Wet US outlook rains on wheat bulls' parade. But cocoa soars


Grain futures made a soft start to the week - in particular wheat, which tumbled to one of its lowest finishes of 2017 – but bulls had better luck in soft commodities, with cocoa markets soaring.

Traders had cautioned before the session that the modest amount of selling revealed by weekly hedge fund positioning data had left scope for further bearish bets.

And funds used the space, in particular in wheat, which for Chicago-traded soft red winter crop, the world benchmark, plunged by 2.3% to $4.30 Ѕ a bushel for May delivery, the weakest finish since late January for a nearest-but-one contract.

The decline – a fifth successive negative session, a run during which the contract has lost 6% - was attributed to growing expectations of rain for drought-hit winter crops on the southern US Plains.

'Improving rainfall outlook'

"The 11-15 day forecast for hard red winter wheat areas is continuing to indicate a weather pattern change in the last part of March and into April, with more activity developing in some dry areas," said Darrell Holaday at Country Futures.

In fact, this forecast "has been showing up in the model runs since the middle part of last week, but there has certainly been some scepticism.

"But today there is a little more confidence and the market has been under pressure throughout the session."

Benson Quinn Commodities termed winter wheat futures the "downside leaders with weather models in agreement on improving rainfall outlook into the end of March.

"There is little confidence in the deferred forecasts but with models in agreement, Kansas City and Chicago wheat have run into resistance."

Richard Feltes at RJ O'Brien said that the weather "leans negative" for prices, with a "wetter 11-15 day tone for US hard red winter wheat".

Hard wheat underperforms

Futures in hard red winter wheat itself, as traded in Kansas City, actually fared particularly badly, dropping 2.8% to $4.42 ѕ a bushel for May delivery, and closing below their 100-day moving average for the first time since January.

And this despite some OK news on sowings, with Informa Economics pegging US all-wheat seedings for the 2017 harvest at 45.6m acres, a little below the 46.0m acres forecast last month by the US Department of Agriculture.

News on the trade front was mixed, with US exports last week put by the US Department of Agriculture at 519,127 tonnes, down from 583,534 tonnes the week before, but well ahead of the 407,042 tonnes shipped in the same week of 2016.

Furthermore, Saudi Arabia bought 735,000 tonnes of hard wheat, although that was not a surprise.

On a more negative front for US values, Russian prices eased last week, by $0.50 a tonne to $192 a tonne, according to SovEcon, and the country's exports in January, at 1.94m tonnes, were not so bad, up from 1.32m tonnes in the first month of 2016.

'The problem with corn…'

Wheat's performance helped weigh on corn too, which fell by 1.0% to $3.61 a bushel for May delivery, a two-month closing low.

This despite some strong US export data, at 1.55m tonnes shipped last week, compared with 1.45m tonnes the week before, and 815,173 tonnes in the same week of 2016.

"Export inspections for corn were very solid," said Darrell Holaday at Country Futures.

"But the problem with corn stems back to large US supplies on inventory, along with a South American crop that continues to get larger," as underlined by USDA data last week.

Extra sowings?

Indeed, as far as Brazil goes, AgRural estimated that 88% of the safrinha corn crop has been planted, ahead of last year's pace of 85%, and the five-year average of 83%, boosting prospects for a decent harvest.

Meanwhile, Informa raised its estimate for US sowings to 90.8m acres, from a little under 90.5m acres.

That is well ahead of a USDA forecast of 90.0m acres.

And more sowings could be in the offing, with RJ O'Brien's Richard Feltes flagging the "risk that timely planting will spur another 1.5m-2.0m all crop acres" than the USDA forecast last month.

'Mild bounce'

Still, much extra acreage is likely to go to soybeans rather than corn, with the November soybean: December corn ratio closing at a multi-week high of 2.61, well into territory encouraging sowings of the oilseed over the grain.

The rise in the ratio reflected a relatively resilient performance by soybeans, which for May delivery edged 0.5 cents lower to $10.06 a bushel, representing a fresh two-month low.

And this despite soft US export data, at 656,288 tonnes for last week, down nearly 300,000 tonnes week on week.

However, as Country Futures' Darrell Holaday noted, there was "some mild bounce in the soymeal market", with May futures ending up 0.7% at $326.90 a short ton, and ending back above their 100-day moving average.

Indian decision

Soft commodities fared a little better, generally, than grains, with some optimism even over a 0.2% decline in raw sugar futures for May, in that it left the contract at 18.18 cents a pound, well above the 18.00 cents-a-pound battleground.

"All eyes are on the strength of support around 18 cents a pound, considering the support at 20 cents a pound and 19 cents a pound was virtually non-existent," said Sucden Financial.

There was also some idea that victory by Prime Minister Narendra Modi's party, the Bharatiya Janata Party, in elections in the key state of Uttar Pradesh (a big sugar producer too) may pave the way for progress on a long-waited decision on sugar imports.

"Chatting around, it seems likely that should we now see a shift in import policy it will probably be raw sugar, maybe up to 500,000 tonnes," rather than a later decision which would have required imports of white sugar, being immediately usable.

Market sentiment was also supported by data showing a further significant selldown by funds in their sugar net long, implying that much downward pressure has already been taken out of the market.

'Demand might start to improve'

Still, the best performer among softs was cocoa, which soared 4.3% to $2,017 a tonne in New York for May delivery, amid signs that prices were struggling to extend their slump below $1,900 a tonne.

After all, further appetite among hedge funds for short bets may be limited, given that regulatory data showing their net short is already at a record high.

Price action "could be a sign that the down move has temporarily run its course", said Jack Scoville at Price Futures.

"Demand has been weak, but might start to improve soon as prices for cocoa and products have turned much lower."


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