Talking down prices could be one way to promote exports.
Certainly, US Wheat Associates – which aims to boost trade in US wheat, and has thus been having a hard time of it, with the country’s shipments officially forecast to hit the lowest since the 1970s – had a gloomy picture to paint of wheat price prospects.
“Record global stocks and the strongest dollar in 12 years have combined with record low ocean freight rates to expand the reach of cheap Black Sea wheat,” the group said.
The “relatively good condition of the US winter wheat crop”, helped by “topsoil and subsoil moisture levels… more favorable than last year” are also ensuring that “this a buyers’ market”.
While there are some worries about southern hemisphere crops, “with the much larger northern hemisphere winter wheat crop headed into dormancy, there appear to be few changes on the horizon to change the underlying fundamentals that are driving this global buyers’ market in wheat”.
‘Dollar meltdown’
But maybe it is always darkest before dawn?
Certainly, wheat futures, after their strong rally of the last session, found further buying interest this time.
The March contract in Chicago rose by 0.6% to $4.81 ½ a bushel as of 08:50 Uk time (02:50 Chicago time), now up 3.0% in two sessions, and grappling with its 10-day moving average, which it has closed above only once in the past month.
And this despite a recovery in the dollar, whose sharp slide in the last session, of more than 2% against a basket of currency, was viewed as a positive for ag markets in general, although with wheat taking particular advantage.
“The wheat market soared, taking full advantage of the meltdown in the dollar,” as CHS Hedging said.
(A weak dollar makes dollar-denominated exports, such as many commodities, more affordable to buyers in other currencies.)
‘Quality downgrading’
The issue is how much of wheat’s revival is down merely to funds covering some of their plentiful shorts on the grain, a trend which could peter out soon, and how much to real ideas that wheat prices had fallen below fair value.
US conditions remain bearish, in helping the crop to be harvested next summer.
“US winter wheat country is getting a lot of sunshine after precipitation fell over the past several days,” said World Weather.
Still, there do remain issues elsewhere, with Australian grain handler CBH flagging continued issues over crop quality, a factor which has raised its issue in South America too.
In Argentina, “heavy rains that delayed harvest for much of November have also resulted in some quality downgrading,” as US Wheat Associates noted.
“The same heavy rains that delayed harvest in Argentina also affected Brazil’s southern wheat growing regions caused loss of yield potential and quality downgrades.”
Data later
Still, more critical on Friday may be what has happened in Canada, with Statistics Canada later to reveal updated estimates for domestic crop production this year.
Total wheat output is expected at 26.7m tonnes, an upgrade from Stats Can’s current figure of 26.1m tonnes.
That figure includes 4.74m tonnes of durum, which is expected to be lifted to 4.92m tonnes.
Palm up
The canola crop may see an upgrade too, to 15.2m tonnes, from the current 14.3m tonnes, according to a Reuters survey of market estimates.
And the prospect did not seem to be cheering canola futures, which traded 0.3% lower to Can$473.80 a tonne in Winnipeg.
But then, the oilseeds complex was having a bit of a bad start, bar palm oil, which edged 0.3% higher to 2,372 ringgit a tonne in Kuala Lumpur, helped by a revival in concerns of a drop in output ahead in the key South East Asian producers, thanks to El Nino inspired dryness.
Indeed, US Department of Agriculture staff in Jakarta overnight cautioned that damage from the dryness would begin this month to show up in earnest in Indonesian production, which they pegged at 33.0m tonnes for 2015-16, 2.0m tonnes below the official USDA forecast.
Peso moves
In Chicago, soybeans failed to post gains, easing 0.3% to $8.94 ½ a bushel for January delivery, as the rally faltered in soyoil, one of the main soy processing products (with soymeal).
Soyoil prices have been lifted by a number of factors, including the enhancement on Monday to the US mandate for use of biodiesel (made from vegetable oils, and in the US mainly soyoil), and a proposal in Congress for a biodiesel producers’ tax credit.
Furthermore, prices in Argentina, the top soyoil exporter, have actually risen – despite all the talk of the election of Mauricio Macri’s elections spurring farmers to sell soybeans, thus allowing higher processing volumes, and increased availability of soyoil, implying lower prices.
However, Terry Reilly at Futures International also flagged another impact of Mr Macri’s election, a rise in the unofficial, or “blue”, rate of exchange for the Argentine peso.
‘Bullish beans’
“US soyoil remains competitive against South American soyoil.
“One reason US soybean oil is competitive is the recent appreciation in the Argentina blue rate, and in the Brazilian real,” with Brazil also a major exporter.
Mr Reilly also flagged a “drawdown in Argentina soyoil inventories -thin – and Brazil’s initiative to use a greater amount of soybean oil for biodiesel use.
While soyoil for January (which in the last sessions closed above its 200-day moving average for the first time in four months) eased by 0.2% to 30.81 cents a pound, and for March by 0.3% to 31.00 cents a pound, he had flagged the potential for profit-taking ahead of the weekend.
Futures International was indeed “now bullish soybeans, driven by soyoil”, seeing soybeans for January trading in an $8.5-9.20 a bushel range, with March soyoil having “the potential to test the 32.50-32.65 cents a pound area”.
More Argentine questions
As for corn, it held its ground, staying for March at $3.77 a bushel, lacking quite the short-covering call lifting its fellow grain wheat.
Indeed, there remained talk of an Informa Economics upgrade to 21.0m tonnes, from 18.5m tonnes, in its forecast for the Argentine corn crop.
Although this remains below a USDA forecast of 25.6m tonnes, the direction of travel is important, in that the market is focused on how much extra of the grain Argentine farmers might sow, following Mr Macri’s election, and the prospect of farm-friendly policies.
Still, overnight, the Buenos Aires grains exchange was unmoved, sticking with a forecast for Argentine sowings of 2.72m hectares, and for soybeans of 19.8m hectares.
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