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Ag market: grains ease – but orders, charts give bulls hope

Ag market: grains ease – but orders, charts give bulls hope

Is it always darkest before dawn?

Grain bulls may hope so, given that wheat futures trading around contract lows in Paris and in Chicago, where corn futures indeed hit a fresh 11-month low in early deals on Monday.

Still, there are some cautious over how much further the latest price falls will go.

“Don’t get bearish here,” said Water Street Solutions, talking in particular of corn futures, which the ag advisory group said “should be within $0.07 a bushel of a solid low”, December basis.

Importance of Iowa, Illinois

Water Street Solutions added: “The grains continue to be under pressure as the market trades the latest US Department of Agriculture report,” which showed greater-than-expected estimates for US corn (plus soybean and wheat) stocks.

“However, the actual size of the 2017 crop is likely overstated which could lead to an August bottom in grain prices versus the traditional October low.”

After all, while rains have blessed much of the US Midwest, and indeed more are expected this week, they have scrimped on important parts of the Corn Belt, including in key producing states of Illinois and Iowa.

“Iowa and Illinois produce 31.9% of the corn crop, whereas the 12 Delta states combined produce 12.2%,” Benson Quinn Commodities noted.

“The power of math would tell you it takes a lot of improvement over the 12 to offset a little problem with the two.”

‘Ground truthing’

In fact, more will be known of the US crop through a much-watched crop tour, organised by ProFarmer, this week.

The tour “will give the market something more to debate and some ground truthing to trends across some of the Midwest”, Water Street Solutions said.

Benson Quinn Commodities said that the ProFarmer tour “will get a lot of attention as this year’s crop is going to show more variability than the prior couple of years”.

‘Essentially bogus’

And even if the tour does come in with a healthy yield estimate, bulls have some hope to clutch on to in the form of concerns of an early Midwest frost, which would bring crop development to a premature end.

“Some private forecast services are talking about a frost in the first week of September because of a deep trough moving through the Midwest,” said Dave Tolleris at WxRisk.com.

However, he dismissed such talk as “essentially bogus”.

“A fairly strong impressive cool air mass will be coming down this weekend which bring a touch of autumn to many areas over the plains and the Midwest,” he said.

“But when we say a “touch of autumn’ we are not talking about a frost potential. Yes, temperatures will be below normal but doesn’t mean there will be a frost.”

‘More serious frost’

That said, he added that “later on in the month there is a possibility of an early frost.

“The data does suggest that in mid-September a somewhat colder pattern could develop which could bring a more serious frost to a significant portion of the Plains and the Midwest.”

Still, with most weather models showing “significant rains coming in again for various portions of the western Corn Belt”, including Iowa, this week, corn futures succumbed to early selling, dropping 0.8% to $3.63 a bushel for December delivery as of 08:45 Uk time (02:45 Chicago time), the contract’s lowest in very nearly a year.

Could the low values attract trade buyers?

“We continue to expect some US export support at these lower prices,” said Tobin Gorey at Commonwealth Bank of Australia.

Saudi purchase

The talk of weaker price spurring end-user demand was a bit of a theme in wheat markets too, with Saudi Arabia purchasing 490,000 tonnes of the grain on Monday at an average price of $218.19 a tonne, from European Union, North and South American and Australian origin.

Still, there is particular talk of the competitiveness of US supplies.

“We continue to expect US competitiveness to kick in at some point to support prices,” Mr Gorey said, if adding that, “‘some point’ might feel like a long way off if momentum investors sell”.

And hedge funds certainly seem to be keen on rebuilding a short position in Chicago wheat futures and options, extending their net short by more than 20,000 lots in the latest week to approaching 35,000 contracts.

‘Cheapest in the world’

Sure, “Russia is stepping up as a competitor in the export market,” CHS Hedging noted, adding that “they will export a record high of 32m tonnes of wheat this season”.

But “Gulf [of Mexico] supplies are the cheapest in the world,” Water Street Solutions said, an idea given a bit of support by prices of offers of wheat to an Iraq tender.

This showed US supplies, at $297 a tonne on a cost and freight basis, cheaper than those from Australia (the only other origin allowed), which came in at $298.77 a tonne or more.

“Look for wheat to catch this coming week and be patient for sales.”

‘Higher highs and higher lows’

Wheat futures did not do much catching up in early deals, easing 0.4% to $4.14 ½ a bushel in Chicago for September delivery.

Still, there was some talk of the supportive nature of charts too, with Mike Zuzolo at Global Commodity Analytics highlighting that seven successive weeks of decline in Chicago prices signalled a “bottoming price action, unless the bear is fed” – ie unless further downbeat news is forthcoming.

Water Street Solutions added that after seven weeks of decline, “this should be it for the break [in prices] for now.

“Believe it or not, we are still maintaining a series of higher highs and higher lows” in Chicago futures.

“Look for rallies back toward $4.90 a bushel for additional sales.”

‘Sign of uncertainty’

Charts were as bit of a discussion in soybeans too, given that last week Chicago futures ended just about where they started, forming a so-called “doji star” on the weekly chart, ie a cross shape.

November futures closed the last session “right were the market opened on Sunday night leaving a doji candlestick on the weekly chart, which is a sign of uncertainty” Benson Quinn Commodities said.

With the rains expected for the Midwest, the contract attempted in early deals to resolve the uncertainty by heading downwards, by 0.5% to $9.33 a bushel.

‘Problem areas expanding’

Still, all is not lost for soy bulls with, on the demand side, CHS Hedging noting that the latest weekly US export sales data were “the highest combined sales [ie 2016-17 plus 2017-18] since December”.

And the latest Nopa industry crush statistic “of 144.7m bushels was higher than the 143m bushels expected”.

And other oilseed contracts have been performing OK, including palm oil, although this eased 0.1% to 2,679 ringgit a tonne in Kuala Lumpur, after cargo surveyor ITS showed Malaysian exports down 14.7% month on month so far in August.

Canola, another recent outperformer, dropped 0.5% to Can$504.10 a tonne in Winnipeg for November delivery, despite lingering worries over Canada’s crop.

“Prairie problem areas look like they might be expanding,” said Tobin Gorey at Commonwealth Bank of Australia.

“The ‘known’ problem areas are in the south west of the region.  Now this looks to be extending eastwards and northwards.”

(Source – http://www.agrimoney.com/marketreport/am-markets-grains-ease—but-orders-charts-give-bulls-hope–4219.html)

Ag market: grains ease – but orders, charts give bulls hope Reviewed by on . Is it always darkest before dawn? Grain bulls may hope so, given that wheat futures trading around contract lows in Paris and in Chicago, where corn futures ind Is it always darkest before dawn? Grain bulls may hope so, given that wheat futures trading around contract lows in Paris and in Chicago, where corn futures ind Rating: 0
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