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PM markets: wheat prices gain as northern US drought spreads

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Spring wheat

investors who took profits in the last session may wish they hadn't.

The rally in Minneapolis hard red spring wheat futures, having stalled on Wednesday, rebooted to send the July contract at one point to $6.17 ¾ a bushel, the highest in nearly two years.

While the lot fell back to close at $6.04 ¼ a bushel, that still represented a 1.5% gain on the day, and the first close for a spot contract above $6.00 a bushel since July 2015.

The catalyst to the rise was a fresh bout of worries over dryness in the northern US Plains spring wheat country, including North Dakota, which grows roughly half the US crop (usually, but maybe not this year).

'Weather fuelling the fire'

"Weather continues to fuel the fire in the grain markets as dry and hot conditions persist across the Dakotas and Montana," CHS Hedging said. said that "there is strong model agreement as to what the data shows over the next five days.

"Temperatures greater than 95 degrees Fahrenheit (35 Celsius) with some 100 Fahrenheit (38 Celsius) plus degree readings develop on Friday over the Dakotas and Texas, which expand into all of the Plains and a good portion of the western Corn Belt on Saturday… Sunday… Monday… into Tuesday."

And nor is there much rain expected, for now.

"The two-week percent-of-normal precipitation map shows large deficits across North Dakota, South Dakota, Minnesota, Nebraska, Iowa, northern Missouri, Wisconsin and Illinois," said Tregg Cronin at North Dakota-based Halo Commodity Company.

Rain chances

Not so fast.

Weather models, and interpretations of them, differ, and there is some idea of rain relief.

This weekend, "some shower activity is expected to reach portions of the northern Plains and far northern Midwest," benefiting crops, said MDA.

"The areas most likely to see any notable improvements are eastern Montana and north western North Dakota."

And in the six-to-10 day outlook, the European weather model, at least, shows "significant rains over north Minnesota, northern North Dakota and over south central Canada," said

'Dire Dakotas'

However, rains, even assuming they arrive, may prove too late to revive crops in some areas.

Halo's Tregg Cronin noted that some South Dakota farmers are already cutting winter wheat wheat for hay, and may spray off spring wheat too, and claim insurance, if it "begins to shoot heads in the next 7-10 days with the wheat only being knee high".

Country Futures Darrell Holaday said: "The reports out of the Dakotas continue to be dire," adding that while "there is anticipation of rainfall next week, the heat this weekend will do additional damage".

And data on just how bad conditions are emerged with the weekly US Department of Agtriculture's weekly drought monitor - which showed an astonishing spread of soil moisture deficits in the Dakotas.

In South Dakota, the proportion of the state rated in drought jumped by 30.1 points to 50.5 points.

In North Dakota, the increase was 63.3 points to 87.5%. That is up from zero three weeks ago, and easily the highest figure since the great US drought year of 2012.

Drought also turned up in Minnesota, although still at a low 9.7% coverage, up from zero last week.

Harvest results

The gains were evident in

winter wheat

markets too, although they also closed well below their highs, for a few reasons.

One is that the weather for major winter wheat areas further south in the Plains is not so bad, with MDA saying that "rains in western areas will maintain moisture for late wheat growth, while harvesting progresses well in southern areas".

And strong harvest brings a jump in supplies which weighs on prices.

In fact, harvest reports continue to vary, with CHS Hedging saying that "as harvest gets moving on winter wheat, we hear tell of decent yields with a wide array of proteins, most on the low end".

Richard Feltes at RJ O'Brien said that he was "hearing mixed reports on hard red winter wheat yields - very good to very poor - while western Tennessee soft red winter wheat yields track below last year and average".

Wheat price closures

Furthermore, there is the prospect on Friday of the USDA's monthly Wasde report – a key event for agricultural commodity markets, which can cause big price swings, deterring some investors from betting heavily in the run up to the briefing and often, indeed, encouraging profit-taking.

Not that this Wasde is expected to be a major one (of which more later).

And then there is the fact that July winter wheat futures have had a tendency of retaking their 200-day moving averages, as they did on Thursday, only to retreat.

Kansas City hard red winter wheat close up 1.7% at $4.53 ¾ a bushel, but well below a high of $4.60 a bushel reached earlier.

Chicago soft red winter wheat closed up 0.6% at $4.44 ¾ a bushel, $0.11 below its intraday high.

'Not supportive'


futures for July fared even worse, settling down at $3.85 ¾ a bushel, besides being a finish $0.06 below the intraday high.

But then the grain lacked decent US export sales last week, of 461,000 tonnes, which wheat had, with corn export sales last week coming in at 348,600 for 2016-17, well below expectations.

"The export sales report this was not supportive," Darrell Holaday said.

And on weather, it is early yet to think of dryness really killing a US corn crop.

Data ahead

Furthermore, the grain stands to be more affected by the Wasde, with an outside chance of a change to the US corn yield estimate.

That said, Tregg Cronin said that "meaningful changes to the 2017-18 balance sheet are likely to be minimal", in the Wasde, given that the USDA "has only adjusted yields on the June report a handful of times on the June WASDE, and usually only in the case of extreme weather.

"While dryness has been increasing the last week, not sure it would have made it on this report."

And acreage changes are also unlikely to be made, given the prospect of a key report on US acres ahead, on June 30.

"Of most interest to the trade will be the old crop corn ethanol and export numbers, which could both see an increase, as well as old crop


exports and crush."

'Record Chinese imports'

Soybeans for July, however, gained 0.7% to $9.30 ¾ a bushel, with CHS Hedging saying that prices were "benefitting from record Chinese and Pakistani imports".

China said that its soybean imports last month hit 9.6m tonnes, a rise of 25% year on year, and a record high.

This after a series of negative reports on Chinese soy demand, with weak crushing margins seen as deterring import prospects.

Weekly US soybean export sales data were soft, but not quite dire, at 159,100 tonnes for this season, and 221,800 for 2017-18.

And actual US soy export shipments "continue to significantly exceed the weekly pace required to meet the USDA's mark" for 2016-17, said Louis Rose at Rose Commodity Group.

Cotton gains



, Mr Rose noted that US export sales (92,000 running bales this season including pima) and shipments (324,000 running bales including pima) were "modestly lower week on week, but well ahead of the weekly pace required to meet the USDA's 14.5m-bale export target" for 2016-17.

Encouragingly for cotton bulls, "sales cancellations were again negligible," extending a trend that lasted even through last month's price spike.

And export sales for 2017-18 "were again outstanding at almost 192,000 running bales".

The data helped cotton futures for July close up 1.0% at 76.55 cents a pound, its first gain in five sessions, while the December lot added 0.6% to 73.10 cents a pound, back above its 10-day moving average.

Sugar sweetens

However, bigger gains were seen in



, which added 1.4% to 14.34 cents a pound for July delivery, taking the contract more than 5% above its 15-month low hit last week.

"The sugar bulls will point to cold weather forecasts for Brazil this weekend and the potential for frost," said Tom Kujawa at Sucden Financial, although it has to be noted that

arabica coffee,

which is particularly sensitive to southern Brazilian frost fears at this time of year managed only a 0.5% rise to 126.35 cents a pound for July.

By Mike Verdin

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