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Evening markets: Wheat boosted again by late-session buying wave

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For a while, it looked like wheat futures might end lower in Chicago.

 

The December contract was, after all, having given up early headway trading a smidgen lower, even heading into the last hour of trade.

 

But that was before another of the late buying spurts which was notable in the last session too, and even larger this time, sending the contract to close at $5.35 ½ a bushel, a gain of 1.2% on the day.

 

‘China is in the market’

As to why, well, Friday’s performance did nothing to dispel the rumours reported earlier by Steve Freed at ADM Investor Services, who noted that “there is talk that China is in the market buying futures on the close over the last few days”.

 

There area idea of China purchasing physical crop from the US too.

 

ADM Agriculture – another part of the Archer Daniels Midland empire, this time based in the UK – noted that US wheat has been “gaining support by talk of increased interest from China”.

 

‘Maintaining stress’

It was no harm either that Paris soft milling wheat futures ended higher, by 1.4% at E183.75 a tonne, helped certainly by a weaker euro - which shed 0.7% against the dollar, making eurozone exports more competitive – but also by a further deterioration in the EU’s key French corn crop.

 

FranceAgriMer rated the crop at 62%, down 3 points week on week (if in line with last year), implying a smaller harvest and potentially more demand for wheat in feed.

 

This when, as Maxar noted, “some dryness remains, particularly in southern and eastern France, northern and western Germany, and northern and eastern Poland… maintaining stress on corn.

 

Over the next 10 days, “dryness is likely to persist across France and western Germany and may increase some in Italy”.

 

Southern hemisphere setbacks?

In Argentina, meanwhile, there is increasing attention on the threat posed by dryness and now frosts to prospects for the forthcoming wheat harvest.

 

CHS Hedging, meanwhile, reported also that “cold weather is being reported in parts of Australia.

 

“Winter crops in New South Wales and parts of Queensland may have experienced some negative effects.”

 

‘Yield potential significantly lower’

Rival grain corn managed a positive finish too, albeit by a more modest 0.4% to $3.40 ½ a bushel for December.

 

This as Pro Farmer crop tour results showed a strong crop in most of the Midwest, but one reduced by drought and last week’s derecho storm in the top growing state of Iowa.

 

“Consequently, the crop tour experts believe that the yield potential in many parts of Iowa is significantly lower than last year and than the average of recent years,” Commerzbank said.

 

“The US Department of Agriculture is likely to abandon its expectation of a record crop in its next report.

 

“After all, the storm is bound to have destroyed more than the 3m tonnes that separate the current estimate from the previous record achieved in 2016-17.”

 

Chinese needs

While some investors believe such losses have already been factored in, what clinched the session for bulls was the announcement by the USDA of a further sale of US corn to China, this time of 405,000 tonnes.

 

This touched a bit of a sensitive point, with ideas that China’s corn import needs have taken a structural shift to the higher, and with the US seen as a primary target for trade, as Beijing encourages the meeting of trade targets set under the countries’ phase one trade deal.

 

“The Chinese will need to purchase more corn through the next year,” said John Walsh at Walsh Trading.

 

And to restate comments overnight from Karl Setzer at AgriVisor, “China has suffered from short crops in recent history, and at the same time, has seen its corn demand increase,” thanks to raised demand from ethanol plants as well as the rebuild in its hog herd after African swine fever.

 

“As a result, China is expected to consume 288m tonnes of corn this year while only producing an estimated 250m tonnes.”

 

‘The friendly part of the market’

China bought US soybeans too, the USDA revealed through its daily alerts system, taking 400,000 tonnes for 2020-21. The US sold a further 368,000 tonnes too to “unknown”.

While soybeans, not so badly affected in US production terms by the derecho storm, ended lower, the decline was only by 0.1% for Chicago’s November contract, to $9.04 ¾ a bushel.

 

In fact, “the friendly part of the market is that the Chinese will continue to need US soybeans for a bit more time,” Mr Walsh said.

 

Soyoil offered support too, closing up 0.5% to 31.67 cents a pound for December, having in the last session worked through the poor Malaysian export data for rival palm oil, which sank itself in Kuala Lumpur on Friday (having not traded in the last session because of a holiday).

 

Kuala Lumpur palm oil for November ended down 2.0% at 2,681 ringgit a tonne on the day.

 

Cotton vs coffee

In New York, cotton futures, unlike corn, maintained early weakness, ending down 0.4% at 64.28 cents a pound, lacking - proven - Chinese demand, although there are rumours of interest in the fibre too.

 

“Traders continue to point to bearish fundamentals, which without doubt exist,” said Plexus Cotton, although noting too increased speculative interest of late in long bets in the fibre.

 

But arabica coffee for December ended higher, by 0.7% at 119.80 cents a pound, despite weakness in the real, which cuts the value in dollar terms of assets in which Brazil is a key player.

 

The closure for a seventh successive session above the 200-day moving average came amid a continued focus on declining stocks certified for delivery against New York futures.

 

“This month’s sharp decline in ICE exchange coffee stocks has been a major supportive factor this week,” ADM Investor Services said.

 

Stocks were revealed, after the close, to have dropped by a hefty 15,958 lots to a fresh multi-year low.

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