Just how serious is the dryness challenge facing winter wheat on the US Plains?
“Observers continue to discuss dry conditions and warm temperatures on the US Southern Plains as a threat wheat crops,” said Tobin Gorey at Commonwealth Bank of Australia.
However, “any problem is ‘potential’ rather than ‘actual’ for now”, he added.
Oklahoma grazing
In fact, (limited) US Department of Agriculture data overnight showed that there were some niggles to keep an eye on.
in Oklahoma, “topsoil and subsoil moisture conditions were rated mostly adequate to short,” USDA scouts said, with 45% of topsoil rated “short” or “very short” of moisture as of Sunday, up 4 points week on week.
“The first week of March started with some rain but ended with warm and dry weather.”
The proportion of winter wheat rated “good” or “excellent” fell by 2 points week on week, although at 66% it was still a decent reading.
Indeed, that 51% of Oklahoma winter wheat was being grazed, well ahead of the average of 38%, looked a reflection of weak prices of late rather than of dire condition.
Texas improvement
Meanwhile, in neighbouring Texas, the proportion of winter wheat rated good or excellent gained 2 points to 42%, despite “mostly dry, windy conditions”.
Indeed, the proportion of topsoil rated short or very short of moisture soared to 44% from 25% the week before.
“Winter wheat in areas of the Panhandle, the Cross Timbers and the Blacklands continued to progress and irrigated fields benefitted from the additional moisture,” USDA scouts said,
Too little rain, too much
And the weather forecast is not exactly generous in its moisture outlook.
“Much of the hard red winter wheat production area of the Texas and Oklahoma Panhandles, eastern Colorado and western Kansas have been drier than normal over the last three months – virtually the entire country has been warmer,” said Mark Welch at Texas A&M University.
“Only light coverage is expected this week where precipitation is forecast in these areas, heavier amounts are east,” with inundations forecast for the Mississippi Delta region, where farmers are trying to seed corn.
Terry Reilly at Chicago broker Futures International said: “Heavy rain across the Delta of up to 10 inches, possibly more, over the next five days is expected to keep many producers out of their fields.”
Data ahead
Still, being early yet in the growing season for winter wheat, and very early for corn sowings, such data could not keep alive the rally in grains, with a late round of selling in the last session, blamed largely on producers taking advantage of higher values, setting the tone for this one.
Tuesdays are, of course, by repute the day when traders reverse price trends of the previous session anyway.
Besides, the trade has its eye on other matters for now than US weather, with the monthly USDA Wasde crop report looming.
Not that this is usually one of the more significant editions, in terms of price-moving changes to supply or demand estimates.
But what revisions it does make are expected to be somewhat bearish, in terms of raising estimates for stocks a little.
Wasde forecasts
For wheat, the Wasde will raise the estimate for US inventories at the close of 2015-16 by 9m bushels to 975m bushels, although the world stocks figure could see a 100,000-tonne trim to 238.8m tonnes.
For corn, US stocks are forecast being raised in the Wasde by 17m bushels to 1.854bn bushels, with the world stocks figure increased by 270,000 tonnes to 209.1m tonnes.
Meanwhile for soybeans, US stocks were forecast coming in at 452m bushels according to the consensus estimate from a Reuters poll, representing an increase of 2m bushels from the current USDA figure.
The Wasde is seen pegging world soybean stocks at 80.89m tonnes, which would be an upgrade of 470,000 tonnes.
“US ending stocks could increase on lower crush usage while world stocks look set to increase on higher Brazil and Argentine production estimates,” Benson Quinn Commodities said.
‘Looking for any bullish sentiment’
While hardly mega bearish, the prospect of a potentially downbeat Wasde, from pricing terms, helped give some reassurance to investors holding the huge short position in ags, and put a stop to the recent rally.
Sure, in wheat, for example “bulls are looking for any bullish sentiment to hold on too”, said Benson Quinn Commodities, but “it’s still premature to begin trading a weather market on new crop”.
And as a negative, there has been some talk of further Egyptian rejections of a wheat cargo, of Ukrainian origin, amid the fuss over specifications on permissible fungal contamination, although the exit of Saad Moussa as head of the Egyptian quarantine agency will give reassurance that the country, the top wheat buyer, is not about to be blackballed by merchants again.
Chicago wheat futures for May dropped 0.7% to $4.59 ¾ a bushel as of 09:25 Uk time (03:25 Chcaigo time), although it was notable that Kansas City-traded hard red winter wheat, as grown on the closely-watched southern Plains, did fare better, shedding 0.3% to $4.69 ½ a bushel.
China trade worries
Corn, meanwhile, for May eased by 0.5% to $3.57 ¼ a bushel, in Chicago, weighed by its fellow grain wheat and by the prospect of Wasde stocks upgrades, but also by an easing off in oil values.
Brent crude dropped 0.5% to $40.65 a barrel, amid some disappointment over Chinese trade data, which showed overall exports down 25% year on year in February, in dollar terms, the worst monthly decline since early 2009.
Chinese imports fell by 13.8%.
Shanghai shares shrugged off the statistics, edging 0.1% higher but other markets were less resolute, with Tokyo stocks dropping 0.8% and London shares shedding 1.1% in early deals.
Back below the 100-day
For soybeans, the Chinese trade data were not so bad, coming in at 4.5m tonnes, a rise of 5.8% year on year.
“Soybean imports rebounded in February after a slowdown in January,” Australia & New Zealand Bank said, noting that “Chinese buyers face plentiful US soybean stocks and the start of fresh supplies from Brazil, with the harvest season well under way.
“Chinese buyers also returned to the market as soybean prices fell to the lowest level in a decade.”
Still, soybean futures for May, which had recovered strongly this month, gave back some of that ground, easing 0.7% to $8.75 ¾ a bushel, giving back to their 100-day moving average, while finding support at the 40-day line.
Cotton retreats
Cotton also gave up a moving average too, falling 1.0% in New York for May delivery to 56.81 cents a pound, back below its 10-day moving average.
The fibre – as an industrial commodity, and having China as its top consumer – is particularly sensitive among ags to the economic welfare of the country, which has been overhanging the market too in terms of talk of a release of cotton from huge government stocks.
Indeed, flagging the threat of “any surprises in China’s cotton reserve policy”, CBA’s Tobin Gorey said that “we are wary of thinking the market has now closed out season lows”.
During the spring sowing season, cotton futures are also strongly influenced by prices in planting rivals corn and soybeans too.
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