What impact will confirmation of Egypt’s zero tolerance policy on ergot have on the number, and price, of offers of wheat cargos it receives from merchants?
Investors won’t have to wait long to find out.
Gasc, Egypt’s grain authority, overnight issued a wheat tender, results of which will be published later.
“It will be interesting to see if international operators will take the risk to make offers in such context,” said Agritel, the Paris-based consultancy.
This context, of course, includes Egypt’s rejection at the weekend of a French wheat cargo over ergot contamination.
And cargo rejection is an expensive business, as the profit statements of major grain traders showed after China a couple of years ago refused entry to a series of cargos of US corn, and distillers’ grains, over contamination with a genetically modified variety unapproved in Beijing.
‘Not quite ideal’
Still, from a market perspective, Gasc’s announcement at least shows demand in the market for wheat, with Egypt the top importer of the grain.
Algeria, another major wheat buyer, has also announced a tender.
And this comes against a background of concerns over dryness in North Africa, which is raising concerns over prospects for the region’s 2016 harvest.
Weather forecasts are providing some, but limited, cause for relief.
Benson Quinn Commodities said: “North Africa is slated to see some moisture, which is help offset the dry pattern they have been in.
“But the coverage of any moisture through the next week isn’t quite ideal.”
US crop condition
As for the big exporting countries, data overnight from US Department of Agriculture scouts was mixed for the country’s winter wheat harvest prospects.
Sure, there were some condition improvements over January in some states, including Kansas, the biggest grower of (hard red) winter wheat, where the proportion of crop rated “good” or “excellent” rose by 1 point to 55%.
In Illinois, a key grower of soft red winter wheat, as traded in Chicago, saw its crop reading jump by 7 points over the month to 65%.
But for many other states, such as Nebraska, Colorado, Oklahoma and South Dakota, crop condition declined, if remaining broadly above 2015 levels.
Oil falls anew
Perhaps more decisive was the direction of external markets – to the downside, with the worries over economic growth, spurred by Monday’s Chinese manufacturing data, bringing fresh price falls.
Shares traded lower – with the notable exception of stocks in China itself, where the main Shanghai index ended up 2.3% – opening 1.3% lower in London, and losing 0.6% in Sydney and 1.1% in Seoul.
Brent crude shed 1.6% to $33.70 a barrel, as of 09:30 UK time (03:30 Chicago time).
Still, wheat bulls had some positive technical factors to cling to, after the grain failed to build on negative momentum in the last session.
“Despite weakness across the commodity spectrum for much of the session, the sellers in wheat lost interest new the recent lows as trade at or near those lows didn’t attract much follow-through,” Benson Quinn Commodities noted.
In early deals on Tuesday, Chicago’s March contract gained 0.4% to $4.77 ј a bushel.
It helped that fellow grain corn was higher too, by 0.4% to $3.72 Ѕ a bushel for March, earlier touching $3.73 a bushel, its highest since before Christmas.
Dryness in Argentina, where farmers have been sowing extra corn thanks to a more ag-friendly government policy, helped.
“Dry regions of Argentina are looking for rains by end of the week but some forecasts are pushing those rains further back,” CHS Hedging said.
At Futures International, Terry Reilly said: “Argentina will continue to see net drying in parts of the country and is worth monitoring.”
Furthermore, there was the caution from USDA officials, as reported by Agrimoney.com, over the potential for export levies in Brazil, to stem the flow of shipments which is leaving domestic users having to bid up for supplies.
“Export restrictions on corn for selected Brazilian states could be placed to help slow exports, and retain corn for local meat producers,” Mr Reilly noted.
This after data showing that Brazil last month exported a hefty 4.46m tonnes of corn.
Chicago soybean futures opened higher too, by 0.3% to $8.83 ј a bushel for March delivery.
Both bulls and bears could find points to support their arguments, with the former having, for example, the Argentine dryness and some positive interpretations of US weekly export data released on Monday.
“Soybean inspections were strong at 1.153m tonnes, near the high end of expectations,” said CHS Hedging.
“It was the lowest inspection number in 17 weeks but the current pace is well above expectations by the USDA,” in terms of the pace needed to meet the forecast for the whole of 2015-16.
‘Harvest in Brazil picking up’
But will the pace last, now that Brazilian supplies are coming online?
Benson Quinn Commodities said: “China goes on holiday at end of week for Lunar New Year. Upon return, their demand should shift full focus to Brazil.”
And, as CHS said, “harvest in Brazil is picking up and weather hasn’t been too disruptive at this point,” meaning supplies for export now building up.
In Mato Grosso, the top soybean-producing state, agriculture institute Imea pegged the state’s harvest at 8.2% complete, a rise of 3.7 points week on week, and closing to 2.1 points the lag compared with last year.
Strong vegetable oils
Still, decisive in bulls’ favour was a rise of 1.2% to 31.13 cents a pound in the price of March soyoil futures, themselves finding support in futures in rival vegetable oil palm oil, which soared 2.9% to 2,513 ringgit a tonne in Kuala Lumpur.
Palm’s jump was attributed by many observers largely to a weaker ringgit, making Malaysian exports more competitive, although there looks to be more than that to the increase, which comes against a backdrop of lingering concerns over the impact on production of El Nino-inspired dryness.
Palm oil futures on the Dalian exchange in China, a huge palm-importing country, closed up 0.6% at 4,738 renminbi per tonne, but at one point touched 4,780 renminbi per tonne, a gain of 1.5% on the day.