Changes in grain market money flows come in three-session bursts, some traders say.
Which could mean that the recovery in wheat futures runs out of steam this time, after a three-session rebound which has taken them 5.0% higher in Chicago to, in the last session, their best close in seven months on a spot contract basis.
Certainly, there is some doubt over the case for further price headway on a fundamental supply-and-demand basis, although the easing in the dollar of late has helped improve the competitiveness of US exports.
“The weakening dollar is a factor which needs to be fully taken into consideration as most players were positioning for a stronger dollar moving through 2017, not a weaker one,” said Tregg Cronin at North Dakota-based Halo Commodity Company.
In Paris, Agritel underlined the growing competitiveness of US wheat, saying that “the decline of the dollar observed these last few days is capping the rising [price] potential of European origins for the time being”.
‘Likely to be a drag’
Still, in fact, the dollar strengthened a touch on Friday against a basket of currencies to remain, just, above its 200-day moving average, which has offered some notable support to its value the last few sessions.
And it was not as if the latest US export sales data, on Thursday, were huge, to offer support to ideas of demand switching to US supplies.
At 451,000 tonnes, at the top of the range of market expectations, they were “good, but they were only half of last week’s high water mark”, Joe Lardy at CHS Hedging said.
In fact, at Commonwealth Bank of Australia, Tobin Gorey said that the export sales data “were only so so”, adding that “a slowing export pace is likely to be a drag” on Chicago prices, the world benchmark.
‘Investors exiting shorts’
Still, he restated a comment from earlier in the week over the role that short-covering may be having in supporting prices, and a trend of hedge funds closing some of their large net short in Chicago wheat futures and options.
“Investors exiting shorts can easily overwhelm” an export slowdown “in the near term”, Mr Gorey said.
In fact, the idea of a short-closing wave gained more support when revised Chicago exchange data showed that open interest in Chicago wheat futures actually fell on Wednesday, by 3,798 contracts, rather than rising by 7,971 lots, as initially stated.
A fall in open interest, ie the number of live contracts, in a rising market does suggest a big role for closing of short positions in lifting prices.
For the last session, preliminary data show a further fall in open interest, of 4,051 contracts – although the latest declines come after a rise of more than 10,000 lots in open interest over the first two days of this week.
Still, Chicago wheat traded lower in early deals, by 0.4% to $4.32 ¾ a bushel for March, in the absence for now of any further developments in potentially bullish stories such as Russian-Ukraine hostilities, or poor weather for winter crops.
“World values have caught up with the US somewhat thanks to the weaker dollar, but it is probably going to take a different bullish development to keep the market going from these levels,” said Benson Quinn Commodities.
That said, recent buying has tended to come later in the day, in line with typical fund behaviour.
Minneapolis vs Chicago
Minneapolis spring wheat for March shed a more modest 0.1% to $5.60 ¼ a bushel, to rebuild its premium over Chicago winter wheat, a gap which has surprised some observers by closing of late despite demand patterns (and potentially a sign indeed of position closing in Chicago by hedge funds, which have a large net long in Minneapolis).
“The spring wheat market has the lowest stocks-to-use ratio of the different wheat classes,” of 34%, Joe Lardy at CHS Hedging noted.
Yet “exports are at a recent high”, with sales and shipments for 2016-17 already having beaten what the US typically complete in spring wheat for a marketing year, after a global wheat harvest big on quantity put poor on quality.
“But surprisingly the spring wheat market is having trouble keeping a premium above Chicago wheat,” with the spread March basis “near the lowest levels in two months”.
Corn vs wheat
With wheat lower, corn, competing for demand in feed rations, was undermined too, shedding 0.1% to $3.67 a bushel for March delivery.
The Chicago wheat premium over corn faces, at its current $0.66 a bushel or so, some potential technical turbulence, with the 100-day moving average having shifted down to around that level.
Indeed, in the last session, the wheat-corn premium closed above the 100-day moving average for the first time in nearly six months, thanks to wheat’s outperformance.
Ethanol retreat nigh?
While corn has in recent weeks found independent price support from strong US ethanol production data, there are doubts over a run of record data continuing.
For January, “three out of the four weekly grind reports were new records,” Benson Quinn Commodities said.
However, “I don’t anticipate continued new record grinds in February with ethanol margins decreasing as of recent.
“Continued support is needed for corn to close above current resistance,” from a chart perspective, weith the 200-day moving average at a little under $3.67a bushel, and with farmers seen by some observers as likely sellers should prices rise much further.
“US farmers still own a lot of old crop corn. We suspect that if the market breaks out above $3.70 a bushel it may draw out some new sellers,” said CBA’s Tobin Gorey.
‘China has bought 12-15 US cargoes’
Soybeans, however, outperformed the grains in managing marginal headway, adding 0.1% to $10.38 a bushel for March delivery, staying just above its 50-day moving average.
The gains came amid further talk of Chinese buyers being in the market for US soybeans, despite this week’s Chinese holiday.
(Perhaps they had the growing US-China tensions in mind, with China unable for now at least to buy all its soybean needs just from South America.)
While there is a seasonal swing in import demand from the US to Brazil, where harvest is accelerating, “talk this week is that China has bought an additional 12-15 US cargoes, while US Gulf values are near competitive to South America for summer shipment”, said broker Benson Quinn Commodities.
Meanwhile, Argentina is poised for fresh rains, and not only on areas which need it.
“Argentina will see rain into Saturday with at least half of the growing areas impacted,” said Terry Reilly at Chicago-based broker Futures International.
“There will be some risk for local flooding in portions of central Argentina Friday and Saturday, with 90% coverage expected, with many areas getting 0.1-0.9 inches, locally over 4 inches.”
‘Still very impressive’
In fact, it was New York cotton’s turn to underperform, after a 4% rally over three sessions which gave the contract on Thursday its best close, on a spot contract basis, since July 2014.
The rise in the last session was helped by US export sales data which came in at 328,700 running bales for last week, figure which Ecom traders termed “still very impressive”, despite being down 28% week on week.
“US cotton was seen in India, Turkey, China, Pakistan and Indonesia,” the traders said.
“Weekly export sales only need to 69,500 running bales for the remainder of the season to meet the current US Department of Agriculture sales target” for 2016-17, which has six months left to run.
Still, not all commentators are quite so bullish, with Louis Rose at the Rose Report pointing out the surge in certified stocks for delivery against New York derivatives, stocks which overnight were pegged at 194,718 bales.
That was up more than 41,000 bales in a day, and the highest in many months. Certified stocks ended 2016 at just 40,470 bales.
CBA’s Tobin Gorey said that while the US export sales were “again impressive last week, we continue to view this tightness though as a temporary factor.
“The monetary disruptions in India have caused problems with physical deliveries but the world is not actually short of cotton.”
New York cotton futures for March stood down 0.8% at 76.31 cents a pound.
(Source – http://www.agrimoney.com/marketreport/am-markets-wheat-cotton-ease-from-multi-month-closing-tops–3957.html)