There was good news and bad news around for wheat bulls to start the week.
The good news was an upbeat signal for price prospects detected in the close to the last session, when Kansas City hard red winter wheat futures closed above those of soft red winter wheat, as traded in Chicago, for the first time in two months.
Typically, hard red winter wheat, the main type produced in the US, runs at a comfortable premium thanks to its higher protein levels. But that dynamic has been undermined by particularly strong stocks of the class.
“Kansas City wheat has begun leading over Chicago, which is a healthy sign” for prices, said Water Street Solutions.
Benson Quinn Commodities said that bulls “can find optimism that the hard wheat markets” – ie Minneapolis spring wheat as well as Kansas City hard red winter wheat – “have settled higher two weeks in a row”.
And indeed wheat prices in early deals on Monday set course for further gains.
The bad news was that Kansas City was struggling to maintain its premium over Chicago wheat.
As of 10:00 UK time (04:00 Chicago time), the Kansas City December contract was up 0.6% at $4.29 ½ a bushel – exactly in line with the Chicago December lot, which outperformed in gaining 0.9%.
Agritel put it that “markets are struggling to confirm any attempt of rebound in such context of ample supplies at a global scale”, a factor it said should be underlined by the US Department of Agriculture’s next Wasde crop supply and demand briefing, on Thursday.
Factors affecting the tide of wheat markets include further information on a huge order by Iraq of US wheat.
While that was originally reported by sources as being of 450,000 tonnes (of hard red winter wheat), and the US Department of Agriculture unveiled a 300,000 sale of US wheat to Iraq, Baghdad itself on Monday put the figure at 500,000 tonnes.
Another key influence was the weekly official data on investor positioning out late on Friday which showed a substantial rise, of nearly 27,000 contracts, in the hedge fund net short in Chicago wheat futures and options, taking it to a five-month high above 110,000 lots.
That is a substantial figure, if below the record high above 160,000 contracts set in April, with large extremes in speculative positioning raising ideas of a sharp reversal in prices if, eg a weather shock, prompts funds to close these bets en masse.
Indeed, Benson Quinn Commodities saw funds as “too short” in Chicago wheat.
And in Kansas City, a less liquid market, the net short of 21,393 lots, up 10,553 contracts week on week, is more extreme on some measures – being the largest in 14 months, and following 16 successive weeks of net selling, by far the longest on data going back to 2006.
“These numbers should support the market early next week,” Benson Quinn Commodities said.
But higher prices will, of course, attract selling too by producers holding large quantities of the grain.
“Look for short-covering rallies for additional pricing opportunities,” Water Street Solutions said.
‘Providing hope for bounces’
Corn futures rose too, by 0.5% to $3.50 a bushel for December delivery, regaining a key psychological mark, also helped by ideas that speculators may have done enough selling for now.
In the latest week, hedge funds raised their net long in corn futures and options above 200,000 contracts.
The last time this happened, in May, preceded a recovery in futures prices, if a modest and short-lived one.
“Large fund shorts are providing support and hope for bounces” in prices, said Water Street Solutions, although adding that “the large farmer long will keep a cap on rallies, without a winter South American weather story”.
That is, a setback to the crop in Brazil, or Argentina, may be needed to give price rises momentum.
‘Big crops get bigger’
In fact, US corn prospects will be particularly in focus this week, with the Wasde broadly seen as likely to raise the USDA’s forecast for the US corn yield from the current 171.8 bushels per acre.
“Thursday’s USDA report has traders anticipating another bump up in US yield,” said Water Street Solutions.
Benson Quinn Commodities added that “‘big crops get bigger’ syndrome is corn’s biggest problem,” based on an adage that yield estimates tend to trend in one direction over the course of the season.
One hope for bulls, in terms of a challenge to ideas of huge yields, is that high winds have caused crop damage, a factor cited by commentators such as Michael Cordonnier.
Real vs dollar
Soybean futures for January, meanwhile, added just 0.1% to $9.87 ½ a bushel, lacking support from any ideas of hedge fund overselling in the oilseed.
Indeed, they remained net long more than 40,000 contracts in Chicago as of last week, albeit a figure down some 8,600 contracts week on week.
Furthermore, Water Street Solutions noted that “the Brazil/US currency relationship continues to add favour to the Brazilian farmer’s values – helping them to price more supplies”, with Brazil’s real at around its lowest levels in four months, making its exports that much more competitive.
As an extra caution, futures on the Dalian exchange in China, the top soybean importing country, eased 7 yuan to 3,630 yuan a tonne, returning close to setting a fresh contract closing low.
(Source – https://www.agrimoney.com/news/am-markets-good-news-and-bad-news-for-wheat-investors-41931)