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Morning Markets: Wheat values retreat after Tuesday’s surge

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Tuesday trading saw Chicago SRW wheat futures values surge by 4.5%, the largest gain for eight months. Funds returning from Monday’s holiday appeared to react to bearish weather and harvest prospect news from Australia and Europe. But values were slipping in early Wednesday business.

 

The CBOT Chicago March 20 wheat contract opened Tuesday after the long weekend at $5.42¾/bushel and closed the day at $5.66¾/bu. It had touched $5.70¼/bu at one stage. Funds were net buyers of 14,000 lots of wheat.

 

But early Wednesday business saw the contract lose half of the previous day’s gain as it slipped to $5.59¾/bu.

In Europe, the Euronext March 20 wheat position gained €2 to finish at €196/tonne with the September 20 contract gaining €2.75 to finish at €186.5/tonne.

 

Australia’s ABARES’ downgrading its wheat harvest prospects to the lowest since 2008, coinciding with the return to US trading desks after a 3-day break was initially seen as the driver for yesterday’s early surge, but analysts now think the reasons are more complex.

 

Fund activity, not ABARES behind gains

 

European analyst Agritel noted that the ABARES figures were not a surprise and would have already been factored into prices. Rather, it said the rapid increase was “probably due to technical, or even speculative, reasons in view of fund activity”. Other bullish factors were China’s decision to lift import taxes on 696 US products - seen as positive to agricultural trade and US exports - and the growing risk of crop losses due to the locust invasions in Africa that could even spread to Asia.

 

“There was more talk of the locust invasion in north east Africa, which is a real issue that will invite additional demand,” commented Benson Quinn’s Brian Henry. “However, today’s talk that the invasion could spread to wheat rich countries of India and Pakistan and beyond seems like a real reach at this point.”

 

Mr Henry noted that the Australian wheat downgrade does “highlight tightening supply for the major exporters. Stocks to use for the major exporters has come down from roughly 19% in 17/18 to roughly 15% projected for 19/20. Tighter, but not a major issue unless there is a significant crop failure.”

 

On the bearish side, India’s ministry of agriculture estimates its wheat production at a record 106.21 million tonnes (99.9m tonnes a year ago), which means it could be a net exporter next season. The USDA had estimated a 102.2m tonne outturn.

 

Euronext followed the US wheat futures up, although “gains were more subdued despite a weakening euro against the US dollar,” observed CRM Commodities. “Weather remains chaotic in western Europe - particularly in the UK where the winter wheat area for the 2020 harvest will be sharply down from a year ago and potentially at its lowest since the 1980s.”

 

Russia acts to cut illegal exports

 

Russia has acted to choke off illegal exports to Kazakhstan, by announcing a 100% transport subsidy over the rest of the marketing year for 2.1m tonnes of cereals from eight eastern regions to national and export destinations. Agritel said this move should allow Russia to meet international demand during the last months of the current campaign.

 

Tuesday trading saw Chicago’s March 20 corn contract rise from $3.77¾/bu to $3.83/bu over the day, while the Euronext March corn position gained €1 to close at €169.25/tonne. CBOT March corn was $3.81¾/bu in early Wednesday trades.

 

The funds were also buyers for 15,000 lots of CBOT corn, but US trading was described as calm, with price movement largely a reaction to the wheat rally.

 

South American weather remains mostly favourable for the corn crop, while the US spring planting season is imminent.

 

NOPA bearish for soy values

 

US soybeans actually slipped back over Tuesday, with the CBOT March 20 soybean position starting the day at $8.93¾/bu and closing at $8.92¼/bu - although it had reached $8.96¾/bu in early trading. Funds were net sellers of 7,000 lots of soybeans. Early Wednesday saw contracts at £8.91½/bu.

 

Yesterday’s NOPA report showed a US record soybean crush, and a figure above trade expectations. The US processed 176.94 million bushels in January 2020, up from 171.63mbu the previous year and 174.81mbu in December. But as a result, US soy oil stocks, at 2.013 billion pounds, are at their highest since April 2018. January’s US soymeal exports reached 931,000 tonnes, the largest volume since October 2018, compared with 905,900 tonnes in January 2019 and 902,500 in the previous month.

 

CRM Commodities stated that CBOT soybean values are “torn between US-China trade optimism and a looming record South American crop”. A strengthening dollar is also affecting US competitiveness in export markets.

 

“The bean market feels trapped as prior highs offer resistance,” noted Brian Henry at Benson Quinn. “The market struggles to gain any traction from seemingly supportive news due to massive supplies coming online in South America. Additionally, the key South American currencies are trading at bargain basement prices.”

 

The Euronext May 20 rapeseed contract gained €2 to finish the day at €402.75/tonne, despite falling palm oil prices and a “sluggish” global canola market. This is the fifth consecutive daily rise, with values supported by “strong EU import requirements and a weakening euro”, said CRM.

 

India’s ministry of agriculture predicted a record 2019/20 rapeseed harvest at 9.1m tonnes, up from 8m tonnes in 2018/19. The USDA estimate is 7.7m tonnes.

 

 

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