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AM markets: Egypt tender helps wheat prices. But cotton dips

01 августа 2016 года

Thursday is often a day when demand factors take a higher profile in grain markets, with it bringing weekly data on US export sales.

But the demand story will get an extra chapter this time with results of another tender for wheat by Gasc, the grain authority for Egypt, the top wheat-importing country, against a somewhat complex picture for international prices.

Paris euro-denominated wheat futures for December, the best-traded lot, stayed over an unusually wide 6% in the first three sessions of the week.

At its height, on Monday, the contract touched its 200-day moving average for the first time in nearly eight months, before falling to close the last session back below its 100-day moving average, registering a loss of 3.5% for the week so far.

Chicago dollar-denominated futures for September have dropped a more modest 2.5%, relative strength explained in part by weakness in dollar against the euro.

'Sizeable advantage'

Meanwhile, in the Black Sea, "prices of 13.5 protein wheat have had a firmer tone," said Minneapolis-based broker Benson Quinn Commodities.

While the area is expected to see a bumper harvest, with Russia's upgraded to a record 69m tonnes on Wednesday by Ikar, the share of higher quality wheat is relatively low, according to SovEcon.

"Don't get me wrong they still have a sizeable advantage in the export market," Benson Quinn added.

And indeed, Black Sea shippers are expected to win the orders at the Gasc tender.

'Black Sea domination'

Black Sea exporters (as well as US ones) "have plenty available for export", said Tobin Gorey at Commonwealth Bank of Australia.

"The market is expecting a large domination from Black Sea origins," said Agritel, noting that Egypt looked to be exploiting "attractive prices" after the falls so far this week.

Still, "it will be interesting to compare the offers" to the tender, the Paris-based consultancy added, with late July also often (as last year) seeing the first offers to Gasc of new crop French wheat – although, with that country's crop troubles this year, that is by no means certain this time.

Tour results

At least the factor of high profile demand at all helped put a bit of backbone into wheat futures, which rose 0.8% to $4.18 a bushel in Chicago for September delivery, as of 09:40 UK time (03:40 Chicago time).

Kansas City hard red winter wheat for September gained 0.8% to $4.15 ѕ a bushel, and Minneapolis spring wheat for December 0.5% to $5.06 a bushel.

Whether gains stick may be dependent on US weekly export sales data, which are expected to come in at 400,000-600,000 tonnes.

Not that production news is out of vogue, of course, with the annual Wheat Quality Tour of northern US states putting the potential for US spring wheat potential on the agenda.

The second day (Wednesday) came up with another reading below last year, at 46.9 bushels per acre compared with the 2015 figure of 47.3 bushels per acre.

That said, it was above the five-year average for day 2 of 47.3 bushels per acre.

German debate

And then there is the European Union, of course, where the debate is not just over the poor quality and quantity of the French crop – although that remains a live issue, with ODA on Thursday pegging the crop at 30.4m tonnes, with the potential for a downgrade to 29.4m tonnes.

(That represents a refinement of its previous estimate, last week, of 30m tonnes.)

"Concerns about the quality of the EU crop are growing as wet conditions are expected into the weekend in portions of Germany and Poland," Benson Quinn Commodities said.

By contrast, Nidera Australia said of the German crop: "Early comments are positive with no issues in test weights and quality.

"The larger areas are yet to be harvested, however local expectations are high."

'Shift in the weather to hotter and drier'

For corn and soybeans, US weather remains the key feature, and whether a drier spell forecast for early next month will prove so threatening to growing crops.

"The soybean rally the last couple of days has been based on a shift in the weather to hotter and drier into August," said CHS Hedging, flagging a "much drier solution" in outlooks.

For the first week of August, "computer models advertise a return of a high pressure ridge in the middle of the US", said Terry Reilly at Chicago broker Futures International.

"The ridge could form across the Great Plains by Monday."

However' CBA's Tobin Gorey said that "provided the dry spell does not linger more than a week, the impact on overall crop conditions probably won't be large".

Data later

Still, corn for December gained 0.5% to $3.44 ѕ a bushel, and soybeans 0.4% to $9.90 ј a bushel, as investors reinjected a little weather premium.

That said, the US weekly export data later could have a big say in determining whether gains stick.

Traders are expected soybean data to come in at 250,000-450,000 tonnes for old crop, and 600,000-800,000 tonnes for 2016-17 delivery.

For corn, sales are expected at 300,000-500,000 tonnes for 2015-16, and 450,000-650,000 tonnes in advance for next season.

US export ideas got a fillip on Wednesday from a separate announcement by the USDA, through its daily alerts system, of 247,912 tonnes of corn, to an "unknown" importer, and 131,000 tonnes of soybeans to China.

Also on demand, while US ethanol production data showed an unexpectedly large drop of 31,000 barrels per day last week, at 998,000 barrels per day, the figure remained among the top 10 on record.

Ethanol production margins "remain still in the black, hovering around $0.40 using Iowa's number", Benson Quinn Commodities said.

Limit down

It may need more than firm US export data to revive the cotton market, with New York futures in the fibre tumbling 1.8% to 72.22 cents a pound for December delivery, taking the contract back below its 10-day moving average.

The drop followed a fall in futures on China's Zhengzhou exchange, where a settlement down 1.9% at 15,315 yuan a tonne for January delivery underplayed the drama of the session.

Earlier, the contract hit limit down of 14,830 yuan a tonne, a slump of 5.0%.

The reason behind the plunge in Chinese futures is not clear, although a Reuters report early on Thursday did highlight concerns that higher prices of cotton from government auction, to 15,201 yuan a tonne on Wednesday, were quelling demand.

"The rise in cotton prices can't be passed downstream, leading to some companies being forced to limit or stop production," the China Cotton Association said.

'Large sell order'

CBA's Tobin Gorey also noted an improved weather outlook for India, the top cotton producing country.

"Forecasters say Gujarat, India's top cotton producing region, will experience a significant step up in rainfall over the next fortnight.

"The rainfall will improve marginal soil moisture conditions in the region."

He also noted ideas that the US market was in the last session "hit by a large sell order right at the close".

http://www.agrimoney.com/

Source: Agrimoney.com  |  #grain   |  Comments: 0   Views: 56

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