Grain futures 'explode higher'. Wheat hits multi-year tops

04.07.2017

Winter wheat futures hit a two-year high, while spring wheat prices hit the highest since 2013, helping other grains higher to, amid expectations of further dryness in the US, and elsewhere.

Month, and especially quarter, beginnings are often viewed as times that attract fresh fund money (unlike month ends, which are seen as times when cash is withdrawn).

July started with a particular bang in grain markets, amid growing weather worries and, in corn and soybean markets, ideas of funds being forced into short-covering.

"All of the grains are exploding higher," said Darrell Holaday at US broker Country Futures.

'No basis in reality'

Tregg Cronin at Halo Commodity Company said that the session was marked by "new month, new quarter and new buying, as conditions remain tough in the western Corn Belt and northern Plains as we cross the half way mark of the growing season" for spring-planted crops.

Forecasts for the northern Plains spring wheat belt "are offered no relief in the next two weeks, and drought conditions are taking hold in the Canadian Prairies".

And this in a market still reacting to a double dose of bullish sowing data last week, when both Canada and the US rated their spring wheat plantings below market expectations.

Big question marks surround a US estimate that 96.3% of the country's spring wheat will make it to harvest, ie that only 3.7% will be abandoned, despite the severe northern Plains drought.

It is an estimate that has "no basis in reality", Mr Cronin said, flagging himself a working estimate of 92%, although this "could very easily fall below 90% with the forecasted weather".

Four-year high

Minneapolis traded hard red spring wheat for September jumped 5.7% to close at $8.16 a bushel, the highest close for a nearest-but-one contract since May 2013.

And Kansas City hard red winter wheat for September, for a second successive session, closed up the exchange limit, adding 5.7% to $5.59 Ѕ a bushel, the highest finish for a nearest-but-one contract since July 2015.

The contract gained extra support from the announcement by the US Department of Agriculture that the US had sold 70,000 tonnes of hard red winter wheat to an "unknown" importer, despite buoyant prices, with a further 70,000 tonnes of soft white wheat too.

'Stressing crops'

Chicago soft red winter wheat, meanwhile, the world benchmark, added 5.5% to $5.55 a bushel, not quite managing a limit-up close, while Paris wheat for December added 1.8% to E185.00 a tonne, the highest finish for a nearest-but-one lot in 20 months.

London wheat for November added 1.2% to £151.25 a tonne, breaking above the psychologically important £150.00-a-tonne mark, and recording a three-year closing high.

It is worth noting that weather concerns extend beyond North America, with National Australia Bank on Monday lowering the bar on forecasts for Australia's wheat harvest this year to a five-year low, thanks to dryness.

And in the European Union, while crops in many regions have benefited from recent rains, "some areas saw only minor improvements, however, including northern France, west central Germany, south eastern Poland, Spain, and central Italy, stressing crops", said weather service MDA.

 "Warmer and drier weather is expected in central and western Europe next week, so some soil moisture deficits will remain."

'Need precipitation'

Back in Chicago, weather outlooks hardly look ideal for the Corn Belt either, and US corn and soybean prospects, with the worries reviving over hot weather ahead.

"There is a lot of weather buying as concern about the placement of the ridge in the west [Corn Belt] is dominating the weather discussion," Mr Holaday said.

At Global Commodity Analytics, Mike Zuzolo said that latest weather models "show a drier bias for Nebraska, Iowa, and the northern half of Illinois.

There are the "same areas which need precipitation, to catch-up" after data show that "central parts of these states didn't get necessary and sufficient rainfall the last two weeks of June".

WxRisk.com said that the GFS weather had "gone very bullish" in price terms "with respect to the idea of the heat dome over the Rockies sliding east across the central Plains into the heart of the Midwest in week two".

Corn, soy price gains

And this at a time when, as regulatory data showed, funds are short in both corn and soybeans – in fact, record short in the oilseed.

Soybean futures for August jumped 2.4% to $9.70 a bushel as some of these short bets were closed, handing the contract a six-week closing high.

Earlier, the lot touched its 100-day moving average for the first time in nearly four months.

Corn futures for September added 1.1% to $3.88 Ѕ a bushel, held back somewhat by the bigger-than-expected US stocks and sowings data released by the USDA on Friday.

That said, while the corn seedings figure was up 890,000 acres from a March forecast, CHS Hedging noted that "North Dakota accounted for the bulk of that with an increase of 400,000 acres".

And given that North Dakota, in the northern Plains, is suffering widespread drought, that corn won't be yielding much.

Sugar bounces

Among soft commodities, raw sugar managed gains - despite a dismal start, with futures slumping 3.7% on opening after Petrobras, the Brazilian state-run oil giant, cut its gasoline prices again, this time by 5.9%.

That lowers the price that ethanol too will be able to command in Brazil, in turn cutting the need for sugar to compete so hard on price to secure its share of the country's cane harvest.

Still, the October raw sugar contract ended up 0.8% at 13.92 cents a pound, helped by strength in the real, which boosts the value in dollar terms of assets in which the country is a major player, and by regulatory data showing that funds already hold a near-record net short in futures and options.

That raises ideas of a "crowded" position, and that further short bets may be harder to come by.

'Exports to fall back'

Similar dynamics were at work in arabica coffee, in which the New York September contract gained 1.6% to 127.70 cents a pound.

And this despite Citigroup raising by 3.6m bags, to 151.6m bags, its forecast for world coffee production in 2017-18.

Still, on a more bullish note, merchant I&M Smith said that "one might speculate though, that with the Mexicans and Central Americans seemingly already well sold… that the global coffee export volumes for the present coffee year shall start to fall back to closer to those of the previous coffee year".

The prospect of a "smaller new Brazil crop this year and along with the potential for declining export volumes for the next four months from Vietnam" also support this ideas

Still, "in the meantime, the increased volumes for the first eight months of the present coffee year, have contributed to the prevailing relatively high levels of consumer market coffee stocks".


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