Morning markets: crops cower, as rash of key events looms

by Agrimoney.com

Sentiment on farm commodity markets, having turned mixed in the last session, was most definitely wary on Friday, in line with the more general market mood.

The macroeconomic view is clouded both by the results of stress rests on European banks, due to be released at 16:00 GMT, and the US budget negotiations.

Standard & Poor's warned that it, too, may too cut America's credit rating if no deal is reached on raising the government's debt ceiling.

Layered on top of this are the ongoing uncertainties surrounding eurozone sovereign debt, and US economic policy, with Ben Bernanke, the head of the US Federal Reserve, on Thursday downplaying the chances of a further round of quantitative easing after the day before appearing to raise the likelihood of further ultra-loose credit.

That was one reason for a bit of profit-taking in, for example, wheat, which is up 20% in Chicago this month, on a nearest contract basis.

'Critical stage'

But there were crop-specific reasons too, with a dearth of news overnight which might be deemed supportive to prices.

Sure, the weather forecast for the US still calls for unhelpful heat and dryness.

"The high temperatures that are expected to linger through the night are set to arrive just as the bulk of the corn crop hits pollination, the critical stage of development for determining final yields," Lynette Tan at Phillip Futures said.

"High temperatures keep corn plants working throughout the night. This way, development is speeded up, bringing the corn closer to maturity and shortening the life cycle of the plant which consequently affects corn yields."

The key night-time temperature is, according to some experts, 64 degrees Fahrenheit, above which damage occurs, and which has already been exceeded in, for example, Des Moines, Iowa and Springfield, Illinois.

In iowa, Mike Mawdsley at Market 1 said: "The weather threat is for real at the moment. Many US areas are witnessing extreme heat and lack of moisture."

He added that this "should be reflected in Monday's condition report" - the weekly US Department of Agriculture briefing on crop health.

Key period

But there is still some debate of a further week of poor conditions, heading into August, which is seen as doing real damage.

"The 11-to-15 day outlook is now key and will keep market volatile as meteorologists note little confidence in extended models," Kim Rugel at Benson Quinn Commodities said.

Corn for September, now the spot contract, fell 0.3% to $6.88 ¾ a bushel as of 07:50 GMT (08:50 UK time).

Egypt, and Russia

And that was a depressant to wheat too, which is back a premium to corn on a spot contract basis – the normal state of affairs – following the expiry of the July contracts on Thursday.

Chicago's September contract was 0.5% lower at $7.03 ¾ a bushel, getting a further kicker from an Egyptian grain tender announced overnight, and likely to remind the trade of the competitiveness of Russian wheat.

"Expect the Russians to sell this tender once again, but they may offer it at $240-$245 a tonne [including freight]," Brian Henry at Benson Quinn said.

"If the Russians stay don't raise their offer, the EU offers will be nearly $40 higher and US offers will likely be $50 plus higher."

Still, he added that "ultimately, I expect the Egyptians to reject these shipments due to quality", and there is some doubt that Russia will win again.

Agritel, the Paris-based consultancy, said: "From a price point of view, Russian wheat is much more competitive than other origins. The question is whether the Egypt will add a risk criterion to its choice,"

Tumbling bales

Soybeans wilted in line with corn, and the uncertainty over really poor weather conditions setting in.

The spot August lot eased 0.5 cents to $13.81 ½ a bushel.

Bears were more successful in sinking cotton, which looks increasingly at risk (although not today, thanks to exchange limits on movement) of falling below 100 cents a pound for the first time since October, on a spot contract basis following another week of poor US export sales data.

Sales were in negative, in fact, by 48,000 bales, meaning cancellations.

"Current prices have not proven sufficient to induce export demand. In our view, demand must re-enter the market before prices are able to rise," Luke Mathews at Commonwealth Bank of Australia said.

Cotton for October fell 3.6% to 102.50 cents a pound, with the December lot easing 3.9% to 100.41 cents a pound.

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