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Evening markets: Spring wheat futures extend winning streak. Sugar gains too

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Ag prices put in a broadly firm start to the week, with one of last week’s stars, spring wheat, burning particularly brightly.

 

The Minneapolis December wheat contract settled up 2.5% at $5.37 ¼ a bushel, its highest finish since July.

 

The headway reflected an expansion in the concerns over the US and Canada harvest which have now sent the contract up more than 8% so far this month.

 

‘It isn’t going to be pretty’

Rains are slowing harvest, and leaving ripe crop out in the field, vulnerable to quality degradation as the moisture causes sprouting on the stalk.

 

“Added precipitation through the northern Plains and western Canada have added to the support in the spring wheat market,” said Benson Quinn Commodities in Minneapolis, in the US spring wheat belt.

 

“From a quality standpoint, it isn’t looking very good for the remainder of the spring wheat crop.

 

“Going forward, it isn’t going to be pretty. The crop is ripe. The rains are heavy. There are additional rains expected this week.”

 

‘Sprout damage’

CHS Hedging noted “flooding reported in eastern North Dakota areas, with some highways closed over the weekend”, North Dakota being by far the most important spring wheat-growing state.

 

And it added that “sprout damage, low falling number, and late harvest delays on remaining acres are compounded the quality story.

 

“Cash market ideas firmed considerably.”

 

This when hedge funds have a substantial net short in Minneapolis spring wheat futures and options, a position vulnerable to closing in the rising market, putting yet further upward pressure on prices.

 

Chicago dip

The headway did not spill over into Chicago soft red winter wheat, which for December closed down 0.3% at $4.83 a bushel, albeit remaining just above its 40-day moving average.

 

There remain ideas of ample world wheat supplies, despite a cut by Kazakhstan of 1.5m-2.0m tonnes to 18.0m-18.5m tonnes in its forecast for its overall grains harvest (mainly wheat) this year.

 

The spring wheat factor seems to be focusing minds more on quality, a factor which gave extra emphasis to comments from CBH Group that the last Western Australia crop was low in protein and largely better suited to feed rations than traditional flour and noodle use.

 

And there was talk of short Chicago-long Minneapolis spreading.

 

Separately, US wheat exports last week, at 476,173 tonnes, were actually not bad, within the range of market expectations of 300,000-600,000 tonnes, if a little below the 518,000 tonnes reported for the previous week.

 

Trade talk support

The same could not be said of the US corn export data for last week which, at 233,993 tonnes were below market expectations of 400,000-700,000 tonnes, and down some 200,000 tonnes week on week too.

 

However, the Chicago December contract ended up 0.5% at $3.73 ¼ a bushel nonetheless, continuing to find support from broad relief at the positive weekend comments over the latest US-China trade talks, and the prospect of more to come next week.

 

“Corn futures are higher… after it was announced China and the US will hold trade talks during the second week of October,” said Terry Reilly at Futures International.

 

Furthermore, there were some ideas of US wetness slowing the early US corn harvest.

 

“We are seeing attention placed on the heavy rains in the western Corn Belt,” said Karl Setzer at Agrivisor.

 

“These could easily cause further delays to the spring wheat harvest and start to delay the harvest of corn and soybeans in some areas.”

 

‘Tend to remain dry’

Soybean futures added 1.0% to $8.92 ½ a bushel for November delivery, bouncing back above 50-day and 100-day moving averages, finding support from US harvest delay and China deal ideas, but also decent US export data for last week.

 

At 922,550 tonnes, the figure topped market expectations of 600,000-900,000 tonnes, and the 668,000 tonnes shipped the previous week.

 

There remain too worries over dryness delaying early sowings in Brazil.

 

“Forecasts for South America tend to remain dry, which on its own, isn’t a reason to pay $0.13-0.15 higher, but complements the other stories that are offering support,” said Benson Quinn Commodities.

 

‘Extremely troubling’

In New York, cotton futures for December gained 0.6% to 60.91 cents a pound, also helped by the apparent improvement in China-US trade relations.

 

Louis Rose at Rose Commodity Group also noted that “across the southern hemisphere, both Australia and the Mato Grosso region in Brazil continue to experience hot and dry conditions, which is extremely troubling for producers Down Under”.

 

In Brazil, cotton, as with corn, is largely grown as a safrinha crop, after the soybean harvest.

 

This means that a late soybean swing period, implying a late harvest, could mean weakened seeding prospects come the safrinha window early in 2020.

 

‘Has never happened before’

New York raw sugar for March closed up 1.6% at 12.21 cents a pound,

 

Sure, there remain ideas that Friday’s expiry of the October contract will see a large delivery against it, which is often interpreted as a negative for futures, indicating that they are an attractive place to sell.

 

Sucden Financial said that “perhaps the main talking point around the market was Friday’s increase in open interest” for the October contract – a dynamic just about unheard of this late in the lot’s life, when the onset of physical commitments for investors typically scares most away.

 

Open interest, the number of live contracts, “actually increased, which looking back over the years has never happened before we believe at this stage of events in the expiry,” Sucden said.

 

“It seems then we are set to have a large delivery later this week and rumours are flying around the market of who is going to ‘take it on’.”

 

‘Sat on a powder keg’

However, ranged against that is that prices are already pretty low, and that funds have a record and rising net short position – which will need to be covered some time, putting upward pressure on futures.

 

“We have what seems to be a contentious expiry to navigate and a fund community seemingly pushing the envelope on the short side,” Sucden said.

 

“It seems there is considerable upside risk building the tape which has yet to be sparked into action.

 

“Sugar seems a very dangerous short side play from a near to medium term perspective,” the traing house said, adding that “there seems to be a growing feeling we are ‘sat on a powder keg’.”

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