Spring wheat futures soar anew, as US crop rating tumbles

13.06.2017

Ideas of the demise of the spring wheat rally were somewhat premature.

Minneapolis spring wheat futures got off to a screaming start to Tuesday, soaring 2.9% to $6.18 a bushel for July delivery as of 09:40 UK time (03:40 Chicago time).

Earlier, the contract touched $6.21 ѕ a bushel, the highest price for a spot lot since January 2015.

The gains followed the release overnight of US Department of Agriculture ratings which showed the US crop deteriorating far more significantly than had been thought, trumping by a distance beneficial effects of rains at the weekend.

'Lowest crop rating since 1992'

While investors had been expecting a 2-point drop in the US spring wheat rating, to 53% in terms of the proportion rated "good" or "excellent" the outcome was far more severe – a 10-point slump to a 45% reading.

That matched the biggest week-on-week decline to a spring wheat rating in the past 20 years (the other 10-point drop being in July 2006 - a year when the US spring wheat yield came in at 33.2 bushels per acre, the lowest but one since the weak 1997 result.)

It was also the lowest reading for any week since July 2006 (a year when the rating ended up at 32%), and the lowest mid-June reading on easily-available data going back to 1995.

According to Joe Lardy at CHS Hedging, "we are now at the lowest crop rating since 1992 [presumably for the time of year] when it was 43%".

Ratings slide

Of less surprise was where the readings were notably weak in the Dakotas, where drought has been spreading fast.

The proportion of spring wheat in North Dakota, the top growing state, rated as in good or excellent condition dropped by 9 points to 43%, and in South Dakota by 12 points to 13%.

(That compares with 57% in poor or very poor condition in South Dakota.)

However, in Montana, the rating dropped particularly steeply, by 25 points to 23%.

Weather outlook

That said, the northern Plains received rains on Monday, and more are expected this week, although how much is course a matter of conjecture.

The GFS model shows "that over the western Corn Belt as well as the central and upper Plains, the rainfall over next seven days is not that impressive," said Dave Tolleris at WxRisk.com, although South Dakota is seen getting some precipitation.

(The eastern Corn Belt, by contrast, is shown with rains 0.5-1.5 inches above normal levels.)

Not that weather models are moving in lockstep.

That said, looking further ahead, into the middle of next week, the GFS modest drives a cold and wet front "deeper into the Deep south and the East Coast, which means less rain for the Midwest and upper Plains".

The European model "stalls the front apparently over the Midwest which provides for more rain in the week two to forecast for all of the Midwest - but not the Upper Plains".

Harvest reports

The strength from spring wheat – which was also fuelled by a rally in the Canadian dollar, making Canada's spring wheat exports more expensive - spilled over into other grain markets, including Chicago soft red winter wheat, which added 0.8% to $4.37 ј a bushel for July.

Kansas City hard red winter wheat (higher protein than soft red, but not as high as Minneapolis spring) rose by 1.2% to $4.47 ѕ a bushel for July, reopening a bit its protein premium.

Not, it has to be said, that the hard red winter wheat crop is expected to be a high quality one.

Hard red winter wheat harvest reports say that "the protein content tends to be below average, which is in line with expectations," said Benson Quinn Commodities, if adding that "some protein reports are coming in especially low.

The broker added that it had "not seen much from the soft red winter wheat harvest", a factor which "tends to mean yields are near expectations and there may not be systematic quality issues".

Egyptian tender

An extra support to prices came from a further tender announcement by Egypt's Gasc authority – its second in four days.

"Results will be released this afternoon and it is likely to see Saturday's sellers, Russia and Romania, well placed to win the tender," Agritel said.

"Egypt secured 3.4m tonnes of local wheat from producers this season, short of the 3.5m-4.0m tonne target," noted Terry Reilly at Futures International.

'Turn-around Tuesday'

Corn futures for July, meanwhile, were dragged 0.7% higher to $3.79 ѕ a bushel.

The USDA data overnight were pretty neutral for the grain, in showing the US crop rating down 1 point at 67% rated good or excellent, a drop reflecting a 17-point tumble to 45% in the South Dakota reading.

Still, the weather forecasts – for what they are worth - are not ideal for many Corn Belt areas.

"With little agreement from in weather models, I think the crop ratings offer support for 'turn-around Tuesday' trade," Benson Quinn Commodities said.

Sluggish soy

Soybean futures for July added a more modest 0.2% to $9.33 ј a bushel, despite the first condition reading for the US crop coming in, at 66%, below market forecasts.

"USDA reported initial soybean crop ratings at 66 percent for the combined good and excellent categories, 3 points below expectations," Futures international's Terry Reilly noted.

Still, soyoil futures were up only 0.01 cents a t 31.95 cents a pound despite data on rival palm oil showing Malaysian stocks of 1.56m tonnes, some 20,000 tonnes below expectations.

Palm oil futures themselves stood 0.2% lower at 2,452 ringgit a tonne in Kuala Lumpur.

Prices of vegetable oils (the raw material for biodiesel) are also moving on talk that a US announcement on details for the 2018 renewable fuels mandate will be made soon.

'A lot more to sell'

Cotton bucked the upward trend, falling 0.4% to 72.17 cents a pound in New York for December delivery, 0.02 cents from matching a four-month low for the contract.

Besides the somewhat bearish data released by the USDA on cotton on Friday, cutting the forecast for US exports in 2017-18, the crop progress report overnight showed a sharp improvement in the condition of the US crop last week, by 5 points to 66% rated good or excellent.

The rating for Texas, the top growing state, soared 9 points to 62% good or excellent.

"The report suggests US cotton crops are both on schedule and in good condition," said Tobin Gorey at Commonwealth Bank of Australia, saying the data "might prompt an immediate test of [price] lows".

He also noted that, for cotton growers, "the weather is largely benign to good across the US and elsewhere", and that speculators retain a large net long position in New York cotton futures and options.

"We think the chances are they still have a lot more to sell."


agrimoney

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