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Morning markets: Wheat futures lead grains higher, as overnight news turns more positive

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Tuesday started off, at least, as a turnaround one, with grain futures rising, and giving hope of soybeans ending their losing streak.

 

Not that the latest round of trade storms and their impact on financial markets is over, with Asian stocks continuing the round of declines on share markets prompted by the US announcement of tariffs on imports of Argentine and Brazilian steel and aluminium.

 

And Paris hit back at a threat by the Trump administration to impose 100% tariffs on up to $2.4bn of French goods.

 

French finance minister Bruno Le Maire termed the tariff plans “unacceptable” and unworthy of an ally.

 

‘Fight muddy fields’

Still, the US dollar continued to ease, albeit by a modest 0.1% against a basket of currencies, but still something of a tailwind, in that an easier greenback improves the affordability of assets, such as many ags, denominated in it.

 

(Not that this worked in the last session, as ADM Investor Services noting, saying that the weaker dollar “did not provide much in the way of support with negative action in the US stock market and concerns for a sluggish economy ahead”.)

 

And newswires overnight provided some positive factors for grain markets, such US Department of Agriculture data showing the soybean harvest at 96% complete, 1 point below the level investors had expected, besides being 3 points behind the average pace.

 

For corn, the 89% US harvest progress figure was bang in line with market expectations, although that is not a total comfort, with so much remaining in the field and with winter snows now seen as having taken residence in some northern areas, meaning the crop is likely to stay unharvested until spring.

 

“Farmers in the regions, along with other areas, are now claiming they may leave corn in the field until spring rather than fight muddy fields to complete harvest now,” Karl Setzer at Agrivisor.

 

“The concern with this is what impact it will have on yields and quality both.”

 

‘A lot of corn left in the fields’

“Snows for the northern Plains and Midwest over the past week are support. as last of harvest acres will struggle to get done till the next year,” said Benson Quinn Commodities, highlighting that only 36% of the North Dakota corn crop was in the barn.

 

“Based on USDA’s November production estimate that leaves about 300m bushels in fields till next year in North Dakota alone supporting local basis values and spreads.”

 

For the US overall, the USDA report “suggests 1.5bn bushels of corn are unharvested,” said Terry Reilly at Futures International, adding that “we see a lot of corn left in the fields until this spring”.

 

Chicago corn futures for March stood up 0.5% at $3,84 a bushel as of 10:40 UK time (04:40 Chicago time), rising back above their 20-day moving average, which they have not ended above in six weeks.

 

Palm up

Soybean futures for January added 0.4% to $8.89 a bushel, helped by the slower-than-expected US harvest progress figure and also by firmness in the products.

 

Soyoil regained strength, adding 0.5% to 30.32 cents a pound for January, helped in turn by rival palm oil, which added 0.6% to 2,746 ringgit a tonne in Kuala Lumpur, making something of a habit of following up early-session losses on profit-taking with fresh buying in the second half.

 

Also in market focus was Commodity Futures Trading Commission data overnight showing a huge fund sell-off in soybean futures and options in the week to last Tuesday, of more than 61,000 lots, the largest on data going back to 2006.

 

Such moves can be viewed in a positive light, in meaning that a huge amount of selling pressure has already been taken out of the market.

 

‘Crops will be stressed’

Furthermore, for soybeans, and corn, while Brazil weather is seen as benign, dryness in Argentina is becoming more of an issue, with Mr Setzer flagging that “conditions are turning hot and dry” in key growing areas.

 

“Argentina does have rains in the forecast for late next week, but ahead of that crops will be stressed,” he said.

 

“These rains are also not expected to be heavy enough to fully replenish dry soils.”

 

Mike Mawsdsley at First Choice Commodities also flagged that he was “hearing it’s getting a tad dry in parts of Argentina, with a dry outlook as well”.

 

Mr Reilly noted that “Argentina will see a dry weather pattern over the next 7-10 days”.

 

Tender announcements

Still, it was wheat which managed the biggest gains, adding 1.1% to $5.41 a bushel in Chicago for March delivery, after having arguably the strongest overnight news, in terms of tenders by Algeria’s OAIC and Egypt’s Gasc – both major importers.

 

Not that US wheat itself is expected to feature much, but signs of end-user demand are always well received as an indication that prices have reached value levels.

 

In Paris, Agritel said of the Algerian tender that “it will be interesting to see how Argentina will compete with French origins considering the uncertainties about the export policy in the country”.

 

Argentina is expected to introduce grain export taxes after its new government takes office next week.

 

The Gasc tender, meanwhile, “is likely to see Black Sea origins showing the greatest competitiveness,” Agritel said.

 

‘Will come back to bite’

Kansas City hard red winter wheat, the top US export type, for March showed even greater gains, adding 1.3% to $4.45 a bushel.

 

However, Minneapolis spring wheat added 0.8% to $5.13 ¾ a bushel, so allowing its highly unusual to lower-protein Chicago soft red winter wheat to grow further.

 

“Funds seem hell bent to short the Minneapolis market for some reason and continue to pressure this market into near three-month lows,” said Benson Quinn Commodities.

 

That said, “the producer is completely disengaged at these values and basis has been firming to keep the quality wheat moving into the mills.

 

“One of these days the large supply of feed quality the funds are betting against will come back to bite someone either in way of flat price or spreads or both.”

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