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Morning markets: Spring wheat futures extend rare discount to winter wheat


Investors are showing no signs of reassessing the, rare, discount that they have given to spring wheat futures.


Minneapolis spring wheat, with a far higher protein content than Chicago-traded soft red winter wheat, or even Kansas City hard red winter wheat, typically trades at a hefty premium.


In March, it topped $1 a bushel, March basis.


However, the spring wheat premium, having eased since March, has collapsed in late November, and in fact disappeared altogether.


Spring wheat has fallen from a $0.16 ¾ a bushel premium to Chicago soft red winter wheat, March basis, on November 14 to a discount of some $0.18 a bushel to start this week.


“There is incredible spreading in wheat going on at this time,” said Mike Mawdsley at First Choice Commodities.


‘Selling the Minnie’

“There doesn’t seem to be a lot of logic” to the move, said Benson Quinn Commodities.


“Someone has certainly been selling the Minnie and it hasn’t been the producer with cash markets strongly firm.”


As for explanations, some note expectations of another 100-year low in winter wheat area for the 2020 harvest.


Agritel flagged “growing fears of seeing lower wheat acreage in US”, flagging the “accumulated delays in corn and soybean harvests”, meaning land is tied up longer in standing crops, and not available for sowings of winter cereals.


Minneapolis specifications

However, quality factors look a big aspect too, with the wet harvest meaning a stack of spring wheat downgraded.


Benson Quinn Commodities flagged the potential that “someone maybe looking at large feed quality spring as being bearish?”


The real worry may be that investors fear that the quality of some wheat delivered against the exchange may be of questionable quality.


The exchange demands delivery with “No. 2 or better dark northern or northern spring wheat with a protein content of 13.5% or higher, with 13.0% to 13.4% protein deliverable at a discount.


On vomitoxin, “deliverable spring wheat may not exceed 2.0 parts per million deoxynivalenol (vomitoxin) level,” with levels of 2.0-3.0 parts per million deliverable at a discount.


‘Estimates of lower quality’

ADM Investor Services said that “some feel funds may be selling Minneapolis spring wheat futures due to estimates of lower quality”.


Meanwhile, there is something of a dearth of Chicago soft red winter wheat available – this as first notice day is approaching at the end of the week for December futures, kicking off the expiry process when they gain commitments to physical grain.


“The fact there are no soft red winter wheat delivery receipts may have triggered fund short covering in Chicago prior to first notice day”.


The broker also noting that, “seasonally, cash winter wheat movement slows this time of the year”.


‘Fields will need more precipitation’

Whatever, Minneapolis spring wheat lagged again in early deals, standing up 0.1% for March at $5.07 ¼ a bushel as of 09:40 UK time (03:40 Chicago time),


Chicago soft red winter wheat for March gained 1.3% to $5.25 ¼ a bushel, also gaining from European Union sowings woes, and data from SovEcon and Ikar showing an uptick in Russian prices last week.


SovEcon added that "despite the recent dryness, crop conditions are generally good thanks to some rains and warm temperatures which helped crops to develop before the winter.


“However, current low moisture reserves imply that fields will need more precipitation during the winter and spring.”


Cotton stocks

Also in play in grain markets was some improvement in China-US deal hopes, with US national security adviser Robert O’Brien saying on Saturday that an initial trade agreement with China is still possible by the end of this year.


Some “deal-on” sentiment was evident in a, small, strengthening in the renminbi, and likewise in the price of Brent crude.


New York Ice cotton futures for March, meanwhile, gained 0.8% to 65.37 cents a pound, with expiry of a December lot also in play here.


“Ice certificated stock has increased noticeably over recent weeks, but we had not taken this as a bearish signal ahead of the December notice period,” said Louis Rose at Rose Commodity Group.


“In fact, nearly half of Ice certificated stocks have had notices issued against them,” a fact he saw as potentially a big factor behind strong gains in cotton futures on Friday too.


Export comparison

Back in Chicago, futures in soybeans, another ag particularly exposed to China-US trade tensions, gained 0.4% to $9.15 ¼ a bushel for March delivery.


Another big calendar factor in play this week is the US Thanksgiving holiday, a period around which soybean futures have a history of gaining.


ADM Investor Services noted, on the downside for prices, “talk of favourable South America weather” for newly-planted (and still being seeded) soybean crops.


Maxar said that in Brazil this week, “additional rains across north east areas will further improve moisture; significant improvements are expected in central/south this week”.


However, ADM also noted that a positive for US export hopes in that “US soybean export prices are near $354 a tonne. Brazil is near $367. Argentina is near $355.


“Non-China countries continue to look at US for demand.”


Slow harvest

Chicago corn futures, meanwhile, added 0.5% to $3.80 ½ a bushel for March, supported by both its rival grain wheat, and fellow row crop soybeans.


“Prices remain just a shade above recent lows,” said Tobin Gorey at Commonwealth Bank of Australia.


“The market is waiting for confirmation that the US will export at livelier pace at current price levels.”


ADM Investor Services noted that, thanks to a delayed harvest, there may “still be 2.0bn bushels of US corn still yet to be harvested”.

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