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AM markets: wheat futures halt retreat, as importers appear, 06.10.17

Some might see it as down to activity by importers.

Others to a chart drag being eliminated.

Dryness in Australia is reviving as a theme too, despite some rains in the east.

But, whatever, wheat futures did manage on Tuesday to put a halt to their decline, unlike corn and soybean markets.

Importers in the market

The ideas of improved demand from end-users, potentially spurred by recent price weakness, stems from activity by buyers in the key Middle East-North Africa region.

"The current level of prices is provoking the return of international buyers finalising trades or calling for new tenders," said Agritel

"Saudi Arabia bought 540,000 tonnes of feed barley, optional origin, November-December delivery.

"Tunisia is seeking durum wheat and feed barley for October-November."

And, signally, Gasc, the grain authority for Egypt, the top wheat-importing country, is in the market too, with a wheat tender announced overnight, the results of which will be unveiled later.

Russian prices rise

Russian wheat has, thanks to its competitiveness, dominated Gasc purchases so far in 2017-18, and indeed looks likely to put in a showing this time too.

But this does not look the slam dunk it has looked up to now this season, given rises in Russian wheat prices which, for 12.5% protein, rose $2 a tonne last week to $191 a tonne, according to Ikar, with gains spurred for reasons observers have attributed to factors including farmer withholding, awaiting higher prices, and hiccups getting crop to port.

SovEcon put the week on week rise at $4.50 a tonne, to $194 a tonne.

"The rise of prices in Black Sea and especially in Russia must be monitored as the spread with European prices has narrowed, especially on forward deliveries," Agritel said.

Benson Quinn Commodities said: "Recent tenders may give credence to the recent rise in Russian values, which is still the preferred origination on most high profile tenders."

That said, the broker added that "European Union values still strike me as too high, but we'll see how that pans out going forward".

Gap filled

As for the chart factor, that refers to the move lower in the last session by Minneapolis spring wheat futures which, at last, covered a gap in the chart dating from June, when US dryness worries were sending prices sharply higher.

Technical traders says that prices will tend at some point to revert to that gap, on grounds that "nature abhors a vacuum", and have been proved right this time, at least.

"Minneapolis filling the gap from June 12 could be a positive going forward, but it will take some time to see how the market responds," said Benson Quinn Commodities.

"Look for the wheat markets to take direction from Minneapolis."

'Extensive dry conditions'

And, with Minneapolis spring wheat futures for December adding 0.1% to $6.12 ¼ a bushel as of 10:00 UK time (04:00 Chicago time), with bigger gains for the March 2018 lot, that looked a supportive sign for winter wheat futures too.

As did a further recovery in values of east coast, Sydney wheat futures, which for January gained 1.1% to Aus$285.00 a tonne, amid fresh talk of drought damage to crops.

"Australia is expected to see a significant reduction in total wheat production from extensive dry weather conditions," said CHS Hedging.

"The US Department of Agriculture's most recent estimate for Australia is at 22.5m tonnes, with some ideas that it could dip below 20.0m tonnes."

Benson Quinn said that "this crop is still going backwards. Some estimate the crop is closer to 18m tonnes".

Farmers lagging

Chicago soft red winter wheat for December stood unchanged at $4.44 ¾ a bushel, with USDA data overnight on sowings progress somewhat helpful too.

US winter wheat sowings for the 2018 harvest were pegged at 36% complete, behind the average pace of 43% for the time of year, and the 37-38% figure that traders had expected.

The USDA data showed US farmers behind on two other key seasonal processes too .

Corn harvesting was shown 17% complete, behind an average of 26% and expectations of 20-21%.

And soybean harvesting was pegged at 22% complete, behind the average pace of 26% for this time of year, and a forecast of a 25% figure.

Barge rates soar

"With the limited harvest activity in western Corn Belt because of excessive rainfall, this week's US harvest progress remains behind normal," said Jerry Gidel at Price Futures.

However, thoughts of support to corn and soybean prices were curtailed by continued talk of better-than-expected yields, besides the squeeze on barge traffic in the Mississippi river system which is sending freight rates soaring but, in cutting demand for crop, weighing on crop values.

"Low water levels for many US Midwestern rivers continue to underpin barge freight rates," said Terry Reilly at Futures International.

This just as the harvest is sending corn and soybean supplies soaring, of course, meaning in essence that harvest pressure on prices is enhanced.

Corn futures for December dropped 0.5% to $3.49 ¾ a bushel, while November soybeans dropped 0.3% to $9.45 ¾ a bushel, managing – just – to stay above their 40-day moving average.

Supportive factors

In New York, cotton fared better, in adding 0.1% to 67.61 cents a pound for December delivery, offered some help by USDA data overnight showing a 3-point drop week on week in the proportion of US crop rated in "good" or "excellent" condition – albeit to a still-elevated 57%.

"The survey recorded a sharp decline in US cotton crop condition that had been in relatively high all this season," said Tobin Gorey at Commonwealth Bank of Australia.

"The news has the potential to arrest the decline in prices."

He flagged another factor too which could see traders somewhat cautious for now over pushing values too much lower.

Current prices are at "levels not seen since the initial worries emerged about Hurricane Harvey", Mr Gorey said.

"Buyers have emerged at these levels and a cent or so lower through the middle of the year and may do so again."

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