The week started on a downbeat note for many markets, little helped by the release of further disappointing data on China.
Industrial profits in the world’s second-ranked economy fell last month by 8.8%, year on year, the fastest drop since records began in October 2011.
That helped ensure a soft performance for shares in many market, with shares opening down 0.6% in London, and 1.2% in Frankfurt, after closing down 1.3% in Tokyo, although Sydney stocks bucked the trend, with a 1.4% gain.
Among commodities, oil traded weaker, with Brent crude standing down 1.0% at $48.11 a barrel as of 09:15 UK time (03:15 Chicago time), with the dollar doing little to help by edging higher, making dollar-denominated assets that much less affordable for buyers in other currencies.
Sydney prices soar
While many agricultural commodities lost ground too, wheat was a notable exception, supported by continued concerns over dry weather in Australia and the former Soviet Union, and in Argentina and the US too.
In Australia, “weather forecasters continue to expect limited rainfall in most winter crop regions,” said Tobin Gorey at Commonwealth Bank of Australia, noting the prospect of higher temperatures too.
While a few Australian farmers have started harvesting, many crops still require moisture to reach their full potential, although ideas, around when El Nino was first declared, of severe drought damage have long faded.
Sydney wheat futures for January had a strong session, jumping 3.9% to Aus$292.00 a tonne, their best finish in a month.
‘Very dry fields’
Still, the biggest weather concerns are over dry weather in northern hemisphere areas where farmers are attempting sowings ahead of the 2016 harvest.
“Croppers continue to look at very dry fields in large swathes of winter wheat regions in the US, Ukraine and Russia which, unchanged, will leave crops in a poor state ahead of winter dormancy,” Mr Gorey said.
“Weather forecasters expect little change to dry Black Seas regions,” although for the US hard red winter wheat regions there is a “confusing array of projections” over the outlook.
Whatever, “the modest comfort in current global wheat supplies is not enough to offset the prospect of smaller 2016 crops”.
‘Primary problem areas’
At Water Street Solutions, Arlan Suderman, senior market analyst, said that dry wheat areas of the former Soviet Union are expected to stay dry for the next 10 days, hindering crop establishment.
“The primary problem areas are focused on eastern Ukraine, encompassing nearly half of the country’s crop area.”
As for the US, his assessment was that “Texas wheat may finally see some relief in the 11- to 15-day period, but dry patches will continue to plague portions of the Plains winter wheat belt”.
Weather service WxRisk.com said that “all” major US farming areas would be dry early this week, before rains spread into some western Midwest areas, eg central Nebraska and central South Dakota, towards the end of the week.
A “tropical system” will also bring some rains into the Delta area.
But there was not too much there to comfort bears on wheat prices.
And as an extra pressure, regulatory data covering the week to last Tuesday indicated that speculators many have plenty of short positions in Chicago wheat futures and options to cover.
They closed some 4,000 in the week, but were left with a net short of more than 35,000 contracts, although that will likely have been eroded further in the wheat rally at the end of last week.
Wheat futures for December gained 1.2% in Chicago to hit $5.14 a bushel, building on their close to the last session back above their 50-day moving average, and taking gains for this month close to 6%.
‘Beginning to have doubts’
However, rival grain corn struggled to keep up, with Chicago’s December contract up a modest 0.1% to $3.89 ½ a bushel, although remaining above its 100-day moving average, which it regained in the last session.
The dry weather which is not so helpful for US winter wheat establishment is a positive for harvesting corn, and soybeans,
“Harvest moves along in the eastern Corn Belt as some parts of Illinois report harvest at 50-60% complete with a favourable forecast,” CHS Hedging said.
Still there remain doubts over yield, with CHS underlining talk of results “below expectations” in the eastern Corn Belt.
Water Street Solutions Arlan Suderman said that traders were “beginning to have doubts about the corn market, with yields seeming to drop off dramatically in southern and eastern areas as harvest advances to some of the later corn”.
However, he added that for soybean yield data “while quite variable, has overall been pretty good”, leading to a more “cautious” feel in the market.
Meanwhile, on the demand side, there was some disappointment in the last session after a huge outline Chinese order for US soybeans, of 13.18m tonnes, did not produce large formal orders in its wake.
Could that change later?
Soybeans for November were 0.4% lower at $8.86 a bushel in Chicago feeling, among the products, softness in particular from soyoil, which declined by 0.6% to 27.74 cents a pound for December delivery.
That drop came despite another strong performance by rival vegetable oil palm oil, which overcame early weakness to stand up 1.0% at 2,366 ringgit a tonne, earlier hitting 2,368 ringgit a tonne, the best for a benchmark contract in six months.
Palm oil futures are being helped by concerns that El Nino-inspired dryness will undermine output prospects in South East Asia, with the weakening ringgit contributing too in boosting Malaysian export prospects.
(Source – http://www.agrimoney.com/marketreport/am-markets-wheat-extends-headway-as-dryness-fears-grow–3313.html)