It has been a good week so far for wheat bulls in Australia.
The January east coast wheat contract was marked up 1.8% to Aus$261.00 a tonne in Sydney’s ASX exchange on Tuesday.
That took the contract’s gains over two sessions to 4.2%, and brought it back close to its 100-day moving average too.
‘Steadily diminishing crops’
The contract is not, it has to be said, the most liquid in the wheat world, raising questions about good an indicator it really is of the underlying market.
However, Tobin Gorey at Commonwealth Bank of Australia deemed headway in prices “plausible given the continued issues for eastern Australian wheat crops”, for which weather remains less than ideal, thanks to frost and dryness setbacks.
“Weather forecasters expect unseasonable cold in south eastern winter crop regions this week that might further damage crops.
“North-eastern winter crop regions remain dry. Both weather patterns are steadily diminishing crops in eastern Australia this year.”
Indeed, weather service MDA said that, while seeing prospects for a “few showers” this week in eastern and western Australian wheat-growing areas, “dry weather will continue to stress wheat in western South Australia, northern New South Wales, and Queensland”.
What’s more, “the 6-10 day outlook is drier in South Australia, Victoria, and southern New South Wales”.
Commodity Weather Group said that a “drier pattern” in Australia’s weather for the next two weeks would in the north eastern one-third of the country’s wheat belt “push stress into early heading”, in terms of wheat development.
“Frost is likely to continue to burn back growth,” the weather service said, adding that freezing temperatures “pose damage risks to any very early heading”.
At least moisture is deemed “adequate” in Western Australia, the country’s top grain-growing state.
‘Cash levels have firmed’
Australia’s woes are attracting a fresh round of attention in world markets too, with Illinois-based Water Street Solutions, for instance, seeing them as a prop for US prices too.
“Dryness in Australia should offer some fundamental support,” the ag advisory group said.
Certainly, Chicago wheat, the world benchmark, gained 0.9% to $4.42 ½ a bushel for December delivery, as of 07:55 UK time (02:55 Chicago time), setting course for what would be a fifth consecutive session without loss, something the contract has not seen for a couple of months.
Also helpful are US cash markets, with Benson Quinn Commodities flagging that “cash levels for the winter wheats have firmed, which is a combination of limited movements and hopefully better demand”.
Furthermore, there was the bigger-than-expected hedge fund net short position to factor in, as revealed by weekly Commodity Futures Trading Commission data, and termed “supportive” by Benson Quinn Commodities.
And investors have taken note too of resilience in Russian prices, which are particularly important for the market this season, given the country’s huge harvest and large export potential.
The firm prices, week on week – which helped Paris wheat futures in the last session too – have attributed to a recovery in the rouble, which has gained support from firmer oil.
In fact, the rouble eased 0.1% against the dollar to 57.82 to $1, but remains amongst its strongest levels of the past three months.
Minneapolis spring wheat futures for December signally failed to get in on the fact, easing by 0.4% to $6.29 a bushel, and continuing what Benson Quinn Commodities termed their “dumpster fire” of a tumble, encouraged by better-than-expected US harvest yields.
However, Water Street Solutions advised investors to “look for Minneapolis to bottom this coming week, and the winter wheats to find follow-through support”.
Much may depend on data later from Statistics Canada on Canadian crop inventories, expected to show all-wheat stocks as of the end of July at 6.0m tonnes, up from 5.18m tonnes a year before.
For canola, stocks are expected at 1.5m tonnes, below the 2.02m tonnes a year before.
‘Severe contraction in acres’
Corn gained too in Chicago, adding 0.4% to $3.56 ¾ a bushel for December delivery.
Sure, as CHS Hedging noted, “many private forecasters are putting out new yield estimates and most are between 166.5 and 169 bushels per acre, while the US Department of Agriculture is currently at 169.5”.
But the values that the contract reached last week appeared to many investors to have factored that in, and more, with the extent of lows viewed as reflecting one-off calendar factors too, such as a rush in selling by some farmers of last 2016-17 crop.
The weak values are viewed as a hindrance to South American sowings, with Benson Quinn Commodities flagging that “Brazilian farmers are staring at a low price, high input cost environment to plant first crop corn, leading many to believe a severe contraction in acres is at hand.
“The director of the Brazilian Association of Corn Growers believes a 50% reduction is possible.”
On the demand side, ethanol futures put in a late spurt last week, closing their discount to gasoline, which had soared on worries about refinery closures forced by Hurricane Harvey.
Still, with RBOB gasoline futures now in retreat, and down a further 4.0% to $1.6777 a gallon in early deals…
Soybean futures, meanwhile, added 0.7% to $9.56 ½ a bushel for November delivery, closing in on their 100-day moving average, which they have not touched since August 10.
“Private estimates on soybean yields have come up quite a bit and some are now higher than the USDA,” which pegs the US yield this year at 47.4 bushels per acre.
However, demand signals are promising too, with Terry Reilly at Futures International noting that China’s CNGOIC crop bureau reported that the country “booked 20 cargos of US soybeans last week covering consumption needs for September and October.
“China is about 50% covered for October.”
The CNGOIC also pegged Chinese crushing margins at 30-150 yuan per tonne, unchanged week on week.
“On our analysis, China cash soybean crush margins were running at positive $0.96 a bushel” late last week, versus $1.03 a week before.
Kuala Lumpur palm oil gained 1.3% to 2,742 ringgit a tonne in its first trading day since Wednesday, with Malaysia celebrating a particularly long weekend in between.
Headway was helped by firmness over this period in palm oil futures in China, a big importing country, where the January lot on the Dalian exchange stood up 0.1% at 5,542 yuan a tonne in late deals, but is up 0.9% over the Malaysian holiday period.
Meanwhile, data on Friday from cargo surveyor ITS showed Malaysia’s palm exports rising 0.3% last month, from July, to 1.24m tonnes.
While hardly a huge increase, the figure represents a marked recovery from the decline of 8.1% in volumes, month on month, that ITS recorded as of August 25.
(Source – http://www.agrimoney.com/marketreport/am-markets-dryness-frost-spur-australia-wheat-price-rally–4240.html)