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Morning markets: Does hard red winter wheat resuscitation threaten US exports?


Are Kansas City hard red winter wheat futures stuck a bit in no man’s land?


They put in a strong case for demand earlier in the summer, when they at one point traded at parity with corn, September basis, boosting wheat’s attraction as an alternative to the yellow grain in, for example, feed rations.


However, that price appeal has now faded, with Kansas City wheat now trading at around a $0.27-a-bushel premium to corn, September basis, with the December lot at an advantage of some $0.33 a bushel.


Hard red winter wheat has also begun to narrow its, unusual, discount against Chicago soft red winter wheat. (Hard wheat, containing more protein, usually has the premium.)


The discount has since hitting a contract high of $0.78 ¾ a bushel a week ago, since contracted by 18%.


‘Somewhat adrift’

The moves meant that “Kansas prices now seem somewhat adrift”, said Tobin Gorey at Commonwealth Bank of Australia.


“Pricing is now likely too high, vis a vis corn, to make it into feed rations.


“And hard red winter wheat prices remain some way above export parity.


“The question now opens as to whether the US holders of hard red winter wheat face further pressure to reduce inventory,” implying fresh weakness in prices.


Gasc to tender again?

There is the potential for some further idea of the level of hard red winter wheat export competitiveness if Egypt’s Gasc grain authority takes advantage of recent price falls to open a fresh tender, as some think it might.


Tenders to Gasc from different merchants and origins given an idea of where export market price levels are set.


“Egypt’s Gasc could once again use this week’s decline in wheat prices to extend its purchase programme,” said CRM AgriCommodities, although viewing Black Sea origins as “still well positioned” to win trade.


‘New season lows’

Indeed, ADM Investor Services noted that while “US hard red winter wheat export prices are near $200 a tonne… Russian wheat export prices have dropped to $191 a tonne versus $196 early in August, and $225 last year”.


French cash wheat prices have dropped even further, “to new season lows near $186 a tonne. A year ago French prices were near $245-250”.


Agritel said that “the parity of the euro against the dollar, close to its lowest since May 2017, contributes to the European origin’s export activity”, although noting that “competition with the Black Sea origins remains strong at the beginning of the campaign.


“The increase in availability in Europe compared to last season also weighs on the market,” with the EU seeing a stronger harvest this year.


Demand quest

ADM Investor Services added that “wheat prices are trying to find a level to increase demand.


“That price appears to be lower.”


It is an idea in line with analysis from many other commentators, with Benson Quinn Commodities, for instance, saying that “wheat is wheat and there is plenty of it in both the US and the world”.


Still, Kansas City hard red winter wheat for December added 0.3% to $4.03 a bushel as of 09:50 UK time (03:50 Chicago time), proving reluctant, as it has done for more than a week to fall below the psychologically important $4.00-a-bushel level.


Chicago soft red winter wheat for December gained 0.2% to $4.67 ½ a bushel.


‘Export sales in a tailspin’

A big support to wheat was corn, which for December gained 0.5% to $3.70 ½ a bushel, bouncing from a contract closing low to the last session.


Not that there is not plenty of bearish talk out there, with Terry Reilly at Futures International, for instance, noting that “more and more US ethanol plants are idling, or slowing down considerably”, curtailing demand for corn, with Poet on Tuesday revealing the mothballing of a 92m-gallon plant in Indiana.


“This week we look for weekly production to increase” in US ethanol output data due later, “but next week’s numbers should show a decline”.


Benson Quinn Commodities said that “with export sales and shipments in a tailspin and Poet announcing it is shutting down an ethanol plant in Indiana, lacklustre demand also gives this market another reason to pause from the long side”.


‘Train wreck’

Furthermore, there is a calendar peril to negotiate too, with Benson Quinn Commodities seeing danger in the forthcoming expiry of the September contract, the last old crop lot, with first notice day on August 30.


“On first notice, over the past five year, September futures have traded to some pretty significant calendar year lows as end of crop year selling has weighed on the market.


“With June 1, 2019 on-farm stocks the largest in the last 13 years at 2.95bn bushels, anyone interested in being long is waiting for this train wreck to report itself one more time.”


However, on the more positive side are the crop worries being identified by the ProFarmer tour, and the fact that prices are already weak, having given back all the risk premium injected in late May and June over the dire US spring sowings season.


Yield concerns

Soybean futures, up 0.5% at $8.72 ½ a bushel for November, have done better at retaining some of their post-mid-May gains. (More than $0.40 of them, anyway.)


But then there are, arguably, more concerns over US soybean than corn yield prospects.


“Traders are fearing the undeveloped US crop will have a hard time growing to its fullest potential as daylight hours get shorter and shorter,” Futures International’s Terry Reilly said.


“Pod counts on the two legs of the US crop tours widely varied again” in results on Tuesday.


Furthermore, US export demand has held up better than some investors have expected.


ADM Investor Services said that “some suggest that exports could drop to only 1,800m bushels,” compared with the 1,775m bushels forecast by the USDA,


‘Stuck in the doldrums’

In New York, cotton futures for December fared less well, shedding 0.5% 58.84 cents a pound, and returning back below their 10-day moving average.


“The market seems stuck in the doldrums,” CBA’s Tobin Gorey said, adding that the contract’s “inability to hold above 60 cents a pound suggests any buyers remain on the back foot”.


Unhelpful were fresh falls in prices in China, where Zhengzhou futures for January dropped by 1.0% to 12,740 yuan a tonne.


Prices gained at China’s daily cotton auctions from state stocks were lower too, at 11,799 yuan a tonne, down from 12,089 a tonne on Friday.


The revived worries over the economy of China, a huge cotton consumer, are being closely watched in the market for the fibre.

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