Has the wheat market got another proper winter weather problem to worry about, at last?
Since the worries over dryness and cold in the US Plains faded a month or so ago, worries over the threat of frost to northern hemisphere crops have been pretty localised, and failed yet to provoke ideas of notable losses to autumn-planted seedlings.
However, a fresh cold snap in the Black Sea area is a “factor to monitor”, Agritel said, “especially the consequences in the south of the zone, where the snow layer is thin”.
‘Could be more harmful’
It is not that the temperatures look like getting particularly low, with Agritel talking of minus 12 degrees Celsius in Rostov, Stavropol, Krasnodar and Astrakhan in southern Russia.
The concern is that the renewed cold follows a mild spell which has encouraged snow melt, so leaving crops more vulnerable to frost.
“This [cold spell] could be more harmful,” said Paris-based Agritel, which has a Black Sea operation.
“The snow layer is becoming scarce” in the listed areas of southern Russia, “concerning about 1m hectares”.
In Ukraine, “in the oblasts of Odessa or Nikolayev and Kherson, most of the time, the snow has gone,” Agritel said, putting the area at risk at about 500,000 hectares.
“Operators are on alert,” Agritel added.
Investors, however, did not appear so alarmed, having previously been called to arms over cold weather this winter, only for the frost worries to evaporate.
Chicago wheat futures for March stood 0.1% lower at $4.22 a bushel as of 10:00 UK time (04:00 Chicago time).
That said, for wheat bulls, any crop concern is a particular help at the moment, with the contract standing just above its 100-day moving, average, at a little under $4.22 a bushel, a drop below which may, in damaging chart credentials, encourage fund selling.
Chart trigger points
Technical factors certainly appear to be well in play in the wheat market.
Benson Quinn Commodities noted that in the last session “trade below the lows of late last week and below the respective 20-day moving averages triggered fund selling”.
Still, futures are trading well within their recent trading range – with a fall below that potentially a more serious sign, said Tobin Gorey at Commonwealth Bank of Australia.
While Chicago soft red winter wheat and Kansas City hard red winter wheat futures are currently in the “middle of recent trading ranges”, a drop in Chicago March futures below $4.10 a bushel and Kansas City March futures below $4.20 a bushel “might mean something more serious is afoot”.
Buy Kansas City, sell Chicago?
In fact, the Kansas City March contract had a bit of a cushion before hitting the danger zone, standing at $4.34 a bushel, a loss of 0.4% on the day.
Still, that meant some further retreat in its premium over its Chicago peer, which could be getting to close to opening up a buying opportunity, according to Richard Feltes at broker RJ O’Brien, which advised buying Kansas City-selling Chicago wheat at a gap of $0.08 a bushel or lower and looking “for upside of $0.20”.
This advice was based on observations of “lower-than-expected US hard red winter wheat planted area, the prospects for the continuation of dry US southern Plains weather into early March, and shrinking supplies of high quality hard wheat globally.”
Spring wheat fared better, flat at $5.52 ¼ a bushel in Minneapolis for March delivery, and starting to rebuild its premium over its Chicago peer – as well it might, given the relatively tight world supplies of quality wheat, compared with ample quantities of softer stuff.
However, also in focus is how spring wheat is comparing with its competitors for area in northern hemisphere farmers’ spring sowing plans, notably against corn and soybeans, and where relative price, in offering farmers the incentive to sow, is seen as a key factor.
“Corn and soybeans are still bidding for acres, and one could make the argument prices for both are feeding the narrative for whatever the producer wants to plant,” said Tregg Cronin at Halo Commodity Company.
“The exception would be spring wheat which is not bidding for acres and is in jeopardy of losing an untenable amount of acres.
“A late spring could compound the problem and make for a very interesting 2017-18.”
Flood fears ease
Spring wheat resilience kept if from falling too much further behind soybean futures, which added 0.1% for March delivery, to $10.36 ¾ a bushel, finding some support earlier at their 50-day moving average of $10.35 ½ a bushel.
Sure, worries appear to be easing over a fresh dent to Argentine soybean prospects from larger-than-expected weekend rains.
“Flooding occurred in central Buenos Aires over the weekend and this got some of the bulls back into soybeans on Monday,” said Terry Reilly at Futures International.
However, “we think the rains bias southern Buenos Aires where it has been dry, were welcome, and don’t think soybeans will be lost after this event, with the exception of low lying areas”.
CBA’s Tobin Gorey said that “localised flood conditions have returned, but the affected area is apparently much smaller than last time.
“Overall, weather forecasters are viewing the weekend’s precipitation as more of a help than a hindrance.”
‘Will be closely watched’
However, on the more positive side for prices, futures on the Dalian exchange in China, the top soybean importing country, rose a touch further overnight, by 0.3% to 4,345 yuan a tonne for the best-traded May contract.
That took to 3.0% gains since the exchange reopened on Friday after China’s week-long new year holiday, and bodes well for ideas importers have come back with their buying boots on.
“US soybean export numbers will be closely watched over the next few days,” Mr Gorey said.
Also helping soybean futures was firmness in the soyoil market, where Chicago futures for March stood 0.2% higher at 34.52 cents a pound, in turn getting help from palm oil, which added 0.6% to 3,086 ringgit a tonne in Kuala Lumpur.
Data late this week are expected to show a drop in Malaysian palm oil inventories last month, thanks to rising imports at a time of seasonally weak output.
Big data loom
The US also has significant data out this week, in the form of Thursday’s Wasde world crop supply and demand estimates, which many feel may bring a downgrade to the estimate for domestic cornsupplies at the close of 2016-17, thanks to strong ethanol and export demand for the grain.
(That said, the consensus forecast is for a modest 20m-bushel cut to 2.335bn bushels in the figure.)
Agritel, for instance, said that its “analysts think that corn stocks in US could be lowered because of a good export activity and a higher ethanol production”.
Benson Quinn Commodities said that “an increase in corn used for ethanol would be justifiable with continued record over record weekly grinds since the last USDA report”.
And with soybeans, its main rival in US spring sowings programmes, rising, corn nudged 0.1% higher to $3.64 a bushel.
Corn vs soybeans
Still, the key November soybean futures: December corn price ratio stood at 2.59, well in territory suggesting high soybean sowings, although Halo’s Tregg Cronin cast doubt that this was the whole story.
December corn futures trading at $3.92 ½ a bushel, a premium of nearly $0.30 a bushel to spot futures, “is high enough to possibly be sending the wrong price signal to Midwest producers,” he said.
“Comments from recent producer conferences suggest farmers intend to stick with their planting ideas and hope their neighbour plants more soybeans.”
US growers, after all, have a reputation for instinctively planting corn over soybeans.
‘Time is running out’
In New York, cotton, another competitor in spring sowings programmes, nudged 0.02 cents higher to 75.65 cents a pound, recovering a shade of ground lost in the last session.
“Technically the futures are still in the upward trend and [Monday’s] pull back looks like more of a consolidation on the large advance recently made,” traders at Ecom said.
They added that “market chatter continues to centre around the size of the on-call mill position”, ie the large amount of physical purchases which still need to be fixed, in price terms, against the March contract, which doesn’t have that long to run.
“With first notice day approaching, and options expiry this Friday, liquidity will rapidly dry up on the front month,” Ecom said.
“Mills will be forced to fix their contracts prior to first notice day and they seem to be hoping for a dip. However, time is running out.”
(Source – http://www.agrimoney.com/marketreport/am-markets-wheat-growers-on-alert-over-black-sea-cold–3962.html)