If the last session was a positive one for wheat prices, the code of wheatennis™ (see Tuesday’s market briefing) suggested that this one should see a pullback.
And so it was, with Chicago soft red winter wheat for December closing down 1.6% at $5.49 a bushel In fact, bears have been doing the bigger hitting this week, sending the contract down 4.5% so far.
‘In need of precipitation’
Not that bulls lacked some cause for support.
In the US, where farmers are sowing winter grains, “forecasts continue to look dry for the southern Plains over the next two weeks as that area is really hoping for a good rain to come through sooner than later”, CHS Hedging said.
“Kansas and Oklahoma are in need of precipitation,” said Terry Reilly at Futures International.
Kansas City hard red winter wheat, as grown in the southern Plains, eased a slightly more modest 1.5% to $4.84 ¼ a bushel for December.
Meanwhile, in South America, Argentina’s dryness-tested wheat crop received a downgrade from the Buenos Aires grains exchange to 17.5m tonnes, from a forecast in May of 21m tonnes, and the 18.8m tonnes reaped last season, on the exchange’s data.
‘Driest since at least 2008’
However, the former Soviet Union, where farmers are as in the southern Plains being faced with dry soils for sowing, does look like getting some moisture.
Maxar said that “dryness remains widespread across the major winter wheat areas in Ukraine and Russia, likely delaying wheat planting and stressing germination and establishment of the crop.
“Subsoil moisture levels for this date are at their lowest point in the major Russia winter wheat since 2015 and in Ukraine subsoil moisture levels for this date are at their lowest level since at least 2008”.
But “changes are expected by this weekend, with rain expected to spread across Ukraine, which should begin to lead to some improvements,” with more precipitation expected later next week (although “only light showers are expected in Russia”).
Whatever, macro factors had a big role to play in wheat too, as in other markets.
The dollar edged 0.3% higher against a basket of currencies, making dollar-denominated assets such as many ags less affordable – but an issue in particular for wheat, given that the greenback rose by 1.4% against the rouble. That made Russia’s hefty exports more competitive.
(Signally, the dollar also made notable gains against the real, a negative sign for dollar prices of the likes of soybeans, sugar and coffee, of which Brazil is top exporter.)
And there was simply a cautious feel around anyway, with worries over a revived threat from Covid-19, sending shares lower in the US, at least.
The S&P 500 share index stood down 1.3% in late deals, with the Nasdaq down 1.8%.
‘Harvest continues to roll on’
While Chicago corn did not fare as badly as its rival grain, it too closed lower, by 0.2% at $3.68 ½ a bushel for December
US ethanol production data for last week were little help, showing a drop of 20,000 barrels week on week to 906,000 barrels per day, a far bigger decline than investors had expected.
Stocks gained 199,000 barrels to 19.997m barrels despite the easier output.
And then there was pressure from teh weakness in Dalian prices overnight, as noted earlier, as well as the ramp-up in US supplies as combines continue their seasonal progress.
“Harvest continues to roll on as weather is dry where the corn is ready and is drying down fast where it isn’t,” CHS Hedging said.
At least the Buenos Aires grains exchange offered a bit of support in pegging the Argentine 2020-21 crop at 47.0m tonnes, 3.0m tonnes below the USDA’s forecast, and down 3.0m tonnes year on year too.
Some of these dynamics were in play in the soybean market too, which dipped by 0.5% to $10.14 ½ a bushel for December delivery.
This again despite a downbeat exchange forecast for Argentina’s 2020-21 soybean harvest, of 46.5m tonnes – markedly below the USDA’s 53.5m-tonne estimate, and reflecting in the main weaker yield expectations.
Furthermore, the USDA announced further export sales of US soybeans, of 132,000 tonnes destined for China, and 126,000 tonnes to “unknown”.
However, harvest pressure is being felt in the soybean market – as was particular weakness in the vegetable oil markets.
Soyoil vs soymeal
Chicago soyoil for December tumbled by 2.4% to 32.78 cents a pound, hurt by the weakness in rival palm oil, which sank by 3.3% to 2,861 ringgit a tonne in Kuala Lumpur. This after vegoil contracts retreated too on the Dalian exchange in China, a key importer.
By contrast, Chicago soymeal for December added 1.1% to $344.60 a short ton, moving the opposite way to soyoil – as often happens, with spreading between the two soybean processing products a popular trade.
“Global vegetable oil prices are sharply lower and Chicago meal is finding strength from oil share selling, in part to the slowdown in the Argentina crush,” said Terry Reilly at Futures International, Argentina being the top soymeal (and soyoil) exporter.
The oil share – ie the proportion of the total value of soybean processing products accounted for by soyoil – closed at 0.3229 December, down 2.2% on the day, and now down 7.5% over the past week.
Among New York soft commodities, arabica coffee eased by 0.1% to 110.50 cents a pound, a creditible performance given the weakness in the real, and ideas of rain for Brazilian plantations which has sent many funds scurrying elsewhere.
But the relative resilience comes of course after huge losses earlier this month, with the lot down 14.4% for September.
However, cocoa for December added 0.9% to $2,580 a tonne in New York – reversing some of the losses of the last session.
“Although this year’s Halloween will be much more subdued than normal, cocoa is finding fresh supply/demand support that can help prices find their footing,” said ADM Investor Services.
The political climate in Ivory Coast, the top cocoa producing country, was also positive for prices, with its ruling party saying on Tuesday it will push ahead with the October election regardless of whether the opposition participate – hardly a conciliatory stance.