Wheat is getting the attention in grain markets again.
This time with an early move higher, encouraged by results from a crop tour of US spring wheat country which showed below-average yield potential.
Scouts in in North Dakota, South Dakota and Minnesota on the annual Wheat Quality Council tour revealed, after their first day of three, a yield estimate of 43.1 bushels per acre so far.
That compares with the yield of 51.1 bushels per acre for the first day of last year’s event, and the tour’s five-year average of 45.0 bushels per acre.
And it gave cause for a brake in the selling in wheat futures which marked the last session.
‘Big differences in proteins and yields’
“The biggest topic is that the spring wheat tour is off and running from North Dakota,” said CHS Hedging.
“So far results have been inconsistent. We are hearing big differences in proteins and yields.”
And that tallies with US Department of Agriculture data on Monday which pegged the condition of the US crop at 68% “good” or “excellent”, certainly not a disastrous figure, but not as upbeat as it might appear.
“Nationally, spring wheat conditions were the second lowest of the last eight years,” said Tregg Cronin at Halo Commodity Company.
The impact was felt in a 0.7% rise as of 09;00 UK time (03:00 Chicago time) to $4.89 ½ a bushel in September spring wheat futures, as traded in Minneapolis, which fed through into support for winter wheat futures too.
Chicago soft red winter wheat for September bounced 0.3% to $4.15 ¼ a bushel, recovering a minor portion of its losses of the last session, while Kansas City hard red winter wheat for September gained 0.3% to $4.13 ¼ a bushel, just below its 10-day moving average.
The gains gave some support to those hoping that wheat futures have passed a seasonal low, with prices often showing some recovery after the gut slot of US harvest is running down.
“There have been signs of the seasonal that typically offers support to US winter wheat having some effect,” said Benson Quinn Commodities – although adding that “massive supplies have trumped any move higher”.
‘Vulnerable to an abrupt fall’
In fact, Tobin Gorey at Commonwealth Bank of Australia entered the debate over whether the low in wheat prices has been set with a somewhat negative outlook, flagging the extent of the price discount of September Kansas City futures to the next contract, December.
He said: “Kansas September is trading close to its steepest discount to Kansas December post‑1990, enabling the market to kick the can down the road,” in terms of encouraging producers to delay sales.
That suggests that the market has not “managed to get all that wheat into stable hands”, so prices “remain vulnerable to an abrupt fall”.
For the rest of Wednesday, US wheat futures are likely to be influenced largely by moves in Paris, where a tumble in the last session, blamed on a profit-taking spree, was seen as a big factor behind the reversal in Chicago etc.
Earlier on Wednesday, French grain producer group Orama pegged the French soft wheat crop at about 30m tonnes, a drop of more than 10m tonnes year on year, thanks to persistent spring rains, with the yield seen dropping by some 2 two tonnes per hectare.
That is in line with figures from some other commentators, such as ODA, although French officials are still betting on higher production.
Back in Chicago, row crops were higher too, with some notice being taken of expectations of a return of hot weather to the Midwest early in August.
“Forecasters think another high pressure system is likely to move across the Midwest next week to bring higher temperatures,” said CBA’s Tobin Gorey.
He added, that “the forecasters also expect additional rainfall this week that should see most crops once again emerge relatively unscathed”.
Terry Reilly at Futures International said: “There is the possibility of another heat spell slated for the US Midwest mid next week, but the intensity should fall short than that of last week.”
Nonetheless, there was some cause to inject a bit of weather premium.
“It is still a little too early to take normal August weather for granted, with extended forecasts trending hotter after August 3,” said Benson Quinn Commodities.
Soybeans for November gained 0.3% to $9.76 ¾ a bushel, getting some help too from demand ideas, with Benson Quinn flagging “talk of renewed interest from China in new crop US soybeans”, with buyers attracting by the drop in prices to three-month lows earlier this week.
Halo Commodity Company’s Tregg Cronin reminded of US export data on Monday which showed soybean shipments last week at “25.7m bushels, the largest since March, and well better than the 6.7m bushels [per week] needed to hit the USDA objective” in exports of 1.8bn bushels for the whole of 2015-16.
Corn futures for December, meanwhile, proved more reluctant to make headway, adding 0.2% to $3.40 a bushel.
Whether they fare better later could depend on weekly US ethanol production data.
“We estimate weekly US ethanol production could decline 5,000-15,000 barrels per day from the record 1.029 million barrels per day report last week,” Futures International’s Terry Reilly said.
In New York, cotton failed to keep up with its row crop peers, easing by 0.02 cents to 73.93 cents a pound for December delivery, although this did follow a decent gain in the last session, amid hopes for a revival in Chinese imports.
The China Cotton Association on Tuesday, while forecasting a 43% drop in Chinese cotton imports in 2015-16 (underlining existing market expectations) thanks to the release of supplies from the country’s huge state reserves, flagged that mill inventories remained low despite purchases from government auctions.
“China’s plan had been to sell off its best-quality reserves first,” CBA’s Tobin Gorey said.
“As that quality dwindles we expect there will be increasing pressure for China to issue its mills with additional import quotas at favourable tariff rates” to get the higher quality fibre needed to mix with the waning quality of cotton released from state supplies.
“The ability for poorer quality reserves to come on to the market is effectively constrained by the availability of high quality cotton to blend them with.”