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Evening markets: Grains retreat, as profit-taking sets in

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Grains retreated on Tuesday, as investors banked some gains, despite the prospect of more Midwest wetness.

 

“The forecast for the next 10 days remains wetter than normal across nearly all of the Corn Belt,” said Maxar.

 

“Most areas are expected to see rainfall on at least 5 of the next 10 days.”

 

Besides slowing soybean sowings (the corn-planting window is just about closed), “temperatures will remain below normal over the next several days, slowing germination and early growth of crops”

 

Furthermore, the “wet weather across the southern Midwest will also lead to flooding and reduce quality of the soft red winter wheat crop”, the weather service said.

 

‘Round of profit taking’

At RJ O’Brien, Richard Feltes said that “weather leans positive” for prices, with “80% five-day Midwest precipitation coverage followed by a continued wet Midwest outlook Wednesday forward next week”.

 

Nonetheless, as in the latter stages of the last session, corn futures struggled to summon up much enthusiasm, with some investors believing enough risk premium is in values for now.

 

Mr Feltes said that it was “hard to imagine getting a more bullish forecast than yesterday”, yet spot corn futures gave back most of their gains, behaviour “which suggests that… highs may be in” before the US Department of Agriculture’s June 28 sowings and stocks reports shake up investors again.

 

Terry Reilly at Futures international put it that a “round of profit taking is hitting corn, wheat and soybeans today”.

 

‘Downside limited’

That said, Mr Feltes added that “nonetheless, view corn [price] downside as limited into month end if eastern corn basis stays firm and the prevailing wet Midwest pattern” sticks around too.

 

(He in fact reported cash bids of $0.50 a bushel above July futures “from several eastern Midwest buyers on Monday”.)

 

Whatever, the Chicago July contract fell by 1.3% to $4.49 ¾ a bushel, while the new crop December lot shed 1.4% to $4.63 a bushel.

 

On a more bullish note, Mr Reilly noted comments from USDA scouts in Michigan, suggesting that there was more (or rather less) to data overnight showing corn sowings in the state up 21 points last week at 84% complete.

 

“The percent of corn planted advanced not by planters, but the decision of many farmers to opt for prevented plantings,” the scouts said, noting too that “some corn fields were starting to turn yellow as a result of the excessive soil moisture, and emergence has been uneven due to the cool temperature”.

 

‘Significant improvements in soil moisture’

With corn futures fading, that offered little hope for wheat, which has been piggybacking on its rival grain for price support.

 

In fact, US wheat prices have a habit of sliding at this time of year, weighed by harvest pressure, which brings a slew of fresh supplies.

 

Kansas City hard red winter wheat for September dropped by 2.2% to $4.77 a bushel, also amid – some – talk too that results from the early hard red winter wheat harvest, in the southern Plains, were not so bad after all.

 

Chicago soft red winter wheat, where more wetness worries seem to be focused at the moment, fell by a more modest 1.6% to $5.31 ½ a bushel.

 

On the bearish side, Maxar flagged that “rain is expected to increase in Western Australia this weekend, which should lead to significant improvements in soil moisture for wheat”.

 

That said, “dryness is expected to persist across New South Wales and southern Queensland, however”.

 

Meanwhile, Mr Reilly said that “US harvest progress will advance this workweek,” although Maxar was less sure, saying that in the US Plains “active rains in northern, central, and eastern areas will keep wheat drydown and harvesting slow”.

 

Nervous investors

Soybean futures fared best of Chicago’s big three, adding 0.1% to $9.13 ½ a bushel for the July contract, a four-month closing high for a spot lot.

 

This after USDA data overnight showed US plantings progressing less significantly last week than investors had expected, and with rains seen slowing seedings ahead, and with the closing of sowings windows looming.

 

This when hedge funds retain a net short in the oilseed, unlike in corn.

 

“Funds remains short the soy complex, and these [planting progress] numbers are starting to make those individuals nervous,” said Karl Setzer at AgriVisor.

 

“That said, soybeans have a much greater cushion to absorb production loss, and funds may not be as willing to actively buy futures.”

 

‘Too wet and cool’

In New York, cotton futures for December gained 0.6% to 66.82 cents a pound, helped in party by optimism of a US-China trade deals, after Washington said it would rekindle trade talks with China ahead of the G20 summit.

 

Abares did its bit by talking of resilient global textiles demand, and nudging higher its forecast for cotton prices, while Goldman Sachs, although cutting its price estimates, left them above the futures curve.

 

At Price Futures, Jack Scoville noted that in much of the US cotton belt “the weather has been bad, especially in the Texas Panhandle, where there are concerns that it has been too wet and cool for the crop to be developed well”.

 

‘A very safe reserve’

However, arabica coffee futures dropped by 1.7% to 96.60 cents a pound for September –and this despite a 0.7% rally in the Brazilian real, which was in theory supportive of dollar values of the bean.

 

Still, on the bearish side, the Green Coffee Association of the USA has announced that the country’s port warehouse stocks increased by 4.3% during May to reach 6.61m bags.

 

Factoring in 1.1m bags in transit – equivalent to two week’s North American consumption – the stocks number “would equate to well in excess of 13 weeks of roasting activity, which most would consider to be a very safe reserve”, I&M Smith said.

 

“Especially so ahead of the further deliveries due from large new Mexican and Central American crop and the new Peru crop, which are coming in over and above the steady deliveries from Colombia, Brazil and Vietnam.”

 

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