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Morning markets: Wheat extends gains, as Saudi follows Egypt in going to market

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Higher wheat prices haven’t deterred Saudi Arabian buyers.

 

Indeed, the country’s Sago grain authority unveiled a tender for 595,000 tonnes of the grain, just hours after Egypt’s Gasc purchased 405,000 tonnes at prices far higher (by more than $10 a tonne including freight) than it paid two weeks ago.

 

The gains in prices are such that even Australia’s drought-hit supplies are slipping back onto the radar for exporters, with Commonwealth Bank of Australia noting that west coast wheat is now only “around Aus$10 a tonne above export parity across South East and East Asia”.

 

While saying that “we are not sure the market is in a hurry to get to parity… the creep higher in Russia’s wheat prices might mean parity gets closer anyway”.

 

Lowest in 12 years

And this despite too a further cut in hopes for Australia’s wheat crop, with National Australia Bank cutting its forecast to “only” 15.5m tonnes.

 

That would come in below last year’s harvest, represent only half production reached three years ago, before dryness set in, and indeed represent a 12-year low.

 

Such dynamics helped Chicago wheat futures off to a firm start, with the December contract up 0.6% at $5.16 ¼ a bushel as of 09:45 UK time (03:45 Chicago time), hitting a fresh three-month high.

 

‘Likelihood of abandonment’

There are ideas too of support from further writedowns to the remaining US spring wheat crop, harvest of which remains uncompleted, making it the latest harvest on data going back to 1995.

 

“Late US spring wheat harvest and concern over quality could also be helping prices,” said ADM Investor Services.

 

Karl Setzer at Agrivisor flagged the “likelihood of abandonment of remaining spring crop acres due to poor quality”.

 

Minneapolis spring wheat futures for December gained 0.4% to $5.52 ¾ a bushel.

 

Wheat vs corn

That said, market talk is not all in bull’s favour, with Mr Setzer noting too that “the spread between wheat and corn has widened, which will make some uses of wheat uneconomical, mainly feeding”.

 

The premium of Chicago soft red winter wheat over corn earlier on Thursday touched $1.24 ½ a bushel December basis, the highest in nearly seven months.

 

Corn’s discount to Kansas City hard red winter wheat does, at $0.35 a bushel, remain historically weak, but is still up significantly from a low of $0.12 a bushel last week.

 

(Even so, the USDA did comment earlier this week of “relative price insensitivity” in the decision by users of whether to use corn or wheat.

 

“Expanded use of corn in feed rations likely offsets demand for wheat—even in locations like Central Kansas, where the wheat-to-corn price ratio is generally supportive of wheat feeding, but stocks of corn are ample.”)

 

‘Selling opportunity’

ADM Investor Services flagged a potential hit to demand for high quality wheat, amid “reports that large number of US chain restaurants may soon be closing their doors.

 

“The number of people going to restaurants is on the decline. This could lower flour demand.”

 

Terry Reilly at Futures International, meanwhile, pointed to history and said that “it is rare that you see wheat lead a rally in grain and oilseed market.

 

“We see this as a selling opportunity in soft red winter wheat.”

 

‘Argentine price spike’

As for corn itself, it nudged 0.1% higher to $3.92 a bushel for December, helped indeed by wheat, and too by some idea of a revival ahead in US corn export fortunes, after their worst start to a season in about 45 years, on USDA analysis.

 

Benson Quinn Commodities said that now, “US corn is moving closer to export values as Argentina sees a spike in prices.

 

“Producers there are possibly beginning to hunker down in front of the election upcoming on October 27.”

 

This election is expected to install left-leaning Alberto Fernandez as president, raising the threat of a return of hefty taxes on grain exports, and ideas of a weaker currency, which farmers tend to try to offset by hoarding crops, whose value is linked to dollar markets.

 

‘Well short of expectations’

That said, on the negative side for values, US harvest pace has improved.

 

“Weather forecasters are not anticipating any further broad cold or we weather events to trouble crops or their harvesting,” Mr Gorey said.

 

And President Donald Trump’s latest proposals for US biofuels have met with a cool response.

 

“This proposal was met with heavy opposition from farm and renewable energy groups as it falls well short of expectations,” Mr Setzer said, adding that “the main objection is that it does not raise the volume of fuel to be blended and leaves the door open for a possible decrease.

 

“It also did little to close waiver loopholes, which is a major concern and issue,” with these waivers freeing refiners from complying with mandated biofuel blending rates.

 

Mike Mawdsley at First Choice Commodities said that “I believe it’s just a proposal, but it basically negates the positive ethanol news a week and a half ago”.

 

‘Covering shorts’

Soybean futures, meanwhile, traded 0.2% higher at $9.29 ¾ a bushel for November, amid what appears some repair in hopes for a US-China trade deal.

 

The renminbi, something of a barometer of sentiment on the talks, gained 0.2% against the dollar, while Hong Kong shares gained 0.7%. (Shanghai ones closed little changed.)

 

In New York, cotton, another ag closely linked to US-China trade hopes, nudged 0.02 cents higher to 64.56 cents a pound for December delivery.

 

In cotton, “it continues to look as if speculators are covering shorts as index funds continue to buy,” said Louis Rose at Rose Commodity Group.

 

“Of course, there could be knowledge in the trade regarding the inevitable large export sales report that is sooner or later bound to occur.”

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