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Evening markets: Wheat futures suffer end-of-month selldown

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Grain futures ended a poor month on a weak note, as the last trading day of August did its bit for backing the idea that month-ends are a weak period.

 

It was little help that the dollar gained 0.5% against a basket of currencies to top a level of 99 for the first time since April 2017.

 

A stronger greenback undermines values of dollar-denominated exports, such as many ags, making them less affordable to buyers in other currencies.

 

With the Russian rouble, the euro and Argentina’s peso - currencies of rival wheat exporters to the US – among noted losers against the greenback, that only added to pressure on Chicago wheat prices, which were also under pressure from other factors.

 

CHS Hedging, for instance, noted “plentiful supplies, and harvest activity” as depressants to values, with the International Grains Council on Thursday nudging up to a record high its forecast for the 2019-20 world wheat harvest.

 

And then there was the matter of the unexpectedly large deliveries revealed overnight against expiring September contracts, implying that futures markets are attractive places for commercial investors to sell.

 

‘Affecting spreads’

Against the September Chicago wheat lot there were 440 deliveries, against Kansas City hard red winter wheat a whopping 1,000 lots, and against Minneapolis spring wheat 666 deliveries.

 

“Deliveries were greater than expected in wheat,” said Terry Reilly at Futures International, terming the Chicago figure “above a range of expectations” and the Kansas City one “unexpected”.

 

He highlighted how the data were “affecting spreads”, putting particular pressure on September lots.

 

The discount of the Chicago September lot to the December one, for instance, quadrupled at one point, to $0.12 a bushel, as the September contract slumped by 4.2% to $4.51 ¼ a bushel.

 

Back below $4

However, the weak performance of the spot contract affected later ones too, as it did in the corn market last session, with the Chicago December lot tumbling by 2.4% to $4.62 ½ a bushel.

 

The bear spreading helped the Kansas City December hard red winter wheat contract end down 1.1% at $3.97 ¼ a bushel.

 

OK, that was not such a large percentage drop as in Chicago, but it did represent a contract low, besides taking the lot beneath the psychologically important $4.00-a-bushel mark.

 

And that weighed on rival grain corn too, which lost its early buoyancy to end down 0.6% at $3.69 ¾ a bushel for December delivery, a smidgen below its 10-day moving average.

 

‘Deemed supportive’

Soybeans fared better, if only nudging 0.5 cents higher to $8.69 a bushel for November, amid hopes of China-US trade accord ahead.

 

CHS Hedging flagged talk “about US-Chinese meetings taking place in September, with the idea that it can be done in a calm type manner”.

 

Benson Quinn Commodities said that “continued hopes further escalation of trade sparring can be avoided… are deemed supportive” to prices.

 

That said, China for now continues to buy its soybeans, with Terry Reilly at Futures International flagging talk that “3-4 cargos traded out of Brazil, Argentina and Uruguay, to China overnight after up to 10 traded previous day”.

 

Cotton trapped

The China-US trade accord idea did not arrive in New York with enough force to give much support to cotton futures, which ended down 0.3% at 58.83 cents a pound for December.

 

This too despite worries over Hurricane Dorian hitting some south east US cotton fields.

 

Plexus Cotton flagged a market appearing stuck in a trading range, a factor which “is not likely to change anytime soon, as the US loan continues to provide support at around 57 cents, while a move to the upside would have to overcome massive grower selling.

 

“For the market to take off we would need to see a reversal of the spec net short position to a sizeable net long, but at the moment there is no reason for speculators to do so.

 

“And even if they were buying several million bales net for some reason, the trade would likely be there to assume these short positions.”

 

‘Impact of weather adversities’

However, arabica coffee futures did manage gains, adding 1.7% to 96.85 cents a pound for December, supported in part by a stronger real, which added 0.9% even against a firming dollar (even if only on end-of-month profit-taking on short bets).

 

Still, there was fundamental support too, with the CNC producers’ group adding its voice to those warning that the 2020 Brazilian crop, while an “on” year in the country’s two-year cycle, will fall short of the 2018 record.

 

CNC president Silas Brasileiro flagged the dent to yield prospects from reduced spending by farmers on inputs, a result of “the low prices that have persisted over the last few years.

 

“Add to this the impact of weather adversities,” such as July’s frost, “and “we certainly will not come close to a record crop.”

 

He added that “this scenario may generate a recovery in prices soon”, although urged caution against banking on such an outcome.

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