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Morning markets: February starts on soft note for grains

Morning markets: February starts on soft note for grains
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So, if month-end profit-taking was detected in the ag market moves of the last session, will the start of February bring fresh cash in?

“Friday’s trade will depend heavily on what the funds need to do to start a new month,” said Benson Quinn Commodities, referring in particular to wheat.

However, in early deals at least, wheat futures maintained the same direction as which they closed January – downwards – with Chicago’s March contract down 0.9% at $4.47 ¾ a bushel as of 08:55 UK time (02:55 Chicago time), although remaining above its 100-day moving average.

‘Traders are skeptical’

Indeed, there was questioning about how far the rise prices was justified by supply and demand fundamentals, with Agritel, for instance, saying that “the recent upward move has been mainly caused by short-covering trades and cannot be lasting without real climatic incidents.

“So far, unfavorable weather conditions are concentrated in US Plains”, a major wheat-growing area, “and on South American soybean-growing areas.

“In Europe and the Black Sea, crop conditions are not raising any fears and traders are skeptical about a decent upward potential for prices.”

‘Looks rich’

At Commonwealth Bank of Australia, Tobin Gorey flagged too the out performance of late of Kansas City hard red winter wheat – the type grown in the dryness-hit southern Plains.

As of last night, “Kansas March is now sitting at a $0.15-a-bushel premium to Chicago” soft red winter wheat, he said.

“That premium is well higher than anything seen since early in the 2017 wheat season.

“The Kansas premium is now hefty in contracts into 2019, not just the 2018 March and May contracts.”

The Kansas City market “looks rich”, said Benson Quinn Commodities, if adding that “I can’t count on additional fund buying”.

Data later

But not in early deals, at least, when Kansas City wheat for March stood down 1.3% at $4.61 a bushel, shrinking its premium to Chicago.

Still, it is early days yet, for the session as well as February, and start-of-month fund buying, if it comes, is typically viewed as occurring later on in the trading day.

The market also has some key data to negotiate, including the weekly US Drought Monitor, which looks of particular interest to wheat investors (although it has to be said that it is early in the growing season to be getting too worried about dryness of winter grains which are still in dormancy).

Then there are weekly US export data, expected to come in at 300,000-500,000 tonnes for wheat, around the same level as the 427,239 tonnes hit the week before.

Brazil vs US prices

For soybeans, the export sales data are expected at 600,000-1.0m tonnes, which would suggest at least matching the 616,272 tonnes reported last time.

But will shipments indeed improve? Have recent price gains elevated US supplies out of the market?

CHS Hedging said that it was “hearing that China has bought 4-5 cargoes of soybeans from Brazil. US is at a $0.10-15 a bushel premium to Brazil beans”.

Chicago soybean futures for March eased 0.5% to $9.90 ½ a bushel, with pressure also coming from some improvement in the Argentine weather forecast.

That said, “the forecasts still look worrisome”, CBA’s Tobin Gorey said, adding that “the clock is also running down.

“Argentinean crops will soon end a development window having suffered hot and dry conditions for much of that time.”

Corn gains

Corn export sales are expected to come in at 1.0m-1.5m tonnes, at best matching the 1,445,876 tonnes achieved last time, although no shame in that.

Corn is one ag in which Benson Quinn Commodities noted that “export business has picked up – six of the last seven days we have seen re-portable corn sales of 115,000 tonne or more”.

And this after a run of data showing decent US ethanol production, implying strong use of corn on that score.

Still, Chicago corn futures also eased in early deals, if by a modest 0.2% to $3.60 ¾ a bushel for March delivery.

Factored in?

Where the export report may really count, though, is in the cotton market, which had seen a strong run of sales data until last time, when prices above 80 cents a pound appear to have deterred buyers.

Louis Rose at Rose Commodity Group said that “we expect the report will resemble the one put forth for the week ending January 18, although shipments could prove to have quickened.

That said, futures are now back “trading below levels where large export sales have recently been accomplished.

“Hence, it seems that much of a poor report has already been factored into the market.”

New York cotton futures for March stood up 0.4% at 77.56 cents a pound, staying ahead of their 50-day moving average.

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