Will the coming of June lure fresh fund buying in ags?
By repute, a new month brings new money, just as month-ends often bring a withdrawal of cash (as certainly seemed the case in the last session).
But if funds were injecting any cash into the market in early deals, it wasn’t very much, with selling the prevailing trend.
Except in wheat, the whipping boy of the last session, which staged some recovery in this one – particularly Kansas City-traded hard red winter wheat, which has been a particular target for bears of late.
‘Harvest will gain some steam’
Not that there seems any change in the bearish factors which drove wheat futures sharply lower in the last session, back within range for July futures of contract lows set last month.
One big depressant is the onset of the winter wheat harvest, bringing extra supplies onto the market, and so weighing on values.
And drier conditions on the way should only quicken the process, after a spell when rain has delayed fieldwork, and indeed raised some concerns of quality damage, in falling onto ripe kernels.
“Winter wheat harvest will gain some steam as drier conditions develop later in the week,” Benson Quinn Commodities said.
Tobin Gorey at Commonwealth Bank of Australia said: “Weather forecasters are looking for drier weather in winter wheat regions that should allow harvesting to proceed.”
‘Very heavy supply’
And, as an extra negative, fears around last week over that quality damage from rain, provoking expectations of a drop in crop ratings, proved unfulfilled.
US Department of Agriculture data overnight in showed the proportion of the US winter wheat crop rated “good” or “excellent” rising by 1 point to 63% in the week to Sunday.
“The USDA’s crop conditions report suggests that the recent wet weather has had no impact on winter wheat,” CBA’s Mr Gorey said.
“The market is now looking at the very high yields reported by crop scouts a while back.
“The US is at the beginning of a period of very heavy supply.”
Hard vs soft
That said, the USDA data were more encouraging for soft red winter wheat, as traded in Chicago, than Kansas City hard red winter wheat.
The rise in the overall US winter wheat crop rating was largely down to a 5-point increase in the good and excellent figure for Ohio, a major soft red winter wheat state (and despite USDA scouts in the state flagging “reports of wheat rust that may lead to diverting fields to forage”).
(The rating for Oregon, a white wheat state, also rose markedly, by 6 points.)
Ratings for hard red winter wheat states were broadly neutral, eg up 1 point for Kansas, down 1 point for Oklahoma.
And Kansas City wheat futures indeed showed the greater bounce, adding 0.5% to $4.49 ½ a bushel for July delivery, as of 08:15 UK time (02:15 Chicago time) compared with a 0.3% recovery to $4.66 a bushel in Chicago wheat futures.
Wheat vs corn
Also in hard wheat’s favour was the extent of its, unusual, discount already to soft red winter wheat (higher protein grains usually take a premium), and indeed the declining premium over corn futures too.
The Kansas City wheat premium over Chicago corn, July basis, fell to $0.40 a bushel at one point in the last session – down from $1.31 ¼ a bushel two months before.
The narrowing gap is believed to be encouraging use of hard wheat even in feed – in grain terms somewhat the equivalent of casting pearls before swine – in place of corn.
There continues to be talk too of sales of US hard red winter wheat to Brazil, which typically buys its milling supplies from Argentina – although whether this wheat is going to fill the void in the country’s feed rations left by dwindling corn stocks…
‘Crops all in’
As for corn itself, the yellow grain dropped 0.3% to $4.03 ½ a bushel for July delivery, extending its retreat from the 10-month high of $$4.13 ½ a bushel set two sessions ago.
The USDA crop progress data overnight showed further progress in corn sowings, now 94% complete, up eight points week on week, and 2 points ahead of the typical pace.
Joe Lardy at CHS Hedging said that talking to customers from all parts of the Corn Belt had a revealed a message “close to unanimous that crops were all in”.
The sticking point was the growing conditions, with seedlings needing “some sun and heat to get the crop to really perk up.
As it is, after a cool May, “most of the forecasts show some warming coming so crop ratings should improve”.
This after the first USDA rating of the season showed US corn rated 72% in good or excellent condition, a strong reading, if below the 74% figure a year ago.
‘Fridays have been trend days’
For soybeans, the USDA data showed plantings 73% complete, 3 points ahead of market expectations, as polled by Bloomberg, and up 7 point year on year.
“The US Midwest saw less-than-expected rainfall over the weekend, promoting planting progress,” said Terry Reilly at Futures International.
And with soymeal, the soy complex leader of late lower too, down 0.8% to $394.30 a short ton for July delivery, soybeans themselves struggled, shedding 0.7% to $10.70 ¾ a bushel for the July contract.
Not that the rally in soybeans, which two sessions ago came $0.02 from retaking $11.00 a bushel, is necessarily over.
“Fridays have been trend days for the past three months,” for soybean futures, Benson Quinn Commodities said.
“With last week’s higher Friday close, I don’t want to short beans yet. We will see how the funds feel.”
Slow cotton sowings
Perhaps more promising, on paper, for bulls, in terms of data in the overnight USDA crop progress report, was the statistic on cotton sowings, showing further slippage behind the typical pace, thanks to wet weather.
The proportion of US cotton plantings completed as of Sunday was, at 59%, 10 points behind the average.
Sowings in Texas, the top cotton-growing state were, at 44% complete, 15 points behind the usual pace, after a week in which some parts of the state received rains “upwards of 15 inches”, USDA scouts said.
“Further, continued rains along the Coastal Bend are reportedly damaging crops within the region,” Louis Rose, at the Rose Report, said.
Still, the forecast dry weather boding well for winter wheat harvesting looks helpful for cotton seeding too.
And the signal was negative from the Zhengzhou exchange in China – the top cotton importing country, which is attracting particular focus now because of auctions from its huge state reserves.
Zhengzhou cotton futures for September closed down 2.4% at 12,805 remninbi per tonne.
Mr Gorey noted that “China’s cotton reserve sales have started the week a little slower”, with just 88% of fibre offered on Monday being sold.
“That compares clearance rates of close to 100% seen in earlier sales.
“To us that suggests perhaps the quality of the stocks on offer is starting to get poorer,” although it could also be a sign too, of course, that mills have bought enough cotton for now already – a bad sign for prices.
New York cotton futures for July stood down 0.8% at 63.43 cents a pound.
(Source – http://www.agrimoney.com/marketreport/am-markets-june-brings-some-bounce-to-wheat-futures–3625.html)