Spring wheat stalls despite talk of 'dangerously low' stocks


Spring wheat, the flagship of the grains complex of late, encountered fierce selling towards the close.

And with that, the rest of the grains flotilla turned tail, although losses proved largely relatively modest.

Indeed, it was some of the softs which steered far further into negative territory, with raw sugar for July settling down 1.2% at 13.62 cents a pound, the weakest finish for a spot contract since February last year.

Sugar falls

Besides an upgrade by Sucden to its forecast for the world sugar production surplus in 2017-18, futures also continued to suffer from stronger-than-expected output data for late May in Brazil's main Centre South cane-growing area.

"The season is still young and processing could yet catch up" with earlier expectations for the full 2017-18, Commerzbank said, if flagging that this looks less likely with weak sugar prices, which encourage mills to turn cane into ethanol instead.

Meanwhile, cotton futures, which Agrimoney.com noted earlier staring into the abyss, slid into it, closing down 1.4% at 73.50 cents a pound in New York for July delivery, the weakest close for a spot contract in nearly four months.

The new crop December lot settled down 1.2% at 70.95 cents a pound, its weakest in nearly five months.

'Trends are down'

The drop reflected the improved ideas over US supplies in 2017-18, as highlighted by Friday's US Department of Agriculture Wasde report, which lifted the estimate for domestic stocks at the close of next season to a nine-year high.

While Judy Ganes-Chase did flag some cause to be less bearish on cotton, these look longer term,

"The futures market is moving its focus from the current tight situation to one with much more potential production in the US and overseas for the coming production year," said Jack Scoville at Price Futures, flagging too negative technical factors.

"Charts show that July trends are down and that December is also in a down trend."

Signally, both the July and December contracts closed below their 200-day moving averages for the first time in more than a year.

'Not enough to end the drought'

Back to grains, and the fall in Minneapolis spring wheat was far less marked, with the July lot down 0.1% at $6.27 Ѕ a bushel.

Will this prove a pause in the rally, or a sign of a reversal?

One negative factors for prices is the extent of recent rains in the drought-hit spring wheat belt, with precipitation higher than many observers expected – in some areas at least.

MDA, flagging that "the rain event across the northern Plains is coming to an end", noted that it "generally overperformed expectations from late last week across South Dakota and south eastern North Dakota", where some farms received 2 inches of rains.

That said, the precipitation "underperformed across northern and western North Dakota and eastern Montana".

"This rainfall will certainly benefit the spring wheat, corn, and soybean crops, but is still not enough to end the drought in these areas.

"In eastern Montana and western North Dakota, where rains underperformed, little improvement occurred, maintaining severe stress on the spring wheat crop."

'Dangerously low levels'

Indeed, Tregg Cronin at North Dakota-based Halo Commodity Company underlined that "much of this spring wheat in South Dakota and southern North Dakota is too far along to be helped all that much by rainfall.

"Yield potential was determined weeks ago, and at this point rain might help heads fill, but a full revival of yield potential is not possible.

"Production estimates are being slashed and carryout levels for 17/18 are pointing toward some dangerously low levels."

'Tightest in the 20 years'

According to CHS Hedging, many forecasters are "starting to take their yield ideas down below 40 bushels per acre now, and most feel rains now may be too late to help the yield and total production".

The average yield of the past three years is 47 bushels per acre or so.

"Traders will be adjusting their HRS balance sheets accordingly and many now talk of carryout sub-100m bushels.

"This would be the tightest in the past 20 years. So concern for protein wheat needs is real."

Prospects are hardly being helped by an outlook for "mostly dry weather... over the next 10 days in the northern Plains, which will allow soil moisture to decline again", according to MDA, although there are expected to be some showers on Saturday.

Canadian crop faring better?

Still, whether end users actually pay up for this is one factor, which will take some time to become clear.

And there are ideas that Canada's spring wheat crop may be in better shape than had been thought.

"I expect a large portion of the Canadian spring wheat crop is in good condition despite the drier bias of late," said Benson Quinn Commodities.

Furthermore, spring wheat felt a weight from Chicago winter wheat, which has been relying on Minneapolis for support against harvest pressure on values,

But, with spring wheat sagging, Chicago's July contract dropped 0.4% to $4.43 a bushel.


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