Grain markets rise on short covering, export demand

18.08.2016

What's happening in the grain markets? So far this week Chicago grains have been notable for their limited volatility, and low volumes.

This effect is particularly striking in row crops, which might be expected to see more action, given that the US harvest is growing ever closer.

And despite the bearish Wasde, the trend has been upwards since Friday.

Sitting tight before the harvest

As in the previous two sessions, it looks like markets are sitting tight for a better insight into just how big US yields are.

"Volatility indicates we are ready to settle into ranges until combines begin to roll," said Tregg Cronin, at Halo Commodities. "If left to our own devices, steady chop until harvest could be the order of things."

In the meantime, soybeans are benefitting from the good export outlook, as the US Department of Agriculture announced another the sale of 380,000 tonnes of soybeans China, for deliver in the 2016-17 crop year.

Brian Henry, at Benson Quinn Commodities, noted "firmer bias developing in a soybean market that is seeing solid demand and has improving technical structure".

November soybean futures finished up 0.8% at $10.16 a bushel.

Short covering boost

Meanwhile for corn and wheat, where prices are not far off multi-year lows, and funds are heavily short, the path of least resistance seems to be up.

"Corn futures are getting buying interest from heavily positioned short traders," said Paul Georgy, at Allendale, adding that "wheat futures appear to be holding gains due to short covering and traders moving out of their short September positions".

December Chicago wheat futures settled up 0.4%, at $4.43 a bushel.

Ethanol production, demand rises

The US Energy Information Administration reported that ethanol output in the week ended August 12 averaged 1.03m barrels per day, matching the all-time high reached in July.

September ethanol futures fell on the news, down 0.7% to $1.434 a gallon.

But demand for the corn-based biofuel looks to be strong, as ethanol stocks fell by 35,000 barrels to 20.43m barrels a day.

December corn futures finished up 0.7%, at $3.39 ѕ a bushel.

Potential rain damage

Corn and soybean markets may already be pricing in a very big harvest, but forecaster Gail Martell noted that the heavy rains could be causing quality issues.

"Ultra-wet conditions have become detrimental for crops in some areas in August, washing fertilisers out of the root zone, even drowning plants in the low lying areas," Ms Martell said.

"Recurring showers the past several weeks have grown excessive in Illinois, the leading soybean state, where 2- 3 times the normal rainfall has developed."

And Ms Martell noted excessive rainfall in Minnesota, Missouri, and Kentucky as well.

"If the heavy rain continues, corn and soybean yields may suffer," she said.

"Fungus disease is increasing, promoted by persistently wet and humid weather conditions," said Ms Martell. "White mould, in particular, is being scouted."

But Ms Martell reported that "producers are keeping on top of the situation, spraying for white mould and other fungus disease".

Brazilian production ideas lifted

The falling Brazilian real weighed on prices of arabica coffee and sugar, of which Brazil the world's top grower.

The weaker real makes production and sales more profitable in local currency terms

December arabica futures in New York settled down 1.9%, at 138.10 cents a pound.

And sugar markets can under additional pressure, as the Brazilian crop supply agency Conab saw sugar production in the country's Centre South cane belt at 36.55m this season, up from the 34.32m tonnes forecast in April.

This compares to 30.88m tonnes the previous crop year.

October raw sugar futures settled down 2.7%, at 19.72 a pound.

Cotton rallies on Brazilian drought damage

Cotton futures broke a four-session losing streak, as Brazilian prospects were cut.

Brazilian producer's association Abrapa forecast the crop to fall by 20% year on year, to 1.2m tonnes of lint, due to dry weather.

Export prospects were seen down 50% year-on-year, to 400,000 tonnes.

Cotton finished up 0.3%, at 68.81 cents a pound.


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