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Evening markets: Fresh US dryness worries buoy wheat, cotton futures

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Corn proved strong, but not strong enough.

 

That is, in terms of overhauling Kansas City hard red winter wheat futures, to gain a rare premium over the higher-protein grain.

 

Yes, corn futures managed decent headway in Chicago, closing up 1.1% at $5.60 ½ a bushel for May delivery, to stay ahead of major moving averages, amid reviving concerns over dryness in Brazil, where safrinha corn is developing.

 

After being planted largely outside the ideal sowings window, weather setbacks to the safrinha crop are being viewed by investors with particular importance.

 

‘Eyes on the skies’

“Brazil has turned dry and is raising concerns for its second crop corn production,” said Benson Quinn Commodities.

 

At RJ O’Brien, Richard Feltes said that “weather leans positive” for grain prices, noting “building dryness across the southern half of the safrinha belt” besides the prospect of “cooler 11-15 day temperatures” in the US as farmers there attempt sowings.

 

The US Department of Agriculture’s Brasilia bureau, in a briefing which issued a reasonably upbeat forecast for Brazilian all-corn output this year, of 105.0m tonnes, acknowledged the threat of dryness, saying that “all eyes will remain on the Brazilian skies in the coming weeks.

 

“Ultimately, the volume of precipitation and the length of Brazil’s 2021 rainy season will determine the fate of the 2020-21 corn harvest.”

 

‘Dryness will continue’

However, Kansas City hard red winter wheat futures for May gained 1.4% to $5.63 ¼ a bushel to stave off the threat, for at least another day, of falling to an unusual discount to corn.

 

Helpful for the class, the top contributor to US wheat exports, was a rash of tenders by importers seeking to take advantage of recent easier prices.

 

Besides the 345,000-tonne purchase by the US on Tuesday, of Black Sea supplies, Tunisia, Japan, Taiwan and Ethiopia are in the market, with Algeria buying 30,000-48,000 tonnes, Reuters reported (albeit a small volume for the North African country).

 

The weather in the key southern Plains hard red winter wheat-growing area was mixed, with Maxar saying that in the Plains overall “showers in eastern areas will maintain moisture for wheat, but dryness will continue in southern areas”.

 

‘Significant dryness concerns’

But leading the wheat complex higher was Minneapolis spring wheat, which soared 2.2% to $6.24 ½ a bushel for May, amid mounting dryness worries over its growing area in the northern US and Canadian Prairies.

 

Mr Feltes flagged forecasts of the “expansion of the dry US hard red spring wheat area from one-half to two-thirds”.

 

Maxar said that North Dakota, the top US spring wheat-growing state, “is expected to miss out on most of the rainfall this week, which will allow significant dryness concerns to persist at least through the next 10 days.

 

“Rainfall will need to increase in the coming weeks in order to support germination and early growth of spring wheat.”

 

‘Possibility of freezing temperatures’

“North Dakota and Canadian prairies remain dry out into the 10-14 day outlook supporting the wheat markets,” said Benson Quinn Commodities, based in Minneapolis, within the US spring wheat belt.

 

“The two-week forecast also turns cold with possibility of freezing temperatures extending down into winter wheat areas.”

 

Signally, Chicago soft red winter wheat, lower in protein than its hard peers, managed only a 0.1% gain to $6.16 ¼ a bushel.

 

Paris soft milling wheat added 0.7% to E207.25 a tonne, earlier bouncing off its 200-day moving average, which it had not touched for six months, supported by worries over European frosts in the forecast – although these look more of a worry for rapeseed crops, in flower, than winter grains.

 

‘A tug-of-war’

Still, while new-crop Paris rapeseed for November managed a 0.1% gain to E446.00 a tonne, the spot, old-crop May lot shed 1.4% to E496.75 a tonne undermined, as a crop rich in vegetable oils, by weakness in soyoil prices.

 

Chicago soyoil for May closed down 2.0% at 52.85 cents a pound.

 

“There is a tug-of-war between bullish and bearish fundamentals” in vegetable oil markets, Oil World said, adding that while it was standing by its “expectation of a price setback within the next six months” it foresaw too “rather high price volatility”.

 

Terry Reilly at Futures International noted a “reversal in product spreading, keeping soyoil on the defensive”, ie with investors turning from their recent strategy of short soymeal-long soyoil bets.

 

This was supporting soymeal prices, he said, with the Chicago May contract ending up 0.7% at $409.10 a short ton, although that was not enough to prevent losses in soybeans themselves, which ended down 0.7% at $14.08 ¾ a bushel.

 

Soybeans also felt some pressure from ideas that, after US soybeans stocks for March 1, as released last week, showed inventory expectations above market forecasts, the USDA may be tempted in Friday’s Wasde report to reveal a less tight US soybean balance sheet for 2020-21.

 

‘Spec buying emerging’

In New York, cotton futures for May extended their rebound, adding 0.4% to $79.50 a bushel, amid worries over dryness in the top US growing state of Texas spoiling 2021 production hopes.

 

“Conditions are still much too dry, above all in the west of Texas, making for a gloomier outlook,” said Dr Michaela Helbing-Kuhl at Commerzbank.

 

Current sowings forecast suggest that “17.5m bales can probably be expected at best in 2021-22” production, a figure which while well above the last harvest of 14.7m bales, “is still not enough to prevent US stocks from further declining – if demand remains buoyant, that is”.

 

There are also some ideas that US export sales data on Thursday will prove a significant improvement on the previous week’s downbeat figure.

 

ADM Investor Services, meanwhile, said that “the market is still operating under the positive technical influence of the March 26 reversal” from a technical perspective.

 

“The charts turn positive on a minor rally. Traders were talking about spec buying emerging after a devastating March.”

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