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Evening markets: Dryness worries re-emerge, supporting ag prices

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Dryness remains a threat after all, to a number of crops in a number of countries, helping ags overall to mid-week gains.

 

“Hot and dry weather has markets higher,” said CHS Hedging.

 

The Bcom ag subindex stood up 0.4% in late deals, clambering back above its 100-day moving average (and as a couple of weeks ago following a doji star chart formation with an upward session).

 

Leading the complex higher was wheat, which soared 2.2% higher to $4.97 ¾ a bushel in Chicago for September delivery, spurred by SovEcon’s caution, as revealed by Agrimoney, that dryness past had caused more damage to Russia’s winter wheat crop than had been thought.

 

SovEcon cited behind its downgrade “low moisture reserves and unimpressive yields in all key winter wheat regions.

 

“A long period of dry weather in May-June in the European part of Russia” had wrought a “bigger effect on yields than we expected earlier”.

 

‘Russia production concerns’

“US wheat is higher on Russia production concerns,” said Terry Reilly at Futures International earlier on.

 

The headway was also helped too by some less-than-ideal (although still broadly upbeat) reports coming from the Wheat Quality Council tour of North Dakota spring wheat.

 

Sure, gains in Minneapolis spring wheat for September were modest, with the contract ending up 0.3% at $5.22 ¼ a bushel, but many observers had forecast a negative reaction.

 

Indeed, as Tregg Cronin at North Dakota-based Halo Commodity Company noted, funds are “now sitting on a new record net short position of 13,027 contracts” in Minneapolis wheat, as of Tuesday last wee (the latest data available).

 

In the previous week’s statistics, “their position was a record as a percentage of open interest but not their nominal position. This week they have both.”

 

Monsoon deficit

Back to dryness worries, and CHS Hedging noted that “a lack of rain in India has palm oil higher”, with the country the world’s top importer of vegetables oil, and with a need for purchases only likely to increase if domestic output falters.

 

Kuala Lumpur palm oil added 1.2% to 2,029 ringgit a tonne, a fresh-one-month closing high, and taking gains this week to 2.9%.

 

In fact, India’s monsoon rains were 35% below average in the week ending on Wednesday, according to the country’s official meteorology department, which estimates at 19% the rainfall deficit since the monsoon season began on June 1.

 

And this was a help to prices of sugar too, which ended up 0.7% at 12.06 cents a pound for the New York October contract.

 

Also helpful were data from industry group Unica showing that Brazilian Centre South sugar output plunged by 19.1% year on year to 1.94m tonnes in the first half of July – an even bigger fall than the 15.7% drop to 2.05m tonnes expected by investors polled by S&P Global Platts ahead of the report.

 

‘Record high temperatures’

Meanwhile, “Europe is struggling with record high temperatures of 108 degrees Fahrenheit in Paris today”, CHS Hedging noted.

 

“Dry and very warm conditions have returned to central and western areas” of Europe, Maxar said,

 

“The dryness combined with hot temperatures are resulting in additional stress on corn and sunflower growth, especially across France and Spain.”

 

‘Spotty dryness developing’

And the dryness worries revived in the US Midwest too.

 

Futures International’s Terry Reilly noted Chicago corn futures earlier on were “higher on a US weather forecast calling for additional net drying for east-central Iowa into most of Illinois and parts of Indiana, coupled with above normal temperatures into the first week of August”.

 

Maxar said that, sure, “a cold front which moved across the Midwest this past weekend put an end to the significant heat and also resulted in some notable rains,” which “along with cooler temperatures helped to improve conditions a bit for corn and soybean growth.

 

“However, the rains were quite limited across central and eastern Iowa, central and northern Illinois, and north central Indiana, where some spotty dryness is developing.

 

“Dry weather is expected to prevail across the southern, central, and eastern Midwest, central and southern Plains, and northern Delta through the weekend.”

 

‘Negative for futures’

Still, Chicago corn futures for December ended 0.5% lower at $4.30 ¾ a bushel, undermined by a reminder of the threat to demand from recent elevated prices.

 

US ethanol production last week slipped by 27,000 barrels a day to 1.039m barrels a day, while stocks of the biofuel rose by 324,000 barrels to 23.69m barrels.

 

The output figure was below a 1.056m-barrel number forecast by a Bloomberg market survey, and “was viewed negative for US corn futures”, Mr Reilly said.

 

Karl Setzer at AgriVisor summed up that “long-range weather models that are indicating a return of heat for the Corn Belt are positive for futures.

 

“Advances are being limited by overall demand concerns and projections for elevated world production for the upcoming year.”

 

Soy gains

Soybean futures managed gains, but they were limited to 0.3% for the November lot, leaving it at $9.08 ¼ a bushel, although that was enough just to retake the contract’s 100-day moving average.

 

The revived US weather worries were somewhat supportive here too.

 

Still, significant focus was on the prospects for a US-China trade deals, and more specifically of whether China is poised to reboot its programme of soybean imports from the US.

 

‘Largely uncompetitive’

Richard Feltes at RJ O’Brien noted “reports that China has granted approval to five crushers to buy US soybeans”, totalling, 2m-3m tonnes, “by the end of the year without the 25% tariff” Beijing introduced last year among retaliatory levies for US duties on imports from China.

 

“China has granted a waiver to five companies to import 3m tonnes of soybeans as a goodwill gesture to the US,” said CHS Hedging.

 

However, is there less to this than meets the eye?

 

“It would make sense for private [Chinese] importers to continue to shop for cheaper South American origin soybeans,” said Terry Reilly,

 

“The only position that the US might be competitive is August,” from the Pacific North West, “otherwise the US is largely uncompetitive”.

 

Meal vs corn

Soymeal was hardly helpful to soybeans either, in closing up just 0.1% at $312.80 a short ton in Chicago for December delivery.

 

“Fundamentally, the case for meal is weaker than corn,” RJ O’Brien’s Richard Feltes said, noting factors including “reports of two South American meal cargos headed to the US” – ie of US prices being uncompetitive.

 

However, soyoil, like rival palm oil, managed gains, adding 1.1% to 28.80 cents a pound for the December contract, which earlier touched its 100-day moving average for the first time in three months.

 

Rising rapeseed

In Paris, rapeseed – an oil-heavy oilseed, so particularly attuned to vegoil prices – for November ended up 0.9% at E379.00 a tonne, an eight-month closing high for a nearest-but-one contract.

 

CRM AgriCommodities flagged as supportive for rapeseed prices, besides the weak EU production ideas, news that the European Commission may impose import duties on Indonesian biodiesel, proposing levies of 8-18%, differing by company involved.

 

A deterred to biodiesel imports from Indonesia would raise pressure for domestic output, in turn meaning a greater requirement for rapeseed oil, the key feedstock for producing the biofuel in the EU.

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