monday of "the lack of moisture in the heart of the Corn Belt, primarily Iowa and Illinois, and the fact that there is little in the forecast for those areas.

"The cooler temperatures have been very helpful, but at some point you need some rain in those areas."

The worry was enhanced by poor rains in Iowa over the weekend, extending a bit of a theme for the key farming state.

"Iowa has been trending drier and rains have not developed as forecast," Benson Quinn Commodities said.

"This area will be closely watched with corn filling and


setting pods."

Iowa worries

"Rainfall has been solid in many parts of the Midwest the last several weeks, but not in Iowa," Halo Commodity Company's Tregg Cronin said.

"It makes a person wonder how long we can maintain production estimates if the largest corn and soybean producing state in the US is running such severe deficits?"

MDA said of the weather outlook for the state was mixed, viewing that "rains should improve moisture a bit in Minnesota, northern Iowa, Mississippi, and central Tennessee this week.

"But limited rains in western and southern Iowa, northern and eastern Missouri, south western Illinois, western Kentucky, and northern Arkansas will maintain dryness and stress on corn and soybeans."

'Will be watched closely'

Corn exports last week were not bad either, coming in at 979,006 tonnes, towards the top end of the range of market expectations.



exports, at 685,697, trounced expectations of at best 550,000 tonnes, with the USDA separately announcing the sale of 206,000 tonnes of US soybeans to an "unknown" importer, for this season (as well as 180,000 tonnes of corn sold to Mexico for 2017-18).

Still, soybean futures for November closed up a relatively modest $9.56 ¾ a bushel, undermined by factors including talk of Chinese importers (the world's biggest) reselling some 500,000 tonnes of orders.

The reselling was apparently "due to large port stocks, surplus domestic soymeal supplies and negative crush margins", Benson Quinn Commodities said.

This when "there is still a cautious attitude" surrounding Chinese soybean buying "because of the concern about US and China trade relationships that surfaced late last week", Country Futures' Darrell Holaday said.

"This will be watched closely."

Sugar vs coffee

Soft commodities, for once, proved more mixed, with New York

raw sugar

for October shedding 1.8% to 13.89 cents a pound, falling back below its 50-day moving average, but potentially quelling a bit of supply.

"The market is only going to lose some sugar though if prices fall below ethanol parity for much of the rest of the south Brazil [cane crushing] season," said Tobin Gorey at Commonwealth Bank of Australia.

However, New York-traded arabica coffee for September added 1.4% to 142.05 cents a pound, a fresh three-month closing high, in buying attributed in part to technical factors, after the contract last week retook the psychologically-important 142 cents-a-pound mark.

"The indicators continue to favour the upside with the ADX signalling a strengthening upward trend," Sucden Financial said, with the ADX, or average directional index, a trend indicator.

Brazil concerns

The December arabica coffee lot added 1.3% to 145.55 cents a pound, could spell further gains.

Sucden said earlier in the session that "futures need to take out 145 cents a pound and a hold above this level to set the stage for a test of resistance at 147 cents a pound which held firm in April and May".

Still, there was fundamental talk too behind the move up in coffee, with Jack Scoville at Price Futures saying that "everyone is talking about the potential for reduced arabica production and the possibility of reduced exports from Brazil", after reports of damage from broca insect pests.

Furthermore, relatively warm weather, which had been viewed as a positive for output in cutting Brazil's frost risk, is raising concerns now that the freeze window is just about closde.

"The weather forecasts kept outlooks for near to above normal temperatures and mostly dry conditions in Brazil," Mr Scoville said.

"Producers are now worried about an extended outbreak of dry weather as it is almost flowering time in Brazil."

In London, robusta coffee for September added 1.0% to $2,163 a tonne.

By Mike Verdin

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