There is a challenge to the idea that 2021 is, in grain markets, 2008 repeated.
And that is wheat.
Sure, as Mike Mawdsley at First Choice Commodities said, for corn and soybean market “we are nearly paralleling the price and chart pattern” of 13 years ago.
May corn futures closed on February 4 2008 at $5.22 ¾ a bushel, compared with $5,47 ½ a bushel last night.
Chicago May soybean futures settled at $13.44 ¾ a bushel then, compared with $13.69 ¼ a bushel for the last session.
And this following similar run-up patterns, with rallies which started mid-way through the previous year.
However, a challenge to the idea that grain markets really in something of a time warp –meaning that corn and soybean rallies have a significant way to go yet, as the 2008 pattern would dictate - is that wheat prices are nowhere near the levels they were then.
At this time in 2008, May soft red winter wheat futures stood at $9.89 ¾ a bushel in Chicago, $10.30 ¼ a bushel for Kansas City hard red winter wheat, and $13.04 ¾ a bushel for Minneapolis spring wheat.
Compare that with closes last session for May contracts of $6.41 ¼ a bushel, $6.23 a bushel and $6.32 ¼ a bushel respectively and, well, the values are miles apart.
And this could have implications for corn and thence soybeans going forward too.
“Maybe wheat will keep corn from reaching the lofty prices seen in 2008,” Mr Mawdsley said.
‘Russian farmer is selling’
… or will corn’s strength haul wheat futures higher?
One problem for wheat bulls is that the grain’s balance sheet is not as tight as that for corn - although tighter than it may first appear given the extent of stocks held in China and India, which are in essence not available to the world market.
It is supplies in exporter countries that count most in setting world prices.
Another issue is that while Russia, the top wheat shippers, looks to be getting more and more aggressive on export curbs, these will only really support prices further ahead, in cutting the incentive for farmers to plant the grain, this spring and, more significantly, in the autumn ahead of the 2022 harvest.
(Argentina’s wheat production record under the Cristina Fernández de Kirchner regime is an example of this effect.)
In the short term, Russia’s move is a negative for prices, in encouraging farmers to get shot of grain before enhanced tax measures kick in.
“The Russia wheat farmer is selling cash in front of increase export taxes,” said Steve Freed at ADM Investor Services.
‘Be long and prosper’
Then there is the fact that while Russian and US wheat crops planted in the autumn did not establish well, the winter has proved mild enough so far to avoid making matters worse (although the US is in the grips of a cold snap).
All in all, it is prompting a market which is lacking too much commitment in either direction for now. (That may well change in the spring, when more is known about any winterkill).
Benson Quinn Commodities put it that for wheat “the be long and prosper story doesn’t feel all that robust, but the market tends to fight back from negative technical inputs.
“Inter-market spreads have come back in line, or at least they are working on it,” with Kansas City and Minneapolis contracts reducing their historically-unusual discounts to lower-protein Chicago wheat.
‘One of the best indicators’
One thing the broker noted is that the “higher dollar seems to hit wheat harder”, with wheat after all facing more competition on international markets than corn and soybeans at present.
“The dollar trade has been one of the best indicators on wheat of late.”
Agritel noted that “a stronger dollar is hurting the competitiveness of US origins on the international stage”, while CHS Hedging flagged market “ideas that the US wheat is priced too high in the world export market”.
Certainly, in early deals on Friday, with the dollar 0.1% easier against a basket of currencies, Chicago soft red winter wheat for March added 0.1%, to $6.38 a bushel as of 10:30 UK time (04:30 Chicago time).
That for once gave wheat the run over corn, which eased by 0.2% for March to $5.49 a bushel in Chicago.
Here the spring is already coming a bit more into focus, with ideas of a “higher March US planting intentions report” acres a negative for prices, Terry Reilly at Futures International said, noting too the “recent absence of Chica corn purchases” from the US, after last week’s spree.
In fact, “there is talk that China may be looking for additional US corn,” Steve Freed at ADM Investor Services said, and there is that reporting anomaly as Agrimoney flagged on Thursday, which could mean that Chinese buyers have already stockpiled more corn that thought.
Still, without more in the way of proof, investors were keener on taking profits than buying more corn, especially with the uncertainty ahead on Tuesday of the next USDA Wasde report, which is expected to cut the estimate for US corn stocks at the close of 2020-21 – but will it, and by how much?
As for the issue of Brazil’s delayed safrinha sowings, Mr Freed added that “even though Brazil second crop corn plantings are late, some are concerned that funds may not be able to hold/add to longs into their new crop harvest”.
Soybean futures proved a little stronger, in adding 0.2% to $13.74 ¾ a bushel for March, backed this time by meal, which added 0.3% to $434.40 per short ton, against ideas of a boost to US demand from the cold weather, which increases livestock needs.
“US domestic feed demand is expected to tick up with cold temperatures rolling across most of the US, so don’t expect for soybean meal futures to fall over,” Mr Reilly said.
This when there is some concern of tight soy supplies squeeze US meal output too.
“Domestic crushers will remain reluctant sellers of meal until more is known about the South American crop and the availability of US bean supplies,” said Benson Quinn Commodities.
“There are several models that indicate our current usage rate will deplete soybean reserves by summer which is why several crushers have halted meal sales,” said Karl Setzer at AgriVisor.
Options expiry factor
In New York, cotton, the star of the last session with a 4% surge, edged a further 0.3% higher for March this time, to 84.57 cents a pound – earlier touching 84.89 cents a pound, a fresh two-year high for a spot contract.
Strength has been attributed in part to some decent US export sales of the fibre, and to spillover from strong equity markets, to which cotton, as an industrial commodity, tends to be more attuned than food ags.
Plexus Cotton reported too that “shorts scrambling out of positions” ahead of the expiry later on Friday of March options, and which is, unusually, occurring as the index fund roll starts, rather than afterwards.
“Usually, the GSCI roll starts several days ahead of options expiration, which provides plenty of liquidity for traders to square away positions,” Plexus said.
“But with March options expiry falling on the first Friday of the month, and with the GSCI roll starting on Friday too, “there was a lack of sell-side liquidity that exacerbated the move to the upside”.
The UK-based merchant also highlighted that “there were nearly 6,300 March call options still open between the 80 and 86 cents a pound strikes”.
This “combined with a slew of other short calls in May and July created a catalyst for prices to move higher, as the sellers of these calls needed to protect their delta exposure.
“Add to that some last minute March mill fixations and new spec buying coming in as the market pushed through resistance, and we had the perfect set-up for a big spike.”