Remember those global financial crisis days, when shares, grains, softs, oil, etc tended the move in tandem, in “risk on” or “risk off” waves?
There was something of a feel of that in early deals on Friday, in the “risk on”, with so-called risk assets all appearing somewhat in demand.
Shares opened 1.5% higher in London, having gained, if less markedly, on Asian markets, with Tokyo stocks for instance closing 0.5% up.
Brent crude added 2.1% to $40.87 a barrel as of 10:10 UK time (04:10 Chicago time), putting a bit of a cushion between itself and the psychologically important $40-a-barrel mark.
And this despite a recovery in the dollar, which gained 0.4% against a basket of currencies, in theory weighing on the value of dollar-denominated exports, such as oil and many other commodities.
The spur to the positive sentiment appears to be continued enthusiasm over the European Central Bank’s latest efforts to boost the eurozone economy by cutting rates and announcing a bit more quantitative easing.
And in ags, the improved willingness to buy was evident except ironically the one top crop, wheat, in which Europe is most dominant, being the top producer and exporter.
Chicago wheat futures in the last session, helped by dollar weakness, overcame a weak start to close higher for a seventh successive time – the longest winning streak since April 2014.
Can they end the week on a positive note too?
In early deals, Chicago wheat futures for May were showing losses – but only marginal ones, down 0.2% at $4.76 ¼ a bushel, remaining near their highest levels in a month, and well above the 40-day and 50-day moving averages which they regained in the last session.
One factor to watch will be the US weather outlook, and whether it worsens, or not, the prospects for seedlings in the US southern Plains, actually a (Kansas City-traded) hard red winter wheat region, where dryness and early break by crop from dormancy are provoking concerns.
As Tobin Gorey at Commonwealth Bank of Australia said, “weather worries persist for the hard red winter wheat
“Weather forecasters continue to expect that crop to receive scattered rain – but not enough to widely raise soil moisture.
“Weather forecasters also continue to look for a cold snap to evolve in the middle of next week. The hard red winter wheat crop is exposed so it is at risk if this cold snap takes an extreme turn.”
At Texas A&M University, Mark Welch said that in the Plains as a whole “temperatures this winter have been much warmer than normal,” beating all but four or five of the last 121 winters for temperatures in much of the hard red winter wheat production area.
In the southern Plains, “some precipitation is forecast for the next several days across much of Kansas, but that is relatively light except for the east”.
And this, remember, when dryness is indeed spreading, as evidenced by Thursday US Department of Agriculture drought monitor, which showed drought returning to Oklahoma, for the first time since November – albeit with only 3.0% of the state deemed so effected.
The proportion of Oklahoma deemed “abnormally dry” was put at 34.0%, up 12.7 points week on week, with the figure for Texas up 6 points at 30.7%, and for Kansas, the top wheat-growing state, at 16.2%, a rise of 11.7 points week on week.
‘Crop stress would be minimal’
That said, Benson Quinn Commodities was somewhat cautious about bullish case, saying that “the dry conditions in portions of the southern Plains will continue to get some attention, but don’t point to outright ownership of wheat futures at this point.
“There are some areas lacking top soil moisture, but actual crop stress would be minimal.”
And as for the coldness threat, “I don’t think the winter wheat crop is far enough along to suffer any significant damage if the cold temperatures, expected early next week, end up being colder than expected”.
Funds and shorts
Still, the overriding factor may be how this plays out with funds which were near-record short in Chicago wheat, and record short in Kansas City wheat, according to data a week ago – and with fresh position statistics due later, after the market close.
“Friday’s trade depends on whether or not the funds have covered enough shorts to feel comfortable with what position they have left,” Benson Quinn Commodities said, adding, on the bearish side, that “the case for the markets being overbought is getting easier to make”.
Kansas City wheat futures for May were, nonetheless, up 0.3% at $4.84 ¼ a bushel, given a little extra help by the Plains weather fears.
Back above $9 a bushel
The row crops, though, were faring far better at tapping into the somewhat bullish general market mood, with soybeans for May up 0.6% at $8.94 ¾ a bushel, the contract’s highest level since before Christmas.
And the new crop November contract, which will be increasingly closely watched as the US spring sowing season ramps up, continued its rally too, after in the last session setting foot back above the $9.000-a-bushel mark for the first time since December.
The lot added 0.6% to $9.05 ¾ a bushel.
The contract close above its 200-day moving average for only the second time in eight months.
This, of course, adds technical support to the market, with funds tending to close out shorts when prices cross key chart levels.
But there is more to the bullish case than that, with Benson Quinn Commodities also noting “a few stories developing that… warrant watching”, even if not rating them as “market moving” for now.
“They include firmer South American basis, as the South American producer has slowed selling due to strengthen currencies, talk of improving South East Asian meal demand, and US soybean exports that remain very solid and on pace,” the broker said.
On the more negative side for prices, there is growing idea that US farmers are raising their selling pace into the reviving markets.
‘Substantial corn movement’
And in corn, there could be quite some selling potential, as signalled on Thursday by Ag Growth International, the Canadian-based maker of grain silos.
“The USDA estimates corn stored on US farms entering 2016 approximated 6.8bn bushels or roughly one-half of the 2015 harvest – a reflection of low commodity prices and farmer hesitancy to move and sell grain at current prices,” Ag Growth said.
“Market participants generally expect substantial corn movement to market prior to the 2016 harvest.”
CBA’s Tobin Gorey flagged the background pressure on prices too from concerns over changes in policy in China which could encourage the release of its huge stocks onto the domestic market, depressing import needs of the grain, and of distillers’ grains and other rival feed materials too.
“China’s plans to unwind the legacy of past corn policies are limiting upside” to Chicago prices, he said.
“Analysts expect the Chinese government will soon starting placing some its heavy reserve stocks on the domestic market.”
‘Strong week of export sales’
Still, corn futures for May were buoyed on Friday by the upbeat markets mood, adding 0.4% to $3.64 ¼ a bushel, and setting camp above their 20-day moving average.
Some positive comment remained on US weekly export sales data on Thursday which came in at 1.17m tonnes, beating most market expectations.
“The Brazilian real’s strength is a plus for US competitiveness – as evidenced by another strong week of US corn export sales,” Mr Gorey said.
Still, CHS Hedging cautioned that prices were approaching “levels that would encourage farmer selling, starting around $3.70 a bushel”.
(Source – http://www.agrimoney.com/marketreport/am-markets-wheat-futures-miss-out-on-risk-on-feel–3540.html)