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Evening markets: Wheat soars, as dryness fears, China fever extend grains rally

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While Wall Street share investors grappled with quadruple witching, US farmers benefited from a double dose of wizardry,

 

As stock markets negotiated expiry in stock and index options and futures, Washington conjured up $13bn or so in further handouts to agricultural producers, who saw a benefit too from continued gains in prices of their crops (and most livestock futures contracts too).

 

Chinese buying, as ever, received much of the credit.

 

‘High level of buying interest’

“We have seen a considerable build in demand in recent months, especially from China,” said Karl Setzer at AgriVisor.

 

“In fact, this buying has pushed new crop bookings to record levels for this time of year,” for both corn and soybeans, as Agrimoney analysed on Thursday.

 

“The price rally is being driven by an ongoing high level of buying interest from China,” said Commerzbank, thinking in particular of soybeans, and noting the spree of large purchases by China of US supplies, as revealed by the US Department of Agriculture through its daily alerts system.

 

“The US Department of Agriculture has registered orders from China on each of the last 10 days of trading,” the bank said, ahead actually of an 11th revealed on Friday, of 132,000 tonnes.

 

‘Considerable demand from China’

“Corn is also enjoying considerable demand from China,” Commerzbank noted.

 

Indeed, the USDA also unveiled the sale of 210,000 tonnes of US corn exports to China, as well as 100,000 tonnes of soymeal to “unknown”.

 

The corn sale added to the 9.24m tonnes the US had already sold to China as of a week ago (yet still forecasts China imports of corn of 7.0m tonnes in 2020-21 from all origins, an anomaly Agrimoney has had a look at as well).

 

The China fever idea took momentum too from the strong performance by Dalian futures overnight, as listed by Agrimoney earlier.

 

‘Heavy fund buying’

But other factors than China were involved.

 

Terry Reilly at Futures International, besides highlighting “Chinese buying that seems not to be slowing down”, said that “heavy fund buying” was also behind the fact that “soybean futures are surging higher again”.

 

Regulatory data late on Friday will give a snapshot of the latest fund position in US-traded ags, with some believing that the soybean figure could show a record high (although there are, of course, a number of ways of cutting the data).

 

Higher prices

Whatever, Chicago soybean futures for November gained 1.5% to $10.43 ½ a bushel, the best finish for a spot contract since April 2018.

 

Soymeal itself - buoyed by the USDA export announcement, which followed on from some strong US August export data released mid-week by Nopa – jumped 2.0% to $342.10 a short ton for December, the highest finish for a nearest-but-one contract since June 2018.

 

One casualty of this was soyoil, which was held back a bit by long soymeal-short oil spreading. Not that December soyoil did badly, in ending up 0.8% at 35.14 cents a pound, an eight-month closing high for a nearest-but-one contract

 

But that was a significant underperformance compared with palm oil, which for December jumped by 3.5% to 3,080 ringgit a tonne in Kuala Lumpur, an eight-month closing high for a benchmark contract, and within 60 ringgit of the highest finish in three years.

 

Soaring wheat

Among grains proper, Chicago corn futures ended up 0.9% at $3.78 ½ a bushel for December, a fresh six-month closing high for a spot contract, and finishing off a sixth successive positive week.

 

But it was wheat, a fund favourite in times when ags are in fashion, which performed particularly well, jumping 3.4% to $5.75 a bushel for December, also a six-month closing high for a spot lot.

 

The fundamental support story here is more about dryness than China demand (although that does feature every so often), with a dearth of rain posing ill for sowings of winter crop, for harvest in 2021, in Ukraine, the US and parts of the European Union, including France.

 

This besides the dryness testing also Argentine wheat which is already in the ground.

 

‘Dryness supportive’

CHS Hedging noted that the Buenos Aires grains exchange “reports that about 12% of Argentina’s wheat crop is experiencing extreme drought and yields could be halved” in this areas.

 

Mr Reilly meanwhile said that “net drying (La Nina like conditions) over the next 10 days for the US winter wheat areas and Black Sea dryness are supportive” for prices.

 

This even as US farmers are planning an increased of 2.4-2.6% in winter wheat sowings, from 2019-20’s historic low.

 

Kansas City hard red winter wheat, grown in the US Plains and in the centre of dryness worries, added 3.4% to $5.04 ¼ a bushel for December delivery - the best close for a spot contract since February 2019.

 

Coffee plunge

However, not all ags attracted buying.

 

New York arabica coffee futures for December closed down a further 3.8% at 113.50 cents a pound, completing a clean sweep of negative sessions this week – over which the contract has lost 14.3%.

 

The slump has been driven by ideas of rains ahead for much of Brazil’s coffee belt, spurring ideas of recent blossoms setting to form cherries, and boding well for the 2021 harvest.

 

London robusta futures, less exposed to Brazil, with Vietnam being the top producer, shed 2.2% to $1,356 a tonne for November, taking their losses for the week to 5.4%.

 

‘Little room for the new coffee’

Brazil’s CNC producers group noted forecasts that on Sunday, “a frontal system, associated with a cold front, advances and causes rain” for Brazil’s south east, bringing rains to much of southern Minas Gerais, São Paulo, Rio de Janeiro and Espírito Santo.

 

“Early next week, the rain remains in São Paulo, Triângulo Mineiro, the southern half of Minas Gerais and between Rio and Espírito Santo.”

 

The only region not to enjoy rain relief “is the north of Minas Gerais, where heat continues”.

 

Also undermining bullish sentiment is a stalling in the shrinkage of New York’s certified arabica stocks, which have risen on two days this week.

 

In fact, focus is now turning more to Brazilian warehouses seen as full of beans after this year’s record harvest.

 

“Many purchasers have little room for the new coffee in warehouses, while others are receiving the product purchased in previous months, which is limiting new deals,” Cepea said, quoting research from its contacts.

 

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