Wheat futures soared 5%, helping strong gains in corn too, amid talk of fund buying, encouraged by signs of demand from big importers at a time when US supplies are the “cheapest in the world”.
Chicago wheat futures for December closed 4.9% higher at $4.16 a bushel, more than making up for their losses in the last session and indeed recording their best close in six weeks.
The gain came amid growing evidence of fund interest in grains, with data showing increases of 8,000 in open interest – that is the number of live contracts – in Chicago wheat over the past 10 days, with a 22,000-lot increase in corn.
“There is definitely new fund money flowing into the market,” Terry Reilly, senior commodity analyst in grain and oilseeds at Chicago broker Futures International, told Agrimoney.com.
‘Cheapest in the world’
And the cash appears “to be coming in on the long side”, he said, with bullish sentiment encouraged by factors including the issuing by Egypt, the world’s top wheat importer, and second-ranked Algeria of tenders for the grain – besides a request by Saudi Arabia of offers for 595,000 tonnes.
“There is good demand for wheat,” broker CHS Hedging noted.
The tenders come at a time when US wheat is seen as particularly competitive, with price weakness offsetting firmness in the dollar – a dynamic underlined by details of cargos tendered to Egypt.
These included 55,000 tonnes of US hard red winter wheat tendered by Louis Dreyfus at $173.98 a tonne, excluding freight.
While the cargo was disqualified, for not meeting tender specifications, it was by a distance the cheapest on offer, below Romanian wheat, of which the lowest offer was priced at $179.99 a tonne, with Russian supplies offered at $177.94 a tonne or more.
“US hard red winter wheat is the cheapest in the world,” Mr Reilly said.
‘Trend is turning up’
Technical factors also helped, with traders viewing the wheat rally as being supercharged by the closing by hedge funds of some of their short position in Chicago wheat futures and options, which latest regulatory data showed at a record high.
And Don Roose, president at Iowa-based broker US Commodities, flagging that “trend traders”, who were led lower by signals in corn in the last session, were this time following more bullish indications in wheat.
“Today, the wheat trend is turning up,” Mr Roose said. Indeed, the December contract closed above its 50-day moving average for the first time in nearly four months.
He added that “the wheat market is spooking the corn market”, which ended 3.8% higher at $3.49 ½ a bushel in Chicago for December delivery.
Corn futures also received support from a firm ethanol market, with Chicago December futures in the biofuel up 1.6% at $1.500 a gallon, after data showed a 784,000-barrel drop to an 11-month low of 19.39m barrels in US stockpiles.
The drop was fuelled by a drop of 18,000 barrels a day, to 962,000 barrels a day, in ethanol production last week – data which might have been deemed bearish for corn, the main feedstock for US bioethanol plants.
Corn was in turn seen as helping soybeans recover, with the November contract ending 1.0% higher at $9.56 ¼ a bushel.
“After seeing some early losses, beans have turned higher, being dragged along by solid gains in corn and wheat,” CHS Hedging said.
Meanwhile, the Buenos Aires grains exchange firmed up a forecast of a 3% drop, to 19.6m hectares, in Argentine soybean plantings of the grain, with growers switching to corn, for which there is not export tariff, boosting prospects for returns.
Argentina has delayed plans for a further cut in export taxes on soybeans.
‘Beef is too expensive’
However, the gains in crops vital for livestock feed was little help to live cattle futures, which for October delivery stood down 2.4% at 94.45 cents a pound, earlier touching a fresh six-year low of 95.30 cents a pound.
The better traded December lot stood 1.9% down at 96.175 cents a pound.
“The cattle market is slowly coming to the realisation that beef is too expensive compared with pork and poultry,” US Commodities’ Don Roose said.
The market was continuing its “multi-year correction” from prices which topped 170 cents a pound two years ago, during a herd rebuilding phase encouraged by improved prices and pasture conditions, which meant more competition between packers and ranchers for animals.
‘Catch up time’
Now, however, the market was correcting its unusually high prices, particularly compared with the likes of lean hogs and corn, which have already fallen far from highs.
“It is catch up time for cattle,” Mr Roose said.
Prices were also being undermined by data showing elevated kill weights, implying extra beef and cutting the demand for further slaughter.
“Weights just released showed all-cattle carcass weights up 7 pounds from last week’s report at 842 pounds,” said Jerry Stowell at broker Country Futures.
Among soft commodities, cotton recouped early losses to end a little higher, up 0.5% at 69.31 cents a pound, adding to its gains of the last session, and closing above its 10-day moving average too.
China issues some negative news in revealing a low-tariff import quota, as demanded by WTO agreements, of a lowly 894,000 tonnes for 2017, although this was not unexpected, and in line with market expectations.
Ditto, the country is reportedly to sell 2.5m tonnes of cotton next year from its huge state reserves – matching sales from this year’s auction programme, which ended last month.
‘Few days lost to rain’
However, raw sugar for March ended down 1.0% at 22.92 cents a pound, undermined by expectations of strong data looming, potentially on Friday, on the cane crush in Brazil’s key Centre South region for the second half of September.
“The weather in the region was mainly dry and few days were lost to rain so numbers and ATR [sugar concentrations in cane] should be up,” said Nick Penney, Senior Trader at Sucden Financial.
The decline came despite a firm performance by the real, which gained 0.5% against the dollar, so boosting the value in dollar terms of assets, such as sugar, in which Brazil is a major force.
Arabica coffee, of which Brazil is also the top producer and exporter, fared better, ending up 0.3% at 152.60 cents a pound for December.
(Source – http://www.agrimoney.com/marketreport/wheat-market-jumps-lifting-corn-as-cheap-prices-lure-funds–3806.html)