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Morning markets: wheat defies gravity, but corn succumbs

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futures are getting something of a knack for defying gravity.

Their strength in the last session in Chicago, when the September lot gained 1.6%, puzzled many, coming at a time when Black Sea exports are keeping physical prices in check, besides the uncertainty in financial markets spread by US lawmakers' continued failure to agree on a debt ceiling.

"Not sure what was so bullish wheat," Mike Mawdsley, at broker Market 1, said.

And wheat continued its upward march on Thursday, even as other crops, and broader risk assets, fell victim to the US budget jitters.

Asian shares dipped. Tokyo's Nikkei index tumbled 1.5% back below 10,000 points, in line with the drop overnight in New York's Dow Jones Industrial Average, while Shanghai stocks fell 0.5%.

West Texas Intermediate


eased, albeit only 0.1%, with copper showing small losses too.

Hard vs soft

But Chicago's September wheat contract was 0.5% higher at $7.08 a bushel as of 07:30 GMT (08:30 UK time), and doing even better in Kansas, where September hard red winter wheat was 0.7% higher at $7.94 a bushel.

The grain's outperformance over


, which lost ground, has attracted various theories, including the rainy weather in Europe, which has provoked quality if not quantity concerns.

Indeed, many analysts have been suggesting that harder wheats, such as that traded in Kansas, might outperform Chicago's soft red winter wheat traded.

And such concerns have only been enhanced by the Wheat Quality Council's tour of spring wheat in North Dakota, America's top producing state for the grain, and which, after its second day, reported an average yield of 42.1 bushels per acre, down from 46.3 bushels per acre last year.

(The yield for durum, the pasta wheat, was pegged at 31.8 bushels per acre, down from a forecast of a record-high 38.9 bushels per acre last year.)

Spread bets

Furthermore, news on Australian wheat is deteriorating, in the east at least, where dry weather is testing early development.

"Weather models point to clear skies for the east coast wheat belt for at least another week, a negative for the wheat crop which is already running behind in growth," Paul Deane at Australia & New Zealand Bank said.

And there is an idea that wheat futures are being boosted by a technical switch, with a pullback by some investors from corn, as forecasts for US weather stabilise, prompting the closure of a "long corn, short wheat" bet.

Dave Lehl at Benson Quinn Commodities highlighted the "unwinding of corn wheat spreads on a more favourable forecast for the corn crop and the prospect of increased amount of wheat used for feed".

Playing one grain off against another, through such spreads, offers investors some protection should, say, a dismal macroeconomic factor (such as a US debt default) strike, sinking all markets.

Corn, at any rate, was down 0.5% to $6.88 a bushel for December delivery, with latest weather forecasts offering little help, in the way of further heat to dent yield prospects.

One late weather model run last night showed "no serious heat threat, with maximum temperatures of 95-plus degrees Fahrenheit, in the Midwest over the first week of August", said.

'Possibility of moisture'

Indeed, August weather, key for


, is looking better for the oilseed, with Benson Quinn's Brian Henry noting that the "forecast is offering a possibility of moisture in some of the areas that have been trending drier over the course of the last few weeks".

These areas include eastern Kansas, Missouri, southern Illinois and southern Indiana.

"Top end yields in this area have been reduced in many of these areas, but soybeans tend to show resilience," he added.

Chicago's November lot was 0.1% lower at $13.78 ¾ a bushel.

'Tightness to persist'

This weak influence spread elsewhere in the oilseed complex too, with

palm oil

shedding 1.1% to 3,095 ringgit a tonne in Kuala Lumpur.

A warning from Dorab Mistry, an influential analyst, that prices might fall to 2,800 ringgit a tonne by September, depressed by high inventories in Malaysia, the second-ranked producer, did little to boost sentiment.

And, staying in Asia,


dropped too, shedding 1.1% to 391.60 yen a kilogramme in Tokyo for the benchmark January contract, with selling encouraged by a touch of profit-taking after the tyre ingredient hit a three-month high in the last session.

That was helped by a report from the Association of Natural Rubber Producing Countries showing that rubber market "tightness is expected to persist into 2018", Kerr Chung Yang at Phillip Futures noted.

Data later

Crop futures may later feel the influence of US weekly export data expected to show wheat's figure in line with the previous week's 400,000 tonnes.

The range of estimates for corn of 550,000-950,000 tonnes compares with 901,500 tonnes last time while, for soybeans, analysts are expecting an improvement from the previous 446,000-tonne figure, with estimates ranging from 550,000-850,000 tonnes, old crop and new.

Soybeans further face the US Census Bureau data on the US crush last month, which is expected to come in at 125.1m bushels, falling both month on month and year on year.


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