It can take more than one heave to get a tractor out of the ditch.
It looks that way in grain markets too.
If the surprisingly low data on US winter wheat sowings (for the 2016 harvest) revealed by the US Department of Agriculture put a stack of extra weight behind the market, it looks like more is needed to get futures out of the mire.
A few hours on, the gains of 2.2% in Chicago soft red winter wheat in the last session, and 3.6% gain in Kansas City-traded hard red winter wheat in the last session, appeared to be being viewed somewhat as selling opportunities.
Chicago soft red winter wheat futures for March shed 0.5% to $4.79 a bushel for March delivery, as of 09:25 UK time (03:25 Chicago time).
Kansas City wheat for March was 0.5% lower at $4.78 ј a bushel, again failing to return to a premium against its lower quality soft wheat peer for the first time since October.
Indeed, the chart showing the spread between Chicago and Kansas City futures shows an invisible wall around the parity mark.
‘Lowest since 2002’
Sure, the low US winter wheat sowings may well mean lower production
“Based on trend abandonment and yields, winter wheat production could end up at around 1.2bn bushels, lowest since 2002,” said Terry Reilly at Futures International.
And the gap may not be made up much through extra plantings of spring wheat (which tend to yield less).
“We estimate other spring and durum wheat acreage will rise moderately for 2016 to 13.5m and 2.1m acres respectively, up 300,000 and 100,000 acres respectively,” Mr Reilly said.
“This could put the 2016 all wheat planted area at 52.16m acres – 2.5m acres below 2015 and lowest since the 1970-71 crop year.”
‘Unlikely much has changed’
But that does not necessarily mean tight supplies.
The 2010 US harvest, ahead of which winter wheat sowings were even lower, produced a decent output, of 2.16bn bushels (ahead, for instance, of last year’s 2.05bn bushels) thanks to a strong yield.
And then there is the factor of all the wheat that is already out there.
“As far as the bigger picture goes, it is unlikely much has changed,” said Jonathan Watters at Benson Quinn Commodities.
“There is still plenty of wheat in the world, US hard red winter wheat wasn’t competitive on the world market before Tuesday’s rally, and the roughly 80m-bushel implied production cut isn’t a huge issue given massive carryout projections.”
Indeed, demand for US wheat has been “lacklustre”, Rabobank noted, undermined by the strong dollar, which has hampered exports, and the low price of rival grains, which has dented domestic consumption too.
Total use of US wheat in 2015-16 is, following a downgrade to the US feed estimate on Tuesday, to fall for a second successive year, to a 14-year low of 1.89bn bushels (54m tonnes).
Certainly, hedge funds were not tempted, in early deals at least, to cover more of their hefty short positions in US wheat futures and options – a position which had looked ripe for some covering on any sign of bullish data, fuelling a more marked rebound in prices.
And with futures in wheat, which emerged with the most bullish credentials from Tuesday’s slew of USDA data, trading lower, cornand soybeans struggled too.
OK, the USDA did cut harvest estimates for both row crops, thanks to a lower yield figure for corn, and weaker yield and harvested area estimates for soybeans.
But supplies of both crops, both domestically and worldwide, are still comfortable.
On soybeans, for instance, Benson Quinn Commodities said that that “market seems poised for more of a recovery.
But with data on US crop inventories as of December 1 report “showing US on-farm soybean stocks up 7% from last year, and the Argentine farmer ready to sell on bounces, upside seems limited without a weather threat to South American production”.
And Tuesday provided two doses of reassurance on the Brazilian harvest, with the USDA sticking by its forecast for Brazil’s harvest of 100m tonnes, while Brazil’s own Conab bureau made only a small downgrade, to a little over 102m tonnes.
At Chicago broker RJ O’Brien, Richard Feltes said that the “backdrop of ample US and global corn, soybean and wheat stocks will make it difficult to sustain rallies in the absence of crop adversity during upcoming northern hemisphere growing season”.
Furthermore, there is much talk over how the land vacated by US farmers from wheat will be allocated, with Rabobank saying “unplanted wheat area benefits corn plantings”.
RJ O’Brien added 2m acres to its US corn sowings estimate for 2016, and 2.5m acres to the soybean figure.
“US crop prices, while below last year, are still above the variable cost of production, suggesting higher all-crop area in year ahead,” Mr Feltes said.
Corn futures for March eased 0.1% to $3.56 ј a bushel, but remained just ahead of their 10-day moving average, reclaimed in the last session.
Soybean futures for March fared also eased 0.1%, to $8.73 ѕ a bushel, keeping just ahead of their 40-day and 50-day moving averages.
High on the hog
Soybeans did, however, get some help from Chinese trade data, which showed imports of the oilseed last month at 9.12m tonnes, the second highest monthly total on record, and a figure which took the 2015 total to a record 81.69m tonnes.
Australia & New Zealand Bank, terming the data “strong”, said that “greater availability of new soybean supply from the US pushed import volumes over 20% higher compared with November”.
Also “lower domestic availability of other meals created unprecedented demand from China”, where high pig prices and falling soymeal values “have provided the longest period of profitable pig production since 2011”.
‘Rationalisation under way’
Meanwhile, in New York, cotton for March gained 0.4% to 61.86 cents a pound, looking for a third successive session of (albeit modest) gains, and helped by USDA estimate revisions deemed broadly supportive.
The USDA cut its estimate for world cotton stocks at the close of 2015-16 by 1.5m bales to 102.9m bales, reflecting a downgrade to output expectations.
“The world market remains oversupplied, and demand is tepid, but a rationalisation of production is under way,” Rabobank said.
Luke Mathews at Commonwealth Bank of Australia said that the USDA revisions were “clearly good news” for futures.
Still, “dwindling demand suggests that current low prices are still not prompting any shift back into cotton.
“We expect that will continue to constrain cotton prices for the remainder of the season.”
(Source – http://www.agrimoney.com/marketreport/am-markets-wheat-retreats-as-large-stocks-trump-us-sowings–3454.html)