- Midday comments:
- Yesterday’s rally in Dec ’14 wheat, to new highs, followed by a lower close could pave the way to downward pressure today. However, the contract showed some independent strength and made its high despite weakness elsewhere. The hedge fund exodus from short positions has supported the fundamentally weak grain commodities and the volume of trade has been high. It has been suggested that the funds are now “done”, or almost so, and the markets will now resume trading on their own fundamentals once more. As if a reminder was necessary, the grains fundamentals remain bearish, and an added pressure is coming from fears of global slowdown which has seen equity markets sharply lower, crude oil futures declining and currencies taking something of a battering. At some stage we see these issues pressuring the already fundamentally pressured commodity markets.
- Stratégie Grains has forecast EU 2014/15 soft wheat output higher at 147.403 million mt, compared with 146.6 million mt last and 135.4 million mt last year.
- In corn the market still has the threat of fund long liquidation hanging over it and hedge pressure from farmers selling and making more grain available to commercials will also remain a negative force, particularly if prices remain at, or above, current levels. Talk of improved US harvest weather conditions and the collapse in energy and equity markets as well as storage space issues from the grower’s point of view, all lean negatively on the corn market, particularly as time goes on. The weather outlook appears far better as we approach the weekend and into early November, and we would expect to see the harvest pace increase rapidly. Current price levels will be looking attractive to growers who may begin to look at moving their corn straight off the field, which would pressure cash as well as futures.
- In soybeans the large open interest in the front month Nov ’14 contract coupled with the fund net short position remains a supportive factor. Short covering is one side of the story, with the record US crop just around the corner farmer hedging will remain active and slow or restrict upside gains. Perhaps the largest longer-term issue remains the likelihood of increased S America soybean planted acres followed by increased US acres in spring 2015, which (if realised) would extend the oversupply position even further forward. Ultimately price has to become the balancing and driving factor to correct this potential trend. Currently the market remains very nervous and twitchy, hence volatility stays high, but the big picture remains unchanged.
- Evening update:
- It appears that Chicago markets have (at last) paused to take a breath after the volumes and gains of the last few days. As some equity markets and crude oil prices have recovered somewhat it seems that fund manager liquidation pressure is easing.
- Brussels has issued weekly wheat export licences totalling a massive 1,004,854 mt, which brings the season total to 8.92 million mt. This is 530,262 mt (6.3%) ahead of last year’s same time total. Clearly there has been some strong global demand for EU wheat as prices have reached their recent low levels, and consumer cover would seem to reach into early 2015 based upon these latest figures.
- With an hour of trading in Chicago corn, wheat and soybeans all remain in positive territory.