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Morning markets: Will grains succumb to technical turbulence?

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Wheat futures put in firm start to Friday.

 

But whether they will end that way…

 

Certainly, the day early on brought some fodder for wheat bulls, with Jordan issuing a tender for 120,000 tonnes of the grain (although the country does have an elevated rate of cancelled tenders).

 

Furthermore, France confirmed that its wetness-hampered soft winter wheat sowings for the 2020 harvest remained slow, with just 74% completed as of Monday.

 

That was, while up 3 points week on week, well below historic levels - by 20 points or more compared with the previous four years.

 

And the condition of the crop declined markedly week on week, by 6 points to 78%, the weakest rating for the time of year since 2012.

 

Winter vs spring

This too following the caution late on Thursday from Kansas Wheat cautioning over dryness in Kansas, the top US wheat-growing state.

 

“While subsoil moisture is adequate in many areas of the state, the moisture below our feet is quickly being used up while the top soil statewide is ‘bone dry’,” the industry group said, adding that “the lack of moisture is a serious hurdle for newly planted and emerged wheat”.

 

Chicago soft red winter wheat for March added 0.3% to $5.13 ¾ a bushel as of 09:15 UK time (03:15 Chicago time), while Kansas City hard red winter wheat for March gained 0.4% to $4.30 ¼ a bushel.

 

Minneapolis spring wheat for March returned to lagging, edging just 0.1% higher to $5.09 ¾ a bushel, so remaining at a highly unusual discount to its lower protein Chicago peer.

 

‘Very oversold’

Indeed, there is some comment that Minneapolis wheat is overly cheap, with Benson Quinn Commodities viewing it as “very oversold”.

 

“Minneapolis, like the corn and soybeans, just cannot find a friend as it sinks into September chart gaps.”

 

However, as to resolving such an anomalies, “we may need to get through first notice day before technical structure can offer support”.

US December grain futures contracts face first notice day, ie the beginning of the expiry process, next Friday, with this offering the potential for causing technical hiccups to markets.

 

Hanging on in

After all, open interest remains relatively large, given that with US Thanksgiving next week, there are only a handful of sessions left before first notice day (when contracts take on physical crop liabilities and commitments), and these are likely to show holiday-reduced volumes.

 

Open interest in Minneapolis December spring futures as of Wednesday, the latest data available, stood at 15,393 lots, still at half the level of that in the March 2020 contact.

 

Open interest in Chicago and Kansas City contracts appeared more modest, in relative terms, at 57,497 and 32,144 contracts respectively as of Thursday.

 

Still, elsewhere in grains, the open interest of 370,291 contracts in Chicago corn as of Thursday might be considered chunky, when compared with, say, the 651,473 lots for the March contract.

 

‘Exit can get pretty small’

“First notice day falls on the day after Thanksgiving.

 

“This makes it a short four trading days [including today] for open interest to whittle down and the longs to clean up positions or risk delivery,” Benson Quinn Commodities said.

 

“Couple that condensed trading window with thinning market as players look ahead to the holiday and the exit can get pretty small.

 

“So even though these markets are oversold, I think we continue to see selling into the end of the month for corn, wheat and soybeans.”

 

‘Causes the most pain’

Month-end itself is often a prompt for fund position closing.

 

And then there is December options expiration, as happens this session, to factor in too.

 

“Option expiration will be seeking the price level that causes the most pain,” the broker said.

 

“In corn, the $3.70-a-bushel strike probably accomplishes that goal.

 

“Big open interest in Chicago wheat sits at $5.00 and $5.10 strikes, with Thursday’s settlement at $5.09 causing a few to squirm.”

 

Corn, soy prices

With the uncertainty over China-US trade talks overhanging markets as well - and a bit of a “deal-off” mentality with the renminbi falling 0.2% against the dollar, and the likes of Shanghai shares losing ground too - it was perhaps little surprise that movement elsewhere in Chicago was not massive.

 

March corn futures added 0.1% to $3.79 ¼ a bushel.,

 

January soybeans gained the same to $9.01 ½ a bushel, after earlier falling below $9.00 a bushel for the first time since September.

 

‘Lowest-priced source’

Not that investors lack bullish causes to cling on to, after the decent weekly US export sales data for both crops, and wheat, as unveiled on Thursday.

 

Karl Setzer at Agrivisor flagged “indications demand may finally start to increase” for corn, for which export sales were the second largest of 2019-20 so far, and actual shipments the largest.

 

For soybeans, both US export sales and shipments are now running ahead of last season’s pace, despite the trade tensions with top importer China.

 

“The United States is currently the lowest-priced source of soybeans in the global market, with offers averaging $0.33 a bushel under Brazil,” Mr Setzer said, although adding that the winow is only temporary.”

 

“This changes in the near future though, as for January, Brazil is the cheapest source by $0.11,” as the South American country’s harvest ramps up.

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