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Wheat futures ended the day as they started it – well ahead.
But the journey was far from plain sailing, with winter wheat contracts falling into negative territory for much of the day, and even Minneapolis spring wheat flirting with losses at one point, despite the unexpectedly low US cop ratings released overnight.
One problem was the negative sentiment alive in commodity markets which saw the CRB index plumb fresh 14-month lows, undermined in particular by the softness in energy markets.
Oil prices hit 2017 lows, and entered a bear market (ie falling 20+% from early January highs) amid worries that Opec members are not proving able to curb production, and with the US shale industry much-revived too.
‘Almost no interest from roasters’
The default direction for commodity futures was most definitely downwards.
In New York, arabica coffee, for instance, ended down 1.6% at 124.60 cents a pound for September delivery, a one-year low for a nearest-but-one contract, little helped by a 1.5% drop in the real against the dollar, which cuts the value in dollar terms of assets in which Brazil is a major player.
Jack Scoville at Price Futures added that the arabica “market action remains weaker overall due to ideas of good supplies and reports of weak demand.
“The cash market remains very slow with almost no interest seen from roasters as they see the big US supplies and think that prices will remain cheap.”
Although there has been more talk of rains interrupting Colombia’s mitaca mid-crop harvest, “seemingly there are coffees steadily coming to the mills and the exporters from many other districts”, said merchant I&M Smith.
“While the weather interrupting delays have been causing some problems for exporters to keep up with their forward contract commitments, it has not proved to be that serious so far.”
‘Traders should remain cautious’
Cocoa, which has been out of favour with funds anyway, lost 0.8% to $1,918 a tonne for September.
Cotton fared relatively well in ending down 0.1% at 68.97 cents a pound for December delivery, although this did still represent a fresh 2017 closing low.
On the supportive side for prices, the weekly US cotton crop condition rating overnight, at 61% “good” or “excellent”, while still a decent figure, was down 5 points week on week.
Indeed, there are worries that the heat viewed by many investors as a benefit to west Texas crops may in fact have gone too far.
“Much has been noted about the accumulation of heat units across west Texas this season, but traders should remain cautious that this is not a positive note, given current droughty conditions,” said Louis Rose at Rose Commodity Group.
In Chicago, cornand soybeans followed the negative trend too, undermined also by the prospect of decent growing weather for the Midwest.
“Additional rains across the region mid and late week should further improve moisture for corn and soybeans,” said MDA.
CHS Hedging flagged “excellent weather forecasted for the next 6-10 days”.
“The forecast for the next couple of weeks looks ok for the bulk of the Corn Belt,” said Benson Quinn Commodities, although adding that “the temperatures may be cooler than desired in a few areas”.
‘Funds may sharpen their knives’
Still, “I don’t see much reason to trigger additional short-covering,” the broker added.
“The funds may sharpen their knives to the downside, if potential support levels can’t hold.”
Corn futures for July dropped 1.5% to $3.70 a bushel, back around the middle of the trading range they held from March to a couple of weeks ago, with the breakout upward on fears for Corn Belt conditions.
“The current row crop debate comes down to early season conditions versus current beneficial weather and forecasts,” said Tregg Cronin at Halo Commodity Company.
“Will poor planting and early season weather hamper ultimate yield potential, or can beneficial weather, if it is in fact received, still allow us to hit top end?”
Soybean futures for July dropped 0.9% to $9.27 � a bushel, also indicating a negative answer to that question.
‘Largely priced in’
… which made the rise in wheat futures all the more remarkable.
In fact, Paris wheat, which has been an epicentre for concerns over dryness in the European Union, threw in the towel too, closing down 0.4% at E180.00 a tonne, having earlier touched a near-11-month high for the contract of E183.00 a tonne.
The decline was a “sign that near-term adverse weather is largely priced” into futures already, said Richard Feltes at J O’Brien.
Benson Quinn Commodities said: “I am not convinced the hot/dry conditions story in the EU can offer enough support to thwart a correction.”
‘Story looks far from over’
But Minneapolis spring wheat futures for July rediscovered their mojo to end up 2.6% at $6.56 � a bushel – the third best finish in three years for a spot contract.
The better-traded September lot added 2.4% to $6.59 � a bushel.
“Global wheat production prospects are declining from the US to the EU to Ukraine,” said Tegg Cronin at Halo Commodity Company.
“Add in record tight barley and oat balance sheets and this wheat story looks far from over.
“Minneapolis wheat has an upside futures target at $6.70 a bushel in the crosshairs.”
Far tighter stocks?
After all, some lowball figures for US spring wheat stocks at the close of 2017-18 are being talked about.
RJ O’Brien’s Richard Feltes said that the overnight USDA condition rating for the US spring wheat crop “suggests a sub-38 bushels per acre yield”, compared with the 46.1 bushels per acre achieved last year, and a five-year average of 45.6 bushels per acre.
That in turn “implies a 2017-18 US hard red spring wheat carryover of 90m bushels”, compared with 217m bushels of stocks brought into the season.
‘Plenty of low protein reports’
And as an extra wrinkle, protein worries, if not yield concerns, remain rife in results from the ongoing US winter wheat harvest, raising the premium on protein ( of which hard red spring wheat has more than winter crop).
Mr Cronin said that there were “still plenty of low protein reports coming from Kansas,” the top US wheat growing state, “with the central part of the state all the way up to Salina still posting a lot of 9-10% protein content.
“Very, very few pockets of 12.0%+ type reports which is more common for the northern areas in an average year.
“On average, we are still not seeing many locations post an average over 10.0% which puts an incredible amount of pressure on the northern tier of Kansas and Nebraska to find some protein.
“If they don’t, protein spreads will continue to add to their already record scales.”
Still, on the day, it was actually low protein Chicago soft red winter wheat which fared best of the winter wheat contracts, adding 1.2% to $4.72 � a bushel for July, a one-year closing high for a spot contract.
Kansas City hard red winter wheat gained 0.4% to $4.74 � a bushel, its tardiness potentially a sign of fund buying in the complex. (Ie, Chicago is the preferred contract for speculators.)
In London, winter feed wheat for November also kept the faith, adding 0.5% to £147.75 a tonne, a contract closing high.