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Morning markets: Grain futures make soft start, undermined by fund data

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Grain futures started this week much where they ended the last one, on the back foot.


Sure, the dollar obliged bulls by easing a touch, by 0.2% against a basket of currencies, so making dollar-denominated exports such as many commodities a touch more affordable.


And weather risks are still live with, in the US Plains where dryness which is threatening winter wheat expected to persist for the “next two weeks”, with “above-normal” temperatures in the six-to-15 day outlook adding to crop “stress in three-quarters of the [hard red winter wheat] belt”, said Commodity Weather Group.


Furthermore, in Argentine, where dryness has boosted prices of corn, soybeans and soymeal, the weather is still proving less than ideal with weekend rains “very spotty”, according to Commodity Weather Group, and “rains limited to less than half of corn, soy [area] over the next 10 days”.


While there are some rains shown by models in the 11-to-15 day outlook, there is “still low confidence” in this outlook, and the precipitation would come late for crops anyway.


“Rains would limit additional late corn, soybean losses in Argentine, but yield loss to date is largely irreversible by late in the month.”


‘Deeply uncompetitive’


Still, gains were somewhat hard to come by, with worries in wheat, for instance, turning to the dent that higher prices have already made to demand prospects.


“Wheat prices had become deeply uncompetitive at many destinations where the US needs to sell wheat,” said Tobin Gorey at Commonwealth Bank of Australia.


“Wheat prices in the US are beginning to price us out of global competition,” said Water Street Solutions.


And, after all, the US Department of Agriculture on Thursday, in its monthly Wasde report on world crop supply and demand, trimmed its forecast for US exports this season.


‘Completed short-covering’


As an extra pressure, regulatory data late on Friday showed hedge funds having largely covered their net short in Chicago wheat futures and options, cutting it to 32,531 lots, down from more than 145,000 contracts at Christmas, and a seven-month low.


CBA’s Tobin Gorey, noting that recent price “gains have partly been driven by investors who are buying back a short position”, added that “Friday’s positions report suggests that investors have largely completed that task”.


In fact, in the last couple of sessions, when Chicago wheat futures have been in decline, open interest has shown modest rises, indicating that maybe funds are beginning to put fresh short bets on.


Chicago soft red winter wheat futures for May stood down 0.8% at $4.85 ½ a bushel as of 10:00 UK time (05:00 Chicago time), with the May Kansas City hard red winter wheat lot


Kansas City hard red winter wheat for May stood down 0.5% at $5.17 ¾ a bushel.


‘Supportive tone’


Corn futures dropped 0.5% to $3.88 ¾ a bushel, weighed by rival grain corn, but also by the regulatory data from the Commodity Futures Trading Commission, which showed the hedge fund net long in Chicago corn futures and options at 163,534 lots.


That was the highest in 20 months, and may be viewed by some investors as a negative in terms of future price gains, in indicating that much buying pressure has already been absorbed.


Still, “the tighter balance sheet and likely lower US 2018 acres continue to add a supportive tone to the corn market,” said Water Street Solutions, with corn expected in the US to lose a little bit of area to soybeans in the so-called “battle for acres” in spring sowings plans.


China threw some news at the market in terms of a BRF executive flagging a huge, 30% boost to the country’s corn processing capacity last year (which is just as well when there is also talk that China to begin offering 6m-7m tonnes of corn from reserves each week starting around March 20).


However, on the negative side, Terry Reilly at Futures International noted that “China hog prices hit a four-year low recently and some are concerned feed demand may ease”.


Chinese soybean imports…


In China, Dalian corn futures for May eased by 0.9% overnight to 1,823 yuan a tonne.


Perhaps more important, Dalian soybean futures for May dipped by 1.6% to 3,614 yuan a tonne – important, as there has been market fuss over a story that Chinese officials have said that US soybeans are a prime target for retaliation against tariffs imposed by the US on steel and aluminium imports.


If this threat – which would cause hardship to China’s own crushers, given that they cannot sources all their needs elsewhere – was deemed imminent, one would expect Chinese soybean futures to rise, given that falling imports would boost competition for what supplies there are in-country.


Chicago soybean futures for May fell, but by a modest 0.2% to $10.37 a bushel in early deals, amid decreasing concerns for soymeal supplies, given that Argentina, the top exporter of the feed ingredient, has ample supplies of soybeans to crush, however its drought-hit crop turns out.


Soymeal futures for May eased by 0.7% to $3.71 a bushel.

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