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Evening markets: Wheat futures jump, lifted by Russia, US concerns

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Are ags getting back into fashion?

 

The Bcom ag subindex stood 1.1% higher in late deals, on track for what would be a third successive higher close, and its best finish in nearly two months (and its first one above its 50-day moving average in four months).

 

And having gained support earlier in the week largely from the Brazil-focused ags (eg sugar) as the recovery in the country’s currency lifted their value in dollar terms, on Thursday it was grains, and in particular wheat, which took on the heavy lifting.

 

Chicago soft red winter wheat futures for July closed up 2.3% at $5.23 ¾ a bushel, a five-week closing high, and back above their 40-day moving average.

 

Kansas City hard red winter wheat for July leaped 3.2% to $4.72 ¼ a bushel for July, soaring back above its 200-day moving average.

 

‘Trade has taken notice’

By contrast, sure, the 0.7% drop in the dollar against a basket of currencies had a role in supporting the US contracts, by boosting their competitiveness on international markets.

 

But there was more to the headway that that, as suggested by wheat prices which gained in Paris too, ending up 1.5% up at E187.50 a tonne for September despite the headwind of a stronger euro.

 

The United Nations Food and Agriculture Organization offered fodder to bulls by forecasting that world wheat supplies in exporting countries, ie those most important for pricing, will close 2020-21 at their tightest in eight years, on a stocks-to-use basis.

 

And much was down to Russia, where some dryness is seen returning next week, only adding to uncertainty over the country’s crop prospects – doubts seen as in part behind strength in domestic prices.

 

To return some of the comments that Agrimoney quoted in its morning market report “Russian FOB values remain firm for the July slot and the trade has taken notice,” as Benson Quinn Commodities said, while ADM Investor Services noted rising Russian export prices.

 

‘Export offers are firming’

Indeed, there remains continued market debate on how Ukraine, which is expecting a weather-depressed harvest this year with reduced exportable surplus, won the latest Gasc tender, with values undercutting Russian ones.

 

(Signally, there were not offers either of wheat from Romania, which often features strongly in early-season Gasc tenders, but has suffered dryness damage to its crop this time.)

 

“Russian wheat export offers are firming ahead of their harvest and are offering support to wheat prices” elsewhere, Benson Quinn Commodities said.

 

‘Causing stress’

Furthermore, there was some idea of support for wheat prices from dryness in the US Plains - although with harvest starting in very southern areas, that could be viewed as a positive rather than a yield-depressing negative.

 

“Hot temperatures across the southern Plains are causing stress on the crop in areas where it is still susceptible to the heat,” said CHS Hedging.

 

“Hot temperatures for the US southern Plains are stressing the yield potential for Kansas,” said Benson Quinn Commodities, although adding that further south “the stressed crops of Texas and Oklahoma are yielding better than expected with harvest getting under way”.

 

The weekly Drought Monitor showed the proportion Kansas, the top growing state, in drought holding week on week at 27.5%.

 

‘Very unpredictable’

Sean Lusk at Walsh Trading noted too the reduced chance of a tropical depression forming in the Gulf of Mexico bringing rain relief.

 

“It was originally expected to make landfall in Texas, but now the most likely path is just west of New Orleans.

 

“The creep eastward… suggests that dry areas of the Plains have much lower opportunities to see moisture from the storm’s path.”

 

Mr Lusk added that “these storms are very unpredictable and in my view have had very much to do with the movement in the wheat market, especially the Kansas City winter wheat contract”.

 

US wheat export sales last week, meanwhile, of more than 600,000 tonnes were generally viewed as fine.

 

‘Moisture levels generally below normal’

For corn, US export sales last week were reasonable, at a bit over 660,000 tonnes old crop and new combined.

 

Still, the grain also found some support from a dry outlook in parts of the Midwest too.

 

“Across the corn belt, subsoil moisture levels are generally below normal in most areas, with the exception of Wisconsin,” said Maxar.

 

“Over the next 10 days, soil moisture levels are expected to decline further across the Plains and the far north western Midwest.”

 

Helped by wheat too, and ideas of fund closing of some their substantial short bets on the grain, the Chicago July corn contract added 1.5% to $3.29 a bushel, their best finish since mid-April.

 

‘Cheapest origin’

And soybean futures managed headway too, gaining 1.2% to $8.67 ¾ a bushel for July, their best close in nigh on two months (and in line with ideas of perhaps an early seasonal rally).

 

This despite a fresh retreat in Brazil’s real, which shed 1.3% even against a declining dollar, so enhancing the competitiveness of the country’s exports.

 

Still, ideas remain of improved demand for US soybeans, including from top importer China.

 

“The US has become the cheapest origin for soybeans as the Brazilian real has strengthened and stopped farmer selling in Brazil,” said CHS Hedging.

 

In fact, US soybean export sales last week, at a touch over 1.0m tonnes old crop and new crop combined, were in line with market expectations, with a further 120,000 tonnes announced by the USDA through its daily alert system, and reported as being ordered by an “unknown” buyer.

 

Lack of price competitiveness’

Export sales data were viewed with some disappointment in the cotton market, coming in at a net negative 10,089 running bales for this season and, while positive for 2020-21, only at a modest 12, 410 running bales.

 

The previous week, combined sales topped 215,000 running bales.

 

Actual US cotton exports were soft too, at 237,923 running bales, the lowest since the holiday-disrupted week to January 2.

 

The data were viewed as “bearish” by Louis Rose at Rose Commodity Group, who added that they “show the lack of price competitiveness of US cotton and current levels”.

 

New York cotton for December, the best-traded lot, eased by 0.3% to 59.58 cents a pound.

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