Corn and soybean markets dropped sharply, after reopening after the long weekend which saw soaking rains across the US Midwest.
The latest weather models suggest that the much discussed prospect of a US drought is not going to hit any time soon.
Richard Feltes, at RJ O’Brien, noted “No sign as yet of feared adverse July weather”.
“It rained, the funds are too long, there’s risk off in world markets,” a US broker told Agrimoney.
“Funds are in liquidation mode,” said Darrell Holaday, at Country Futures. “As you turn the corner after July 4, the market generally gets in a show-me mode.”
“In other words …you can’t just talk about a future drought,” he said.
Macro markets weigh
Outside markets were not supportive, with August Brent crude futures down 4.2% in afternoon deals, at $48.02 a barrel, suggesting that the bearish mood is extending beyond the grain markets.
The CRB Core Commodities Index was down 2.3%.
A stronger dollar weighed across the whole ag sector, as the US Dollar Index rose 0.6%.
The strength in the USDI Index came from fresh weakness in the Euro and the sterling, which make up nearly 70% of the basket of currencies against which the dollar index is weighted.
Sterling in particular took a pasting, down nearly 2% to its lowest level in over 30 years, as uncertainty from the Brexit vote continues to rumble away.
Rains lift row crop prospects
“Heavy rains favoured the southern Midwest and east central plans this past weekend,” said Don Keeney, at MDA weather services.
“The rains helped to significantly improve moisture and crop conditions for corn and soybeans,” he said.
Mr Keeney said further rains in the Midwest this week will “continue to build moisture,” with more weather out over the 6-10 day period.
Funds sell out
The wet weather eased dryness fears, which have been supporting corn and soybean markets in recent weeks.
Due to the national holiday on Monday, markets are only now reacting to the weekly commitment of trader data out on Friday evening.
Although hedge funds sold corn and soybeans in the week to last Tuesday, they are still sitting on hefty long positions.
“Clearly our markets are still toting some rather large managed fund length, and the weather forecasts on or after the fourth of July always help to set the tone for the balance of the month,” said Tregg Cronin, at Halo Commodities.
Export inspections accelerate soybean sell-off
US export inspections for last week, which were delayed one day due to the US holiday, were bearish for soybeans as well.
Just 191,426 tonnes of soybean export inspections were reported, down from 295,816 tonnes in the previous week, and below analyst expectations.
November soybean futures finished down 5.3%, at $10.77 ¼ a bushel, after crashing through the 40-day moving average, which lend support last week.
Corn export inspections were reported at 1.165m tonnes.
December corn futures finished down 2.6%, at $3.58 a bushel, trimming losses from a contract low of $3.46 a bushel earlier in the session.
Wheat prices rally on bargain buying
Wheat futures plunged to their lowest level since 2006, but recovered smartly later in the session, as bargain buying kicked in.
Wheat export inspections lent support, were better than expected, at 560,598 tonnes, above the top end of analyst forecasts.
And the rains in the Midwest also spilled over to the US Plains, which is not good news for the crop given that harvest is already underway.
Ami L Heesch, at CHS Hedging, noted “support stemming from weekend rains in the Southern Plains and ideas of being oversold”.”
Funds are net-short on wheat futures, according to the CFTC data, which limits the potential for a sell-off.
September wheat futures hit lows of $4.15 ¾ a bushel, but rallied back to close the day up 0.5%, at $4.33 ½ a bushel.
Coffee takes currency hit
Arabica coffee futures fell as the currency of Brazil, the world’s top grower, continued to slide.
The real was down 1.0% against the dollar, in its third straight session of declines, after the country’s central bank stepped in to depreciate the currency, which hit an 11-month high last week.
A weaker real is bearish for prices, as it encourages heavier Brazilian exports.
September arabica coffee settled down 0.6%, at 145.55 a pound
Sugar bulls stay their course
But in sugar, of which Brazil is also the top grower, markets rose further.
There seemed to be little concern over CFTC data showing that hedge funds increased their net long even further over the week to last Tuesday, with the global market still forecast to be sharply in deficit this season.
“Any dent in production caused by weather in a deficit environment will have a magnifying effect and explains why the fund community is so comfortable being long,” said Nick Penney, at Sucden Financial.
“Corrections there will be, but we feel it will take a dramatic change in Macro or political outlooks to shake them out of a strong position,” he said.
“Sugar in isolation still has a bull narrative that is continuing.”
October raw sugar closed up or 0.4%, at 20.87 cents a pound.
(Source – http://www.agrimoney.com/marketreport/pm-markets-row-crop-markets-plummet-but-wheat-bounces-back–3672.html)