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Morning markets: Wheat futures buck negative trend. But why?

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There was hope that grain futures could revive.

 

“After three days of liquidation, it could be a ‘turn-around’ Tuesday,” said Benson Quinn Commodities, referring to that idea that the second session of the week reverses a strong trend of the first.

 

But the hopes that the market would rebound on another Chicago idea, that money flows come in threes, in early deals found only a little foundation.

 

Wheat gains

That was provided by wheat, which managed a 0.9% gain to $6.55 ¾ a bushel in Chicago for May as of 10:45 UK time (04:45 Chicago time), looking for its first winning session in four.

 

Paris wheat helped by edging 0.4% higher to E231.25 a tonne, as the close-to-expiring March lot gained 0.7% to E251.75 a tonne, building on its first close at E250 a tonne, in the last session, for a spot contract since May 2013, helped by a short squeeze.

 

Kansas City hard red winter wheat added 0.8% to $6.28 ½ a bushel. And indeed US Department of Agriculture ratings for the US hard red winter wheat crops in selected growing states, including top grower Kansas, showed a decline in condition.

 

Furthermore, there is some optimism that Russia’s introduction this month of its raised, E50-a-tonne export tax on wheat might drive some demand elsewhere.

 

‘Even more bearish’

However, “trade now wants to actually see this tariff trigger some actual US wheat export sales,” said Benson Quinn Commodities.

 

“Last week’s export sales were a marketing year low, not inspiring or supportive of a story that Russian wheat is high priced and US might be competitive.”

 

At least there was no extra surprise as in the last session from a large, 1,288-contract issue for delivery against the expiring March Kansas City contract, an event which the broker termed “even more bearish than any US demand story” in indicating the appeal of futures for physical sales.

 

“ADM house issued most of those certs with Wells Fargo and JP Morgan the major stoppers.”

 

Issues overnight totalled 77 contracts, and travelled largely the same route.

 

Spread bets

There were also ideas that what was supporting wheat was not much its own merits as the close of short wheat spreads against longs in the likes of corn and soybeans.

 

Chicago wheat, after all, is one grain in which fund short positions remain substantial, at more than 65,000 lots (gross) as of last Tuesday, compared with some 37,000 contracts in corn and soybeans combined.

 

Certainly, corn and soybeans extended their declines on Tuesday in marked contrast to wheat.

 

Chicago corn for May stood 0.8% lower at $5.34 a bushel, and May soybeans by 0.5% at $13.85 a bushel.

 

‘Potential 15% herd loss’

What markets really need is “new demand news to find support”, Benson Quinn Commodities said.

 

And they aren’t getting it. In fact, they are encountering quite the opposite, with growing worries that the hiatus in signs of Chinese demand for US grains is going to be a long one – as renewed disease outbreaks threaten the recovery of its hog herd from African swine fever (ASF), and so curb feed needs.

 

As Societe Generale note, last week “China’s farm ministry announced that the herd should recover to a normal level in June after already reaching 90% of this level in November.

 

“However, the new ASF cases and lack of a vaccine timeline for commercial production cast doubt on this official forecast.

 

“Since November, a particularly harsh winter has led other viruses to spread, such as foot-and-mouth disease and porcine epidemic diarrhoea, leading to a potential 15% herd loss.”

 

‘Could reduce their demand’

“Some fear increase cases of ASF in China could reduce their demand,” ADM Investor Services said.

 

Nor did it help that corn futures for May eased by 0.4% to 2,777 yuan a tonne on the Dalian, where soymeal for May shed 1.1% to 3,396 yuan a tonne, earlier setting a 2021 lot of 3,334 yuan a tonne.

 

Soybeans themselves for May did rise, by 0.9% to 6,043 yuan a tonne. But that is reportedly down to more of a short-term supply squeeze stemming from Brazil’s delayed harvest.

 

Indeed, thinking seasonally, even if Chinese demand does pick-up again, it is likely for soybeans, if less so for corn now, to come from other origins.

 

Cotton reverses

In New York, cotton saw a bit of a turnaround in terms of reversing some of its gains of the last session, standing 0.7% lower at 90.92 cents a pound for May.

 

This despite an upgrade by the International Cotton Advisory Committee in its forecast for cotton prices this season, on reduced production and raised consumption forecasts.

 

However, at 75.7 cents per pound, as measured by the Cotlook A index, the forecast still suggests some pullback from current prices.

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