Agricultural commodity futures made a weak start to Friday, with soybeans joining in the retreat, amid ideas of profit-taking among the funds, whose buying had driven prices to multi-month highs.
Chicago wheat futures for July dropped 2.8% to $4.90 ¾ a bushel as of 09:20 UK time (03:20 Chicago time), an unusually large price move in early trading.
The contract is now 5.4% adrift of its five-month high of $5.18 ½ a bushel touched on Thursday, before buying pressure set in.
Corn futures for July were 1.1% down at $3.85 ½ a bushel. The drop took to 5.3% their decline from their five-month high traded temporarily on Thursday.
And this time soybean futures joined in the retreat, falling by 1.9% to $10.05 ½ a bushel for July delivery from a close to the last session which was the highest for the contract in 15 months.
The drop reflected in part some reduced weather concerns, with data on Thursday highlighting the benefit from recent rains to US southern Plains conditions for winter wheat.
The proportion of Kansas, the top US wheat-growing state, rated in drought tumbled to 15.0%, from 52.0% the previous week.
Meanwhile, in South America, there was talk of rains in the forecast for Brazil’s dryness-pressed safrinha corn crops.
“It does look like there will be some beneficial moisture in portions of Brazil through the weekend and into early next week,” said Benson Quinn Commodities.
And in Argentina, where too much rain has been an issue for soybean growers, there is talk of drier weather too.
However, the losses were also seen as being fuelled by a wave of profit-taking by funds whose buying has driven prices of many raw materials to levels which Goldman Sachs said on Friday was not reflective of supply and demand fundamentals.
“While this recent rally has the potential to run further to the upside … we believe that it is not yet driven by a sustainable shift in fundamentals,” the bank said.
“Given the near-term and temporary nature of the current re-balancing and the lack of longer-term sustainable deficits in any of the markets, it is premature to embrace these ‘green shoots’ and shift to an ‘overweight’ recommendation in commodities.”
‘Return to reality’
Benson Quinn Commodities said that the broad commodity market rally “seemed exhausted”, while at Commonwealth Bank of Australia, Tobin Gorey flagged a potential “return to reality”.
The price retreat begged the question over whether the grains was rally “coming to its inevitable end”, Mr Gorey said, focusing in particular on corn.
“The surge in the market has been driven by investors making the decision that prices are now low enough. Funds exiting their short positions, en masse, has pushed prices to six-month highs.
“The fundamentals though have not changed all that much – at least not yet.”
While concerns did remain about dryness in Brazil, and wet conditions which could slow US sowings, “on balance, global corn supply still looks comfortable”.
Cash vs futures
Catalysts for Friday’s pullback cited by brokers included the coming of the weekend – which often triggers profit-taking – and the release later of US regulatory data expected to highlight the extent of fund buying in ags, and so raise questions over whether bullish appetite had been spent.
Benson Quinn Commodities flagged the likelihood of the “market squaring positions ahead of weekend and the afternoon’s Commitment of Traders report”.
However, there was also mention of the negative influence of corn and wheat futures falling back below 200-day moving average lines, and of heavy farmer selling into this week’s rally.
“Rapid cash grain sales continued” on Thursday, said John Tjornehoj at CHS Hedging.
At Futures International, Terry Reilly said that “producers have been heavy sellers of soybeans and corn this week”, as evident in a “very wide divergence” between cash and futures prices.
“This cash market may tell the real story.”
‘Abundant and constant rains’
Nonetheless, sentiment remained relatively firm over soybeans, compared with corn and wheat, after the Argentine crop received two downgrades within minutes late on Thursday.
Argentina’s farm ministry, citing “abundant and constant” rains, cut its estimate for domestic soybean output by 3.3m tonnes to 57.6m tonnes.
The moisture had flooded out some crops, hurt the quality of others, and encouraged seed sprouting, the ministry said, adding that further rains would prompt further losses.
The estimate followed a cut of 4.0m tonnes, to 56.0m tonnes, in the crop estimate from the Buenos Aires grains exchange, which also highlighted the dent to harvest progress from “abundant” rains, marked by “20 consecutive days of heavy rainfall”.
Harvest progress advanced by only 1.2 points week on week to leave it at 16.4% – 29.6 points behind the figure last year.
Soybeans vs corn and wheat
At Chicago broker RJ O’Brien, Richard Feltes said that the “strong demand and supply components driving the near-$2.00-a-bushel soy rally since early March are not as compelling in corn and wheat.
Soybean prices will likely find support “until the size and quality of the Argentine soy crop can be accurately accessed—ie mid next week at the earliest after harvest pace normalises”.
Indeed, the soybean market is “on a mission” to attract more acres in the US, and “to ensure gains in the 2017 Brazil soy area”, given the losses in Argentina, where there are widespread expectations that changes in export taxes will encourage growers to focus on corn and wheat for the next harvest.
Argentina’s ag shake-up saw a cut to zero in corn and wheat export taxes, but a more modest fall in the soybean levy, to some 30%.
China cotton surge
In New York, cotton, which attracted only minor selling in the last session, dropped bya relatively small 1.1% to 63.34 cents a pound for July delivery.
The fibre was undermined by the drop in prices of row crops – with which it is competing for area in the US spring sowings programme – but gained some support from resilience in Chinese values.
Chinese cotton for September settled 0.1% higher at 12,985 renminbi per tonne on the Zengzhou exchange – taking gains this month nearly to 27%.
“We think much of that initial lift was driven by the temporary tightness in mills’ supply, due to delays in starting reserve auctions, and speculators have now jumped in to propel prices even higher,” CBA’s Tobin Gorey said.
(Source – http://www.agrimoney.com/marketreport/exhausted-grain-futures-tumble-hurting-soybean-prices-too–3589.html)