Have wheat futures set their seasonal low?
Often in July (although it has to be said, not in recent Julys), Chicago soft red winter wheat futures reach a nadir as the peak passes of pressure on values from the extra supplies brought by harvest, a process which switches a bit market power to a buyers’ hands.
This year, there is not just the seasonal factor to think of, although the US winter wheat harvest now past 80% complete (although US Department of Agriculture data later will reveal by exactly how much).
(“The winter wheat harvest is winding down,” said CHS Hedging, albeit noting the imminence of the [smaller] spring wheat harvest.)
‘Strong decline of yields’
There are also the waning expectations for the European Union wheat crop – the world’s biggest – to factor in, and in particular the wet weather damage to the harvest in France (the EU’s top producer) which sent Paris futures soaring in the last session.
“The progression of wheat harvest is confirming the strong decline of yields compared to previous years,” said Paris-based Agritel, which has forecast a harvest of some 32m tonnes, down more than 20% year on year.
Rival consultancy ODA has cut its forecast to less than 30m tonnes, after holding a figure of 35m tonnes entering July.
And this is before getting to grips too with the quality issues the crop is said to be facing, and with harvests hopes reducing for Germany, the EU’s second-ranked wheat grower, and for the third-ranked UK too, at least according to informal comments made to (UK-based) Agrimoney.com.
This when forecasts for Argentina’s wheat crop, to be harvested late this year, also being downgraded, with wet weather preventing sowings.
‘Low protein’
It has to be said that doom and disaster is hardly the representative picture for global wheat supplies, with Russia expected to see a record harvest.
“I would guess the trade is looking for Russian production north of 67m tonnes,” Benson Quinn Commodities said.
US results are strong too on yield and many quality specifications, if less so for protein. (There is often, indeed, a strong yield-reduced protein pay-off.)
Latest results from the hard red winter wheat harvest show protein content “well below desired levels”, said US Wheat Associates.
Australian harvest expectations are also being raised too.
‘Short may be in trouble’
Still, the big question is how much of the good news has already been factored into prices which remain not far from 10-year lows in Chicago.
And after all, regulatory data late on Friday showed that managed money, a proxy for speculators, had a net short of more than 116,000 contracts in Chicago wheat futures and options as of last Tuesday – a record amount.
That raises questions of whether speculators will have much appetite for further short positions, and indeed are keen on closing some of their existing ones, putting upward pressure on prices.
“The wheat short may be in trouble given the weak seasonal is nearing an end with winter wheat harvest done, and the rally in French milling market,” Benson Quinn Commodities said.
Soft red winter wheat futures for September gained 1.5% to $4.31 ¼ a bushel in Chicago as of 09:40 UK time (03:40 Chicago time), and hard red winter wheat futures for September added 1.3% to $4.24 ¼ a bushel, building on price gains in the last session.
Then, “the move was no accidental surge in thin trading either – volumes were very large,” Tobin Gorey at Commonwealth Bank of Australia noted.
‘Relieve any stress’
The gains gave some help to rival grain corn too, a bit of role reversal compared with the previous couple of months when it was corn which took the lead, as the US sowing progress, and growing weather, took prominence.
In fact, the recent heatwave has not proved as severe as many forecasters expected.
“The US Midwest is expected to receive enough rain this week to relieve any stress that may have result from last week’s hot and dry conditions,” CBA’s Tobin Gorey said.
CHS Hedging said: “The advertised extreme heat and dry conditions did not stick around as long as previously predicted.”
‘Warmer and drier weather’
However, there is some potential yet for the US summer to have a bit of a sting.
“Forecasters’ weather models have added some warmer and drier weather back to the first week of August,” Mr Gorey said
“Forecasters say that this drier spell might prevail longer that the last one,” although “confidence model this far out is low”.
CHS Hedging said: “Some models indicate heat building,” in early August, “but that’s too far down the road to have significant confidence in”.
Still, corn futures for December added 0.4% to $3.43 a bushel, recovering from early losses.
‘China demand’
As for soybeans, they proved a little less buoyant, easing 0.1% to $9.87 a bushel for November delivery, despite support from the less benign weather outlook, besides by some demand hopes.
“China demand could limit losses in soybeans over the coming weeks if soybean export inspections increase,” said Terry Reilly at Futures International.
“August soybeans could trade back up into the $10.50-11.00-a-bushel area unless favourable weather prevails and pulls prices below a $9.63 support level.”
The August lot traded at $10.06 a bushel in early deals, down 0.1% on the day.
Less upbeat for prices was the US regulatory data, which showed managed money retaining a net long of more than 137,000 contracts in Chicago soybean futures and options, suggesting some scope yet for selling.
Palm down
Elsewhere in the oilseeds complex, palm oil for October fell by 1.2% to 2,293 ringgit a tonne in Kuala Lumpur, unsettled by recent weakness in Chicago soybeans, and indeed soyoil, which slumped 2.8% in the last session for December delivery.
Palm oil’s slide came despite data from cargo surveyor SGS showing a 15.0% rise, month on month, in Malaysian palm oil exports in the first 25 days of July, continuing the pace of 15.3% as show for the first 20 days.
(Chicago soyoil futures for December were a further 0.1% lower at 30.66 cents a pound in early deals.)
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