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Evening markets: Wheat futures tumble on US rain hopes. Cotton, cocoa hold firm
Wheat futures, which started the week firm, ended it on a downbeat note, hurt by ideas of rain relief for drought-tested crops in the US southern Plains, and by a tumbling rouble too.
Chicago wheat futures for May dropped 1.5% to end at $4.71 ½ a bushel, albeit still marginally up for the week, which had started firm on fears over the US dryness.
Kansas City hard red winter wheat, the type grown in the southern Plains, tumbled by 2.1% to $5.15 a bushel for the best-traded July contract, closing back below its 40-day moving average, and nearly surrendering its 50-day line.
(The May hard red contract actually did so, in shedding 2.3% to $4.95 ¾ a bushel.)
The falls reflected ideas of rains next week for the southern Plains, where Kansas, the top wheat growing state, is 83.4% in drought, according to Thursday’s official weekly US Drought Monitor,
‘Best rainfall chances in months’
“Weather looks to see hard red winter wheat areas receive a decent shot of precipitation, with at least a chance to stabilise, if not improve, condition” of the crop, said Benson Quinn Commodities.
At Halo Commodity Company, Tregg Cronin said that forecasts for the “southern Plains continue to point toward above normal precipitation in both the 6-10 and 8-14 day outlooks, suggesting the best rainfall chances in months for the hard red winter wheat belt.
“With the delayed development of this hard red winter wheat crop, an upturn in moisture could still leave Kansas with an average wheat crop.”
While looking just at weekly US Department of Agriculture crop ratings for Kansas, Oklahoma and Texas “one would think this crop is dead with zero chance for recovery… Boots-on-the-ground have been reporting this crop is 2-3 weeks behind most of this month, leaving ample opportunity for recovery”.
‘70 degree temperature swing’
That said, not all observers were quite so upbeat, in production terms. about the weather prospects.
Radiant Solutions, while noting a “wetter” outlook overall for the Plains for the six-to-10 day period, added that “dry weather over the next week will maintain severe dryness across central and south western areas, stressing hard red winter wheat”.
Mike Zuzolo at Global Commodity Analytics flagged weak temperatures, noting the prospect of an fall in temperatures in northern parts of Kansas on Monday to 22 degrees Fahrenheit, warming back up to 92 degrees by Tuesday.
“Less than 24 hours later, you are seeing a 70 degree temperature swing,” he said, adding that “I cannot see that as good” for production prospects.
“I don’t know if the trade really understands what is going on at this point, especially in the state of Kansas.”
‘Ripe for a downgrade’
However, as extra ammunition for bears was further gloom over US wheat exports, underlined by data on Thursday showing export sales last week at a meagre 120,700 tonnes.
Total US wheat export commitments (ie sales plus completed exports) for 2017-18 stand at 91.5% of the volume forecast for the whole season (which ends next month in the US), a figure which “is the lowest for this week since 2010”, said Halo’s Tregg Cronin.
“We still have 24% of the export forecast left to ship,” making the USDA’s 925.0m-bushel US export forecast for the whole of 2017-18 “look ripe for a downgrade”.
Indeed, the export competitiveness of Russia, now the top shipper, is only being enhanced by weakness in the rouble, which was actually stable on Friday at just under 62 roubles per $1, but still down more than 3% this week against the dollar on raised Western-Russian tensions, and amongst its weakest levels since 2016.
One hope for wheat bulls is that this encourages Russian farmers to hold on to wheat, as a dollar-linked hedge against a softer rouble, rather than selling, with any withholding offering support to Russian values.
Still, Benson Quinn Commodities urged investors to “compare Russian offers being inverted by $11 per tonne from May to July,” ie with the May contract holding a premium, “while US hard red winter wheat offers feature a $4-7-per-tonne carry from May-July/August.
“One can see what the priority is for exporters of both countries.”
Ikar indeed on Friday raised by 1.0m tonnes, to 39.5m tonnes, its forecast for Russian whaet exports in 2017-18 (ending in June).
‘Weather leans positive’
The weakness in wheat weighed on values of rival grain corn too, despite the wet, and cold, outlook for the US not being at all helpful for sowings of the grain as the US planting window opens up.
Indeed, for corn, as well as many other spring seeded grains, “weather leans positive” for prices, said Richard Feltes at RJ O’Brien, “with the Midwest cold the next 10 days, prospects for a late spring in upper Great Plains and rain late next week for most of Midwest - especially the eastern Corn Belt”.
Still Chicago corn futures for May ended down 0.9% at $3.86 ¼ a bushel.
Karl Setzer at MaxYield Co-operative said that “trade is showing very little concern with weather in the Corn Belt and how it may impact planting this year.
“At the current rate, very little planting will take place in the northern regions of the Corn Belt this month.”
However, “while this may be correct, any bullish reaction will be delayed”, with much confidence in US farmers’ ability to seed a stack of corn in a little space of time.
‘Market looks tired’
“In the meantime, the delays are actually considered bearish” for some crops, Mr Setzer added, with any lateness in corn seedings potentially opening up extra area for the likes of soybeans, which have a slightly later planting window.
“Soybeans are also finding pressure from reports of higher yields in Brazil and Paraguay,” with reports from the latter “indicating a soybean crop that will be little changed from the record of a year ago”, and Brazil’s (more important) harvest expected to see an all-time high too.
Soybean futures for May dropped 0.8% to $10.54 ½ a bushel,
“The market looks tired here,” Benson Quinn Commodities said.
In New York, futures in cotton, a competitor crop to corn and soybeans for sowing area in many parts of the US, fared better, adding 0.4% to 83.35 cents a pound for July delivery, finding further support from the strong US export performance.
There is growing evidence of this spreading from sales, which have already far exceeded initial expectations, to actual shipments, which have been lagging, but last week came in at a bumper 512,000 running bales, upland and pima cotton combined.
“Shipments continue to eclipse the weekly pace required in order to match the USDA’s revised 15m-bale export target” for the whole of 2017-18, said Louis Rose at Rose Commodity Group.
He added that weekly regulatory statistics on mills’ “on-call” purchases, yet to priced against futures, “continue to be very supportive to bullish for the July contract”, even though the latest report, overnight, showed a drop of more than 7,000 contracts in unfixed deals.
Cocoa futures were also firm, with the London July contract settling up 0.2% at £1,764 per tonne, back above its 10-day moving average.
The New York July cocoa contract added 0.5% to $2,576 per tonne, remaining close to 16-month highs set earlier this month.
The gains come ahead of data next week on the cocoa grind in Europe for the January-to-March period, expected to show growth of 2-4%.
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