Three dynamics looked ones to watch as the new month, and new quarter, began.
The first was that of “new month, new money” – funds are often seen as injecting new cash into markets as the calendar turns to a new month, especially when a new quarter is involved as well.
But if that might be seen as a potential positive for prices, there a big negative too, at least for values of dollar-denominated assets, with the greenback making a positive start to the week, adding 0.5% against a basket of currencies.
(A stronger dollar reduces the affordability of assets, such as many commodities, denominated in the currency.)
The dollar’s continued headway on hopes for a tax cuts package, and expectations of an interest rise, was supercharged by weakness in the euro, now down to $1.17, after the turbulent Catalan independence vote on Sunday.
The third big issue, for grain markets at least, was the continued fallout from the US Department of Agriculture reports on Friday, which were viewed as bearish overall for wheat.
(A bigger-than-expected estimate for the US spring wheat harvest, and larger than forecast US all-wheat stocks as of September 1 were negative for prices, although the winter wheat crop was pegged below market expectations.)
But for corn and soybeans, the data were seen as somewhat supportive for prices, with September 1 (and end-2016-17) stocks data for both crops, while at multi-year highs, not as large as investors had expected.
In early deals, that all added up to reasonably flat trading in the row crops, but further weakness in wheat – pretty much as might be expected, although what might happen later when the funds get more into their stride…
‘Prices aren’t likely to begin a new descent’
Indeed, thinking of funds, an extra layer of pressure on prices of Chicago soft red winter wheat, the world benchmark, came from regulatory data late on Friday showing that, as of last Tuesday speculators had slashed their net short position by nearly 15,000 lots.
That implies less potential for a short-covering rally ahead.
On a more positive note, Water Street Solutions said that wheat futures “aren’t likely to begin a new descent amid rising global prices and dryness concerns in Australia and the Black Sea region”.
In fact, on the Australia issue, MDA said that “expected rains today should lead to some notable improvements in soil moisture across Queensland and far northern New South Wales,” although “no significant relief is expected in central and southern New South Wales this week”.
‘Should fill the gap’
Still, Sydney futures made a firm start to October, closing up 0.7% at Aus$282.00 a tonne for the January east coast contract.
Chicago wheat for December shed 0.7% to $4.45 ¼ a bushel as of 10:00 UK time (07:00 Chicago time), signally falling below its 20-day moving average.
But most eyes in the complex were on Minneapolis-traded spring wheat, after the surprisingly strong US harvest data on Friday.
“The trade was looking for a reduction. They got an increase of 21m bushels for hard red spring wheat production,” Benson Quinn Commodities said.
“The estimates were bearish enough that the Minneapolis market should fill the gap” in the spring wheat futures chart, dating from June, and which implies prices going “down to $6.07 a bushel for the December contract”.
The December spring wheat lot actually traded down 0.9% at $6.18 a bushel in early deals, remaining just above its 200-day moving average, which it has not been below since May.
Kansas City hard red winter wheat, meanwhile, lost 0.7% to $4.39 ¾ a bushel for December.
On the negative side for prices, it looks like protein in wheat will not have the premium it once looked to have, after the finding of extra US spring wheat crop (the highest protein of all).
But hedge funds have already taken a lot of money off the table in Kansas City, steering bearish on positioning for an 11th successive week – matching the longest such streak on data going back to 2006.
Fellow grain corn, meanwhile, was up 0.1% at $3.55 ½ a bushel for December delivery, restrained a bit by pressure from the US harvest – but not too much, given that history suggests seasonal lows should not be far off, and may have occurred already, depending on which timescales you use.
“Funds seem to be reluctant to add to their already short position this late in the season,” Water Street Solutions said.
Benson Quinn Commodities said: “Bearish fundamentals have been priced in and need new bear news to push market lower.”
Soybeans, meanwhile, eased 0.2% to $9.66 ¼ a bushel for November, again feel a bit of harvest pressure counteract the support to prices from the lower-than-expected US stocks estimate (which came with a small downgrade to the 2016 US harvest too).
Elsewhere, Water Street Solutions noted that “Brazil has gotten some rain relief but their planting season isn’t out of harm’s way yet from dryness”.
Direction later in the week may also depend on how well Chinese import orders revive, after a lull during the ongoing mid-Autumn holiday week.
“On our analysis, China cash soybean crush margins were running at positive $0.84 a bushel” late last week, versus $0.94 a week before and $0.45 a year ago, said Terry Reilly at Futures International.
(Source – http://www.agrimoney.com/marketreport/am-markets-wheat-prices-start-new-month-quarter-in-reverse–4284.html)