Grain, coffee and soybean futures jumped in Chicago’s first full trading day of the year amid fears over cold weather in the US, and concerns over dryness in South America too.
“Welcome to the first weather market of 2015,” US broker CHS Hedging said, referring in particular to the cold snap which has brought temperatures below zero Fahrenheit (-18 Celsius) in parts of the US Plains and Midwest, raising concerns about winter wheat seedlings.
“Colder weather continues in the Midwest, snow and freezing temps are in the forecast for the rest of the week.” the broker said.
“Private forecasters are sounding the winterkill alarm.
“They are talking about disappointing snowfall totals of only 1-5 inches that will only provide ‘limited’ protection to the northern half of US winter wheat production areas before the sub-zero temperatures that will be continuing for the next two nights.”
At Allendale, Paul Georgy said: “US weather has some traders worried about winterkill in the hard red wheat area due to lack of snow cover and Arctic air moving in by midweek.”
How much damage?
In fact, estimates for the potential damage differ.
MDA said that “some spotty winterkill will still be possible by midweek” in parts of the Plains.
But Richard Feltes at RJ O’Brien said that “nearly one-third of US soft red winter wheat [as grown in the Midwest] could sustain damage from Wednesday morning lows of 5-15 Fahrenheit below zero [minus 21-26 Celsius]”.
Whatever, the prospect of cold temperatures helped wheat futures for March closed up 1.3% at $5.89 a bushel in Chicago, climbing comfortably back over their 40-day moving average.
Hard red winter wheat added 1.1% to $6.24 a bushel in Kansas City.
In Paris, May wheat closed 2.1% higher at E202.75 a tonne, the contract’s best finish in seven months.
The rises were also helped by cold weather in Russia too, although there have been snows in some areas, such as Volga Valley, to offer protection.
Still, on the story of Russia’s export squeeze, ideas of merchants ramping up volumes ahead of the February 1 introduction of export tariffs received a setback when Rusagrotrans reportedly said it would limit to 1.5m tonnes the country’s grain shipments this month, from about 2.8m tonnes last month.
There had been some suggestions of volumes of 2m-3m tonnes this month too.
South American dryness
Soybean futures proved even stronger, jumping 3.8% to $10.45 ј a bushel for March, with weather concerns opening up about South America too.
“Drying occurred in much of Brazil during the weekend,” said Terry Reilly at Futures International, if noting that “localised heavy rain did occur across eastern Mato Grosso and central Parana”, major soybean producing states.
“There is probably some weather buying in the soybean complex tied to Brazil,” said Darrell Holaday at Country Futures, noting “maybe some disappointment in overall rainfall over the weekend”.
In fact, the picture on both Brazil and Argentina appears to be mixed, with some areas (eg Rio Grande do Sul in Brazil and Santa Catarina in Argentina) getting too much rain, while others have received too little.
Parts of northern Minas Gerais, actually best known for coffee, have received less than 40% of normal rainfall over the past 45 days, according to MDA.
“The drier pattern in Minas Gerais will allow moisture shortages to expand there,” MDA added.
‘No significant heat’
It should be noted that many brokers were downplaying the South American weather threat.
For Brazil, “the overall forecast remains favourable with no significant heat”, said Darrell Holaday at Country Futures.
“There has not been any concern about high temperatures,” said Paul Georgy at Allendale.
Mr Feltes noted that the “window closing to inflict hard blow to South American soybean production”, with harvest already having begun in some parts of Brazil.
El Nino dying?
Still, not all observers are quite so sanguine, with Gail Martell at Martell Crop Projections flagging that “in the Brazil tropics, including the leading soybean state of Mato Grosso, weather has become hotter and drier over the past 2-3 weeks, stressing developing soybeans.
“The forecast remains dry in the week ahead,” she added.
And there is the potential that this could be related to a weakening of the mild El Nino conditions which have, in fact, proved positive for crop production in many areas in 2014 (eg bringing the US a cool summer), and can prove helpful in South America too.
“Weather conditions have suddenly changed, reversing course, in different areas of the world,” Ms Martell said.
“Is this related to a weakening El Nino?
“Recently, sea surface temperatures have chilled down in the important Nino 3.4 region in the eastern equatorial Pacific, pointing to a fading El Nino signal.”
As an extra boost for soybeans, the US Department of Agriculture, through its daily alerts system, reported the sale of 233,000 tonnes of US soybeans to China for this season, easing concerns over a slowdown in Chinese demand as South American supplies come on tap.
In fact, the US exported 1.41m tonnes of soybeans last week, as measured by cargo inspections, down on the 1.50m tonnes the week before, albeit in a holiday period, so offering little to allow suggestions of a trend.
Corn exports eased to 538,945 tonnes, from 609,613 tonnes in Christmas week.
Wheat’s data were actually the most encouraging, albeit from a perspective of disappointment so far this season, in showing an upgrade of 42,000 tonnes to 241,025 tonnes in the export figure for Christmas week, and rise to 352,829 tonnes last week.
Still, corn futures for March actually outperformed wheat, closing up 2.6% at $4.06 a bushel, back above the 20-day moving average.
The Brazil weather concerns spurred investors to reinject weather premium into arabica coffee futures too, which soared 4.4% to 168.10 cents a pound in New York for March delivery.
This after falling to 160.10 cents a pound earlier, the weakest for a spot contract in five months. In fact, the strong recovery, in trading beyond the range of the previous session and producing a positive close, would appear to be giving a positive technical signal.
But there is more going on in the coffee world, with Societe Generale cautioning of a huge index fund rebalancing process in coffee futures which, while in theory meaning lower prices as funds sell-out, could bring different movements if such sales have been anticipated by speculators and acted on in advance.
London robusta coffee fared well too, adding 2.5% to $1,911 a tonne in London for March.
More sugar shorts?
Raw sugar, which is less in the eye of the storm regarding index fund reweighting, but also less vulnerable to Brazilian dryness, with plentiful supplies elsewhere, closed up a more modest 0.6% at 14.26 cents a pound for March delivery.
There was also some idea of buying pressure in advance of the latest regulatory data on hedge fund positioning due later, which some believe will show a large short position.
With open interest rising, in a period of lower prices, “we suspect new shorts have been added”, Sucden Financial said.
With hedge funds already having a large net short, the idea of further negative bets might raise concerns that appetite for such positions is nearing its end, and encourage profit-taking on shorts.
(Source – http://www.blackseagrain.net/novosti/grain-soy-coffee-prices-soar-as-2015-brings-weather-fears)