Ever found it difficult to rise and shine after a three-day weekend?
That’s how Kansas City-traded hard red winter wheat futures, the star of the show in grain markets to end last week, looked in early deals on Tuesday.
After ending the last session at their highest in nearly seven months – boosted by data showing US winter wheat sowings at their lowest since 1909, led by a drop in hard red winter wheat area – Kansas City’s spot March contract eased 0.2% to $4.48 ¼ a bushel as of 09:30 UK time (03:30 Chicago time).
While only a small decline, it defied a broader strong start to the week for US grain markets, after a holiday on Monday.
Weakness in the dollar, amid worries over protectionist rhetoric by US president elect Donald Trump, who has for instance this month attached carmakers that export vehicles from Mexico to the US, offered ag prices a helping hand.
(A weaker dollar improves the affordability of dollar-denominated exports, such as many agricultural commodities.)
The greenback stood 0.7% lower against a basket of currencies, and is now 2.8% down from a January 3 high.
So it wasn’t such a surprise that, say, Chicago soft red winter wheat for March managed a 0.1% gain to $4.26 ½ a bushel.
Kansas City wheat’s underperformance looked a factor of the extent to which speculators had already bought into the contract, ahead of the USDA data, potentially limiting the scope for further purchases.
Regulatory data showed that in the week to last Tuesday, hedge funds hiked their net long in Kansas City wheat futures and options by more than 12,000 lots, the third biggest buying spree on records going back to 2006.
The shift – likely actually reflecting positioning ahead of forecast buying by index funds last week, amid the annual so-called rebalancing process – took the net long to 23,604 contracts, the highest in two years.
“The added length in Kansas City… strikes me as a negative factor” for prices, said Benson Quinn Commodities.
Sure, in Chicago too, hedge funds swung more bullish in positioning, but they retained a substantial net short, of nearly 85,000 contracts.
Chicago wheat’s, relatively, firm performance against its Kansas City peer allowed it to reverse a little of last week’s surge in its discount.
March basis, the discount touched a 16-month high of $0.24 a bushel at one point on Friday – up 85% in two sessions.
US weather has been another factor weighing on Kansas City wheat a bit, in bringing rain to the Plains where it is grown, and where dryness and cold has raised alarm bells.
“Warmer temperatures this week will allow ice to melt rapidly thus limiting any losses” among wheat seedlings, MDA said.
Still, Chicago wheat notably underperformed corn, which gained 0.8% to $3.61 ¼ a bushel for March delivery, helped by the continuation of wetness worries in Argentina.
“Weekend rainfall was slightly above expectations” in the South American country, with some areas receiving more than 4 inches, MDA said.
“Weekend showers have maintained wetness concerns in central Santa Fe and northern Buenos Aires.”
While drier weather is due this week, a factor which “should ease concerns”, MDA flagged a wetter outlook in the six-to-10 day period for far southern crop areas.
Other observers were less sanguine on the weather, with Jerry Gidel at Chicago broker Rice Dairy flagging a report from an Argentine contact that a “bombshell fell in the central region of Argentina” over the weekend, in rainfall terms.
In one day, “an average of 150 mm (5.3 inches) fell in the central zone of Argentina and in some specific areas fell more than 350 mm (13.25 inches),” the source was reported at saying.
“There are people evacuated and roads closed. It is very difficult to travel around the area.”
And the Argentine rains are a big, bigger in fact, issue for the soybeanmarket too, given the country’s status as the top exporter of soyoiland soymeal, besides being a big shipper of the oilseed too.
“Excessive moisture in central Argentina remains a significant problem,” said Madeleine Donlan at Commonwealth Bank of Australia.
“The market is worried that cuts to Argentine production will be forthcoming.”
This when there appears scope for hedge funds to raise their net long in Chicago soybean futures and options, with the net long at less than half levels seen in June.
“While the funds have been buyers late this week, they probably have some room to add length in soybeans and perhaps soymeal,” Benson Quinn Commodities said.
There remains too support to prices from the USDA’s unexpectedly large downgrade in Thursday’s Wasde crop report, of 60m bushels to 420m bushels, in its estimate for US soybean inventories at the close of 2016-17.
The report “was most supportive to the soymeal and soybean market through the drop in US crop size and stocks”, said ag advisory group Water Street Solutions.
“Stocks are still ample – but it adds to the importance of the weekly trends of South American weather patterns.”
‘Funds returned to being buyers’
Soybean futures for March gained 1.7% to $10.73 a bushel, reaching amongst their highest levels of the past six months.
The gain was helped by a 2.3% surge to $341.40 a tonne in soymeal futures for March, actually reaching a six-month high.
“Funds returned to being buyers this past week,” Water Street Solutions added.
“If the market can find follow-through buying this week, foremost in soymeal, look for March soybean futures to first eye the highs from November, then targets of $10.80 a bushel and $11.11 above.”
Palm production recovery
Soyoil, the other main soybean processing product, was higher too, adding 1.0% to 35.96 cents a pound for March delivery, albeit failing earlier at an attempt to set camp back above its 50-dfay moving average, at 36.01 cents a pound.
This in turn added support to values of rival vegetable oil palm oil, which gained 1.2% to 3.146 ringgit a tonne in Kuala Lumpur.
The headway came despite a forecast from Ahmad Kushairi, the director general for Malaysian Palm Oil Board, that Malaysian output could rebound by 2.0m tonnes this year to 19.4m tonnes.
“Crude palm oil production we anticipate will improve, an increase of about 12%,” he said, if adding that “I think it’s a good increment, so as not to affect the price”.
(Source – http://www.agrimoney.com/marketreport/am-markets-bombshell-lifts-soy.-but-hard-wheat-stalls–3931.html)