Monday, July 3, 2017

Ag Futures: "Weather, Funds help Grain Futures Jump into July"

You may have noticed a shift back toward the agricultural markets over the last month or so. That's deliberate, no need to adjust your receiver.

Chicago via FinViz
From Agrimoney:

The rally in wheat futures is bubbling up into something looking far more like a proper potboiler than a storm in a teacup.
Minneapolis spring wheat futures began July where they ended June (which ended on Friday with a 4.3% surge for the September contract, bringing its gains for last month to 34%).
On Monday, the September hard red spring wheat contract touched $8.12 ¾ a bushel in early deals, within an ace of a four-year high for a nearest-but-one contract, before easing back to $8.03 a bushel as of 10:15 UK time (04:15 Chicago time), a 4.1% gain on the day.
Growing dryness
The market is continuing to try to find the price level deemed necessary to tailor demand for the high protein wheat (which is difficult to substitute for many functions) to supplies being curtailed by the impact of drought on the US crop.
Investors continue to fret over lower-than-expected sowings data for spring wheat revealed in official data last week from both Canada and the US.
And drought worries are not diminishing, with the northern US spring wheat belt set for "only patchy rains the next 10 days", said Commodity Weather Group, cautioning over temperatures rising into the "low 100s" degrees Fahrenheit through Thursday in the area, and southern Canada too.
"The cash market speaks for itself with high protein wheat more than $2.00 a bushel over 10.5% protein," said Terry Reilly and Futures International.
The gap over the lower protein types, eg the soft red winter wheat traded in Chicago, is even larger.
'Anything but bullish
Still, why is the premium not higher still?
One of the questions many investors have been voicing during the spring wheat rally is why winter wheat futures have been quite so strong too, with the Chicago September lot hitting a one-year high for a spot contract, of $5.47 ¼ a bushel earlier.
The lot then eased to $5.43 ¼ a bushel, a gain of 3.3% on the day.
After all, the US sowings data out on Friday, while showing spring wheat area less than had been expected, revealed a small upgrade to the official estimate of winter wheat plantings – with separate data on inventories showing larger-than-expected US all-wheat stocks too.
The data were "anything but bullish", said Benson Quinn Commodities, adding that "recent buyers in winter wheat need to be cautious".
'Tale of two cities'
As ag advisory group Water Street Solutions put it, "the complex is dealing with a tale of two cities.
"Supplies of high quality, high protein wheats from the west and north US are moving into rationing mode - while the soft wheat market brings in another great crop."
But part of the cause of the strength with winter wheat lies with the fact that the US soft wheat crop is not the only one investors are taking note of.
"Europe is dealing with not only dryness concerns but now recent heavy rain damage to the German crop," said Water Street Solutions.
"Ukraine is less than ideal as is Australia," where National Australia Bank forecast a 23.3m-tonne crop, behind the 24m-tonne figures produced by eg the International Grains Council and Australia's Abares.
Fund dynamics
Another factor is the dynamics of funds, which remained net short in Chicago soft wheat futures and options even as of last Tuesday, US regulatory data out late on Friday showed.
"Investors still had substantial short positions last Tuesday," said Tobin Gorey at Commonwealth Bank of Australia, adding that this meant that "investors thus still had plenty to buy still", as of late last week anyway, in terms of cutting their exposure to a loss-making position.
And there are a couple of reasons funds might think about long bets on winter wheat....