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Morning markets: Has the spring wheat reversal run its course?

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Has the correction in spring wheat futures run its course?

 

The Minneapolis December spring wheat contract managed a flat close to the last session, after a five-session run of declines which had cost prices 4.5%.

 

What’s more, from a chart perspective, the contract too managed to trade within the range of the previous session, which could be seen as a sign of stabilisation.

 

“Spring wheat did have an inside day, possibly the recent selling spree has run its course,” said Benson Quin Commodities.

 

“Spot receipts could look to wane as farmer selling subsides,” at weaker prices, “and thoughts turn to the soybean harvest”.

 

‘Minimal progress’

Indeed, there is talk of spring wheat crops being abandoned thanks to the damage already caused by rains, and in some case snow, with farmers using what fieldwork windows there are for harvesting soybeans.

 

To recap on the comments on Tuesday from the North Dakota Wheat Commission, “in many areas, fields are simply too wet for harvest to take place.

 

“Some of the wheat may not be harvested and is likely not of milling quality.”

 

OK, north of the border, Saskatchewan growers did manage to get 12% of their crop in the barn in the week to Monday, but it was only towards the end of that week that winter weather arrived in earnest.

 

CHS Hedging said that North American spring wheat “harvest progress this week was said to be minimal with rain, cold and snow moving around the Northern Plains and the Canadian Prairies this week”.

 

‘Quality problems’

As for the impact on markets, Benson Quinn Commodities noted that that on Thursday, “there were fewer cars on the spot”, ie less spring wheat up for sale in Minneapolis, “and the higher proteins traded better”, implying quality premiums increasing.

“With quality problems for both US and Canadian wheat and lack of any new producer selling, the short hedger that may need to carry should be looking at current values.”

 

And certainly, Minneapolis spring wheat December futures did manage headway in early deals on Friday, but by the minimum 0.25 cents, to $5.29 ¾ a bushel as of 09:45 UK time (03:45 Chicago time).

 

Will prices recover further? Or, to put it another way, will Chicago oats hone their reputation as a market leader?

 

Oats set the trail?

Oats (also a big crop in Canada), having reversed while spring wheat was rising, have rebounded wile Minneapolis was reversing, and are up 6.0% so far this week, for December.

 

That includes a 0.3% easing to$2.86 ¼ a bushel in early Friday trading.

 

Oats have been helped by a weak US September 1 inventory number released in an official briefing on Monday, which showed inventories down 18% year on year, despite a slightly bigger harvest this year.

 

“Indicated disappearance” in the three months to September 1 “totalled 30.8m bushels, compared with 22.4m bushels during the same period a year ago,” the USDA said.

 

‘Bullish signal’

As for Chicago soft red winter wheat, the world benchmark, it traded flat at $4.88 ¾ a bushel, caught between worries over demand for US supplies, and the shrinking ideas for forthcoming southern hemisphere harvests.

 

Tobin Gorey at Commonwealth Bank of Australia said that “we do not think that Australia’s crop fundamentals are steady. Market discussion is still about cutting crop estimates”.

 

ADM Investor Services said that “dryness in Australia and concern over quality of Canada 2019 crop has helped prices trade back to the midpoint” of its trading range.

 

However, for a real rally, “wheat needs a crop problem in 2020 to push over resistance”.

 

There is at least a positive chart signal in the market, as there is in Minneapolis, with the 20-day moving average crossing above the 50-day moving average.

 

“With overbought conditions correcting, this could be a bullish signal going into next week,” Benson Quinn Commodities said.

 

Oil vs meal

Among oilseeds, soyoil - a star of the last session, on ideas of the Trump administration unveiling a boost to the US biofuels industry – found a touch of end-of-week profit-taking this time, although falling by the minimum 0.01 cents a pound to 29.88 cents a pound.

 

Terry Reilly at Futures International flagged support for the vegetable oil too from “tighter-than—expected, end-of-August US soyoil stocks”, as unveiled by the US Department of Agriculture earlier this week.

 

Furthermore, he noted “oversold oil share conditions” - looking into the relative values of soyoil and fellow soybean processing product soymeal in the combined total for soybean processing products.

 

And, indeed, he flagged “African swine fever weighing on soymeal”, with soyoil-soymeal spreading a popular bet.

 

Soymeal itself eased a further 0.1% to $302.70 a short ton in early trading.

 

In Kuala Lumpur, meanwhile, palm oil soared 1.3% to 2,165 a tonne in Kuala Lumpur, catching up on some of the gains in rival soyoil in the last session.

 

‘Could take a hit’

As for Chicago soybeans, they eased by 0.1% to $9.10 ½ a bushel for November, a small decline, but one which took them back below their 200-day moving average.

 

Bulls have found some fodder this week, with the lower-than-expected US inventory data, and confirmation of substantial Chinese purchases of US supplies.

 

Still, there is next week’s USDA Wasde briefing for investors to worry about, and the potential for a change to the USDA estimates of the domestic soybean crop this year.

 

Furthermore, there are concerns over tariffs imposed by the US on $7.5bn of imports from Europe, including some agricultural products, in response to a WTO ruling against EU aircraft subsidies.

 

“With European soy buyers picking up some of the slack from lost Chinese sales last year, soy values could take a hit if EU reprisals include imported soybeans from the US,” Benson Quinn Commodities said.

 

‘Looms large’

Chicago corn for December slipped by 0.4% to $3.87 ¼ a bushel, amid a bit of end-of-week, and pre-Wasde, profit-taking.

 

“Next Thursday’s Wasde, in which the USDA may update their US corn yield forecast, looms large,” said CBA’s Tobin Gorey.

 

CHS Hedging, meanwhile, flagged the prospect before then of weekly USDA crop progress data, flagging “ideas that many in the trade are sitting low ahead of Monday’s updated harvest report.

 

“Last week’s crop progress was at 11% complete with only 43% of the crop mature and ready to be harvested,” while “weather conditions remain in the way of harvest activity in many areas”.

 

Still, the contract remains up 4.2% for this week, boosted by its own lower-than-expected inventory data in Monday’s USDA briefing, with some talk now of imminent US frost too.

 

‘Flash flooding’

But in New York, cotton maintained its gradual upward move, edging 0.2% higher to 61.75 cents a pound for December.

 

Besides OK US export sales data released on Thursday, Louis Rose at Rose Commodity Group noted support to the fibre from “continued inclement weather across west Texas.

 

“West Texas, north Oklahoma and south Kansas continued to receive rain and showers on Thursday, much to producer’s dismay.

 

“Some areas in south Kansas have experience flash flooding, which cannot be beneficial for the crop,” and the region “is not expected to see clear skies until the second half of next week”.

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