The rally in wheat futures, the refuge for grain bulls of late, faded.
And with that, grains overall struggled for headway, despite some softness in the dollar, down 0.2% against a basket of currencies, ahead of a speech later on Thursday by Janet Yellen, chair of the US Federal Reserve.
(A weaker dollar supports prices of dollar-denominated commodities by making them more affordable to buyers in other currencies.)
Not, it has to be said, that the worries about wheat – particularly over dryness in the former Soviet Union, where farmers are attempting autumn sowings ahead of the 2016 harvest, and in Australia, where harvest has just begun – have gone away.
“Dry weather is threatening the Ukraine and Russian winter grain crops as some producers are waiting until the last minute to plant winter grains, leaving crop vulnerable to harsh weather conditions before the grains are well established,” said Terry Reilly at Futures International.
CHS Hedging said that “continued talk of dryness in Australia and parts of the Ukraine and Russia” have given speculators short on the grain “reason to cover some of their position”.
At ADM investor Services, Steve Freed noted that Ukraine’s rainfall in August “was the lowest in 54 years”.
‘Too much supply’
Still, with plenty of wheat in the world for now, how much premium should be reinjected into prices?
“Bears still feel that even if combined 2016 wheat production for the European Union, Russia and Ukraine drops 8m tonnes due to dryness, their beginning supply could be near 276m tonnes versus 272m tonnes last year,” Mr Freed said.
(That said, a drop of far more than 8m tonnes could be on the cards if dryness really causes problems.
In Russia alone, a severe lack of rainfall – later in the growing season, when it counts more – cut wheat output by nearly 19m tonnes in 2012.)
Still, “world fundamentals of too much supply and lower export trade suggests prices may struggle to move much higher,” Mr Freed said.
‘Competition remains aggressive’
Indeed, it is not as if the fierce competition on export markets has gone away.
“Competition in the global wheat market remains aggressive,” said Australian-based grain trader Pentag Nidera.
“Black Sea wheat appears well offered, and has traded lower to around $170-175 per tonne for 11.5% protein milling wheat.
“This type of wheat is $10 per tonne cheaper compared to six weeks ago. Not all consumers can use this origin milling wheat but its price direction does not go unnoticed in the world of flour millers.”
More will be known on the US performance in export markets later, when the US Department of Agriculture unveils export sales data for last week, expected for wheat to come in at 250,000-400,000 tonnes, potentially showing a decline from the 377,462 tonnes the previous week.
Traders weren’t holding out hope for a bumper figure with soft red winter wheat for December falling by 0.3% to $5.06 a bushel in Chicago as of 09:40 UK time (03:40 Chicago time).
Signally, though, the contract remained above its 50-day moving average, which the contract closed above in the last session for the first time in two months.
Also out later will be the monthly crop estimate revisions by the International Grains Council, which might give more insight into factors such as Russian dryness.
As an aside, Tregg Cronin at Halo Commodity Company noted that the poor quality of the wetness-beset soft red winter wheat crop, as highlighted by findings by the likes of US Wheat Associates, is not showing up as yet in deliveries.
Stocks held at monitored points, but not deliverable against Chicago futures, “grades continue to be held mostly in check at 16.343m bushels”, compared with 70.799m bushels of deliverable inventories, a little up from the 67.313m bushels a year ago.
“Much debate about the quality of this year’s soft red winter wheat crop… extolled the poorest quality since the 1990s,” Mr Cronin said.
“But the level of non-deliverable grades has remains mostly below a year ago.
“This would seem to suggest either that the crop isn’t as bad as what any feared, or that the worst of the wheat is remaining on-farm or in non-delivery based elevators, to avoid discounts and possibly be blended with better wheat.”
Nonetheless, Chicago wheat futures have continued to defend, and rebuild, premium against better-traded Kansas City hard red winter wheat, which was down 0.5% at $4.99 ј a bushel for December, suggesting that worries remain about some squeeze on soft red winter wheat supplies.
Another spread being monitored is that of wheat versus corn, grains which are rivals in many uses, such as livestock feed.
“Wheat is still cheap relative to corn,” said Terry Reilly at Futures International, despite a recovery of some $0.27 a bushel, to $1.23 Ѕ a bushel, in wheat’s premium against corn from a December 14 low.
At RJ O’Brien, Richard Feltes noted that fund moves may only be encouraging wheat outperformance.
“Structurally, managed funds are short wheat and long corn – a vulnerable situation when crop in world’s largest wheat exporter [ie the former Soviet Union] is being threatened,” Mr Feltes said.
Besides, there is a “strong” seasonal tendency for wheat prices to gain against corn, which is weighed at this time of year by the US harvest.
As for the yield talk, “latest updates are consistent with recent trends”, showing good results in the western Corn Belt, eg Iowa, but less upbeat results in the eastern Corn Belt, eg Indiana, Mr Feltes said.
The consistency of results for now is switching more talk back to the demand side, including to some somewhat downbeat weekly US ethanol data on Wednesday, showing a rise in inventories despite a sharp drop in production.
“The jump in ethanol stocks is viewed as bearish for corn futures,” Mr Reilly said.
Tregg Cronin noted that “blending margins have turned decidedly negative, with spot RBOB/Ethanol spreads sitting at -$0.14 a gallon, and remaining negative out through March 2016”.
On the US export sales front, investors are expecting data for last week to come in at 550,000-750,000 tonnes, up from 533,038 tonnes the previous week.
Nonetheless, corn futures for December fell by 0.3% to $3.82 ј a bushel.
‘Expected to be large’
Soybean futures, however, bucked the negative trend, helped by US export hopes, with China expected later to sign a large “frame” contract for imports from of the oilseed from the US.
And weekly export sales data “are expected to be large”, given big reports already trickled through by the USDA through its daily alerts system.
Traders are expecting weekly export sales for 2015-16 at 1.0m-1.2m tonnes, up from 911,966 tonnes last time.
Soybeans for November gained 0.2% to $8.65 Ѕ a bushel, but remain close to six-year lows.
(Source – http://www.agrimoney.com/marketreport/am-markets-wheat-eases-as-focus-returns-to-export-rivalry–3309.html)