Wheat futures slump as funds shift into reverse

27.07.2016

The frantic fund activity that has been driving grain markets in recent sessions changed direction on Tuesday, as wheat plummeted on heavy global supply, while soybeans bounced back.

Wheat markets appear to have had a sudden reality check over the sheer quantity of wheat around.

Water Street Solutions noted "the large global supplies and better than expected production coming out of the US winter wheat crop and the Russian and Black Sea regions".

EU markets ease

"The wheat market traded lower on easing EU wheat futures prices," said Ami Heesch, at CHS Commodities.

"Record crops in Bulgaria and Romania are thought to possibly be able to offset shortages in France, Germany and [elsewhere in the EU] she said.

"The decline of yields observed in France, leader for the production in the EU, is not affecting other countries in the same proportions," noted Paris-based consultancy Agritel.

"Russian wheat prices were lower on ideas of reaping the biggest crop in post-Soviet history," added Ms Heesch.

December Paris wheat futures finished down 1.9%, at E170.00 a tonne.

Rally in Chicago grinds to a halt

The USDA reported that the US winter wheat harvest was 83% complete, compared to 76% last week.

This is one point ahead of last year's pace, and 4 points ahead of the average pace.

December Chicago wheat futures finished down 2.9%, at $4.42 a bushel.

Where's the bottom?

The rapid short covering in Chicago wheat over the last few days, sparked by an explosion in Paris wheat prices, has spurred much discussion over weather a bottom has finally been made in the wheat market.

Even after the sell-off, wheat Chicago wheat futures finished above last week's lows, but it is clear that heavy global wheat stocks are still very much at the forefront of people's minds.

At Country Futures, Darrell Holaday was sceptical of "all of the talk about higher world prices and a bottom being formed," he noted.

"It amazes me how quickly a market dismisses facts regarding fundamentals and dreams up change."

"Don't talk about a legitimate bottom in the wheat market until we trim some carry out of the futures market," Mr Holaday warned.

"When that happens, it will provide some indicate that demand is chasing some of the abundant supply in the US and the world… Until then, there will only be short covering rallies."

Soybean liquidation ends

And where funds turned from bulls to bears in wheat, they moved contra-wise in soybeans.

True, there seems to be little to worry about for the US crop, but soybeans will be vulnerable to heat damage until the end of August, and weather charts are looking a touch less reassuring.

Richard Feltes, at R.J. O'Brien, suggested that a drop off in Chinese soybean buying may prove short-lived.

"The extended period of slow Chinese soybean buying (in wake of low crush margins and tepid domestic meal demand) suggests that we may see periodic surges in Chinese soybean demand in coming weeks," Mr Feltes said.

November soybean futures finished down 0.8%, at $9.73 ѕ a bushel.

Falling wheat futures weighed on corn, with the December contract finishing down 0.4% on the day, at $3.39 Ѕ a bushel.

Concerns over Texas

Cotton futures jumped higher, as the US government trimmed its ideas of domestic cotton condition by 2 points, to 52% good or excellent.

The crop in Texas, the top US grower, has seen dryness concerns.

Cotton analyst Louis Rose noted that the Chinese government is reportedly considering extending its cotton auctions.

Although this will mean more product on the market, Mr Rose saw it as "another encouraging sign for overall demand".

And Mr Rose pointed out that the Chinese government is considering replenishing its stocks of high-quality cotton come harvest time.

December cotton futures finished up 2.3%, at 73.95 cents a pound.

Sugar rally come to a halt

Sugar futures turned lower, with no fresh bullish news, and no rain disruption in top grower Brazil.

"Analysts are projecting that south Brazil sugar production will be much stronger in the first half of July," said Tobin Gorey, at CBA. "

"Weather forecasters expect the region's northern edge to get very little rainfall over the next week or so," Mr Gorey noted.

And in Australia, "cane regions are also likely to see little rainfall over the next week or so".

"The dry period should speed the process of drying out after recent deluges," Mr Gorey said.

October raw sugar settled down 1.9%, at 19.52 cents a pound.


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