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Evening markets: heat fears and export orders ignite grains

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For once, farm commodities represented something of a comfortable retreat for investors, as poor economic data chased them from most risk assets.

The Dow Jones Industrial Average was 0.7% lower in late deals, with West Texas Intermediate crude down 2.4% at $96.30 a barrel, after the US managed to discover only 18,000 new jobs on non-farm payrolls.

Economists had expected 90,000.

Predictably, the

dollar

, as an indicator of investor jitters, rose, by 0.7%, providing a further setback to dollar-denominated commodities, making them more expensive as exports.

'Demand brisk'

But while the average raw material fell 0.8%, according to the CRB index, with many soft commodities among victims, the funds so keen to sell grains last month beat a path to Chicago's door, amid news indicating pressure on both sides of the balance sheet.

On demand, physical orders continue to flood in as buyers exploit prices still a bargain compared with levels a month ago.

"Global demand for ag commodities remains rather brisk near these levels as South Korea seeks an additional 110,000 tonnes of

corn

and Tunisia and Bangladesh both seek wheat," Benson Quinn Commodities said.

"Japan finalised the deal for 126,000 tonnes of US

wheat

," and all this besides the continuing talk that China has bought 5m tonnes of US corn since March, "with the strong possibility of additional purchases in July and August".

'First legitimate dry weather scare'

If further evidence of higher demand was needed, weekly US export corn sales came in at 1.49m tonnes, well above trade estimates. (

Soybean

sales of 434,700 tonnes were in line, and a wheat figure of 424,000 tonnes mildly disappointing.)

And prospects on the supply side of things are beginning to look a little weaker too, with fears growing for the so-called "heat dome" to bring hotter-than-ideal temperatures to the Midwest next week.

"A drier extended forecast has gotten the attention of many in the trade as much of the corn crop is expected to be pollinating during these warmer temperatures," Benson Quinn said.

At rival broker Country Futures, Darrell Holaday said: "This may be our first legitimate dry weather scare of the season.

"The market has finally began to notice some significant dry areas that have developed in the Corn Belt," he added, highlighting north east Iowa, south east Minnesota, southern Wisconsin and parts of Illinois, Indiana and Ohio too.

Funds return

"The corn in those areas has not shown any stress because it has avoided heat stress. But that may be changing in the next week and that is why the market is higher today," Mr Holaday said.

And higher corn was, closing up 2.8% at $6.42 ¼ a bushel for the September contract, with the new crop December lot soaring 3.5% to $6.37 a bushel, a recovery of more than 10% from last week's low.

This was all helped by purchases of an estimated 10,000 lots by funds, with some short-covering going on in Chicago wheat too.

The best-traded September lot added 2.6% to $6.51 ¼ a bushel, doing better than the Kansas equivalent, which is less focused on by non-trade investors, and which gained 0.5% to $7.27 ¼ a bushel.

Chicago soybeans added 0.5% to $13.46 ¾ a bushel for the old crop September contract, just keeping a premium over the best-traded November lot, which gained 0.7% to $13.46 ½ a bushel.

Black Sea threat

Back in wheat, Chicago's strength did a better job of inspiring European contracts, with Paris wheat for November adding 2.2% to E194.75 a tonne and London's November lot closing up 1.9% at £164.75 a tonne.

This besides some lingering concerns over what the extension, to the end of the year, of Europe's suspension on wheat import tariffs could do, with Black Sea supplies eager to fill the gap.

"At this stage it is essentially filling the breach until local new crop supplies become available. But it is also competitive into the UK's regular export homes in the harvest position," the UK grain arm of a major European commodities house said.

And with quota shut-offs eased too, theoretically, the EU could see the whole 2.4m tonnes allowed "arrive in the EU over the next few weeks, just as our own harvest gets under way".

Still, bulls gained some satisfaction from early results of the UK barley harvest, which have shown yields of 1-3 tonnes per acre, "with the concentration at the lower end of this range".

"Of course we tend to see the 'worst first' with winter barley but, even so, it does look as if yields are well below the norm," the grain merchant said.

By Agrimoney.com

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