Fears of US replant 'of historical proportions' lift grains

22.05.2017

It is not just the progress of sowings in the Midwest that has traders on edge.

In fact, farmers have managed pretty well despite wet conditions.

The problem is that so much is having to be reseeded, with the cold and wet conditions getting it off to such a poor start.

"As feared, corn planted the last week of April and first few days of May is in trouble," said Richard Feltes at Chicago broker RJ O'Brien.

'Replant of historical proportions'

Mr Feltes flagged talk from one, unnamed, seed company of a replant "of historical proportions" (not that the seed company is likely to mind), a dynamic which his contacts backed up too.

"It would appear this is more than just a blip on the radar. We could lose enough acres of corn to be significant.

"A little rain won't hurt right now, but we will need another week to finish drying out the acres left and get them planted.

"A week-long window is needed to finish getting everything in by June 1."

'Adding to seeding delays'

Will the Midwest get it?

The weekend certainly did not provide much relief, with Commodity Weather Group talking of "widespread" showers, bringing heaviest amounts of rainfall, of up to 3 inches, to eastern Nebraska, western Iowa, eastern Missouri, central and southern Illinois, and Indiana.

In fact, there is a drier spell starting now which should, for western Midwest areas, last until late this week, although showers will return much earlier to eastern areas, "adding to seeding delays in northern Missouri, northern Illinois, northern Indiana, Michigan and Ohio," CWG said.

MDA said that "showers in southern and central [Midwest] areas will slow corn/soybean planting"

It added that the outlook had got "wetter" in the six-to-10-day outlook too, although at least it was looking warmer too, boosting potential for fields to dry out, and for crop germination.

'Short-covering opportunities'

Indeed, in weekly US Department of Agriculture data later, it will not just be the planting progress figures that are studied closely, but the statistics on emergence too.

"The five-year average for planting progress next week is 85% for corn with 55% of the crop emerged," Benson Quinn Commodities noted.

And these concerns come when hedge funds have a large net short position in Chicago corn futures and options, ie are betting on lower prices - a holding which could get them into trouble if poor weather indeed looks like translating into disappointing production.

"The large short position held by the funds will likely provide support and short-covering opportunities on weather scares," said Water Street Solutions.

Temer tremors

With external markets calm-to-positive, amid a break in worries about Donald Trump's presidency, grain futures managed a firm start.

Corn for July gained 0.5% to $3.74 ј a bushel in Chicago as of 09:15 UK time (03:15 Chicago time), a fraction below its 100-day moving average, and with shorter-dated averages beginning to move up through eachother, a potentially positive chart sign.

The grain has now more than recovered losses on the tumble last week on worries over bribery allegations concerning Michel Temer, Brazil's president, which sent the real tumbling and encouraged a wave of crop selling by farmers in the South American country (albeit mainly in soybeans).

Soybeans themselves gained 0.4% to $9.57 a bushel, although they have yet to regain levels before the Temer tremors set in.

'Wetness and disease threats'

Still, wheat (of which Brazil is an importer, not exporter, and of which farmers did not have a huge hoard to sell) fared best, gaining 0.8% to $4.38 Ѕ a bushel in Chicago for July delivery.

That took the lot above its 50-day moving average for the first time in two weeks.

For winter wheat crops, the US rains, while not affecting sowing of course, will in some cases hamper harvesting, which has begun in southern Plains areas such as Oklahoma.

The moisture is also seen as encouraging disease, and heightening concerns over another poor quality hard red winter wheat crop, as grown in the Plains.

"Widespread shower activity this week will maintain wetness and disease threats for wheat," MDA said.

'Severe weather'

This when the market is still trying to gauge the impact of the storms three weeks ago which affected in particular winter wheat in Kansas, the top producing state.

"The impact of freezing temperatures and snowfall in western Kansas in late April/early May is still being assessed, while much of the central and eastern portions of the state are experiencing severe weather," said Mark Welch at Texas A&M University.

Hard red winter wheat itself, as traded in Kansas City, added 1.0% to $4.42 Ѕ a bushel for July delivery, beginning to create a clear premium between itself and its Chicago soft red winter wheat peer.

Palm up

Elsewhere, palm oil gained too, in Kuala Lumpur, adding 1.1% to 2,663 ringgit a tonne for August, helped by demand signs.

"The Muslim fasting month, which takes place at the end of May this year, sees Muslims break day-long fasts with communal feasting, leading to higher palm oil usage for cooking," Oriental Pacific Futures said.

In fact, Malaysian exports of palm oil products in the first 20 days of May were 20% higher month on month at 846,705 tonnes, according to cargo surveyor Intertek Testing Services.

Better weather

However, in New York, cotton bucked the positive trend, dropping 0.7% to 78.89 cents a pound for July delivery, slipping back below the psychologically important 80-cents-a-pound mark.

The drop comes amid ideas that the spike in prices earlier in the month succeeded in choking off demand for US cotton, supplies of which had looked like getting squeezed, while seeding conditions for the cotton belt in the US south look like improving.

"Mostly dry conditions, at least until the end of the week, are currently expected to prevail across the majority of the cotton belt over the near-term," said Louis Rose at Rose Commodity Group, adding that this "is, of course, after showers currently over southern and western portions of Texas dissipate.

"Over the weekend we have talked to a significant number of producers north of Memphis who have reported that a significant portion of their acreage is expected to be sown early this week."


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