The strength in wheat futures in the last session, when corn and soybeans failed, puzzled many investors.
“I am not entirely sure why the wheat market is trading higher right now,” one US broker admitted.
Whatever, it continued on Thursday too, when Chicago soft red winter wheat, the world benchmark, for September gained 1.8% to $5.56 ½ a bushel as of 09:40 UK time (03:40 Chicago time). That was a 10-month high for a nearest-but-one contract.
This as Chicago corn futures for September were up a modest 0.2% at $4.50 ¼ a bushel, and July soybeans (still the best-traded old crop contract, even though first notice day is looming, on Friday) stood up all of 0.1% at $8.95 ½ a bushel.
New crop December corn was up 0.2% at $4.55 ¼ a bushel, and November soybeans up 0.2% at $9.19 ¾ a bushel.
‘Declining in yield potential’
The outperformance of wheat is being attributed in part to the elevated temperatures in Europe (although the UK is, Agrimoney can assure you, not unduly seasonally warm).
CHS Hedging talked of prices “aided by the European heatwave, as many areas are expected to be hot and dry”.
Paris-based Agritel said: “The rise in temperatures observed since the beginning of the week still may cause a declining in yield potential in many regions, particularly on soft wheat and malting barley crops.”
That said, “the effect of this heat wave is difficult to measure for the moment especially since the initial potential was important in many regions”, with the hot weather coming late in the growing season for winter crops (although not for spring-seeded crops such as corn and sunflowers).
Nonetheless, it is not as if wheat prices in Europe itself have gone far over the last couple of sessions, closing unchanged in Paris on Wednesday.
UK-based CRM AgriCommodities said that in the last session, “despite the heatwave in Western Europe and mixed yields in the Black Sea, the fast progressing harvest kept a lid on prices”.
Another crop for which production potential is shrinking is the Canadian one, in that Statistics Canada on Wednesday issued a wheat sowings estimate which was 1.1m acres below both the previous forecast and the figure that investors had expected.
A simple read through to the latest official forecast for the Canadian wheat crop this year, of 33.85m tonnes, suggests a loss of 1.4m tonnes from this figure.
With Canada a producer chiefly of spring wheat, Minneapolis spring wheat for September gained 1.6% to $5.68 ¼ a bushel, although not managing outperformance of its Chicago winter wheat peer, after lagging it in the last session.
Spreads fatten back out
… which some investors have taken as a signal that there may be some spreading going on too, ie with investors perhaps unwinding short wheat-long corn spreads laid during the height of US spring sowings worries (although which had not performed as well as they might have hoped).
And certainly, from a chart perspective, the Chicago wheat-corn spread now has some factors to recommend it, including climbing in the last session above its 100-day moving average for the first time in nine-months, September basis.
This session, it climbed above the psychologically important $1.00-a-bushel mark for the first time in nearly three months.
The Kansas City hard red winter wheat premium to corn - which narrowed to $0.14 a bushel at one point on Monday, September basis, from $1.32 ¼ a bushel at the start of the year – has now jumped to more than $0.38 a bushel, crossing back above its 40-day moving average.
Another factor potentially prompting investors to unwind spreads is the prospect on Friday of key data on US grain stocks as of June 1 and, in particular, on US crop sowings – a briefing particularly keenly awaited given the dire US plantings season this year.
Karl Setzer at AgriVisor, for instance, flagged an increasing trend of consolidation “as we approach the long-awaited US Department of Agriculture’s report on Friday”.
That said, how accurate the data will prove given that, as Benson Quinn Commodities said, “the USDA has not had the time needed to fully accommodate the longer-term issues from an acreage standpoint”…
Another issues to factor in is that the wet US weather which has delayed/prevented sowings, and hampered early crop development is on the wane, with Agritel for instance noting that “prospects for drier weather in the Midwest are favourable for crops’ development.
“The corn crop’s condition could thus improve.”
“Negative influences [on prices] include favourable weather for much of the Corn Belt as drier/warmer conditions will benefit late planted corn and beans,” Benson Quinn Commodities said.
CHS Hedging said that “the current forecast shows much needed warmer, drier weather,” adding that “additional pressure could be stemming from Friday’s report as traders position themselves accordingly”
Also on the radar is consumption, with ADM Investor Services, for instance, flagging “concern about demand for US soybean exports”, besides the fact that for US corn ethanol producers, “margins remain negative”.
“With limited global demand and cheap global offers, the demand picture is getting as much attention as the production issues for all three commodities,” Benson Quinn Commodities said.
Karl Setzer said that for corn “the US is starting to see elevated export competition in the global market.
“Brazil’s Safrinha harvest is at a point where more exports will start to take place, especially with this corn is being offered at a discount to the US.”
That said, he added that “this may not pressure the US market, rather it may simply mean futures do not need to rally to ration demand.
“US corn sales are already sparse, so any additional loss of business is unlikely.”
More on demand will be known later with US export sales data for last week expected at 200,000-500,000 tonnes for wheat, compared with 187,567 tonnes last time.
For soybeans, export sales for old crop are expected at 200,000-500,000 tonnes, plus 100,000-300,000 tonnes for 2019-20.
Figures last time were 571,512 tonnes and 200,027 tonnes respectively.
For corn, 2018-19 sales are expected at 150,000-450,000 tonnes, with new crop at 100,000-300,000 tonnes, compared with 38,402 tonnes and 360,834 tonnes last time.
Global wheat demand ideas did receive a boost on Thursday from Saudi Arabia announcing a 715,000-tonne tender for hard wheat.
‘Plagued by negative rumours’
As for cotton, whether it will see a recovery in its US export sales data from poor levels last time, well, Louis Rose at Rose Commodity Group was hardly upbeat.”
“We are not sold on the notion that sales numbers will be particularly strong for the week ending June 20,” he said.
Sure, while “yarn prices are down and inventories up across many areas, we think demand remains relatively strong”.
“However, we also note that the US old crop balance sheet is tight, especially with respect to quality cotton and we do not believe that merchants are willing to offer large quantities of quality new crop cotton just yet.
“The crop is late and plagued by negative rumours.”
Whether that itself was a help behind cotton’s outperformance in the last session…
Still, that could not be repeated this time, when New York December cotton futures shed 0.1% to 66.33 cents a pound.