Sugar futures closed higher with a stronger Brazilian real

Wheat

Wheat markets were mixed last week, with Minneapolis prices a little lower and Chicago SRW prices higher. Chicago HRW prices closed a little higher. Spring Wheat values had moved higher due to reports of dry weather for planting in the western Canadian Prairies and reports of hot and dry weather in Russia and into eastern Ukraine. Production estimates for Russia have started to drop and world prices have started to firm. However, forecasts for Russian areas have moderated and the reports of improved weather have hurt Minneapolis prices.

The situation in Canada is having more to do with the recent strength in Minneapolis as much of the Canadian Spring Wheat is hedged in that market. The dry weather in Canada has made for easier planting but for poor emergence. Questions about yield potential are starting to increase. HRW markets had trouble generating much enthusiasm last week on reports of strong yield potential. The weather in the Great Plains seems to be a little better now and ideas are that a high yielding crop is coming. However, there have also been reports that some of the Wheat is not good and will be used as feed for dairy interests in the region.

Overall quality is expected to be down due to all of the rain. The crop is expected to feature lower protein levels this year. No one has said how much of the crop could be affected, but the market does not seem real concerned at this time as USDA crop condition ratings have been stronger than trade estimates over the last couple of weeks. SRW areas of the Midwest, Delta, and Southeast continue to see significant rains. There are reports of disease in the crops, and there are questions as to the quality even if there are no diseases in the crops. Export demand for US Wheat has been stronger than trade expectations over the last few weeks. The weekly charts show that the Chicago Winter Wheat markets are still trending higher, especially SRW. Minneapolis faded from a weekly chart point at about 575 basis July futures. Taking out that level would be considered bullish for the market.

Corn

Corn and Oats both closed higher last week. Corn futures are trading at the highest levels since 2014. The catalyst for the rally in Corn was the weather and what USDA showed in its monthly supply and demand estimates. USDA trimmed planted area estimates by 3.0 million acres in this report and is likely to trim more incoming reports. Trade estimates are that between seven and ten million acres of Corn will not get planted this year. In addition, USDA cut the yield estimate by ten bushels per acre to 166 bushels per acre. This was a surprise to the market, but one justified by past history, given the late planting dates and unfavorable weather.

Total production was just over 13.5 billion bushels. The bad weather continues. It was cold and damp in Chicago over the weekend and more rain was seen in much of the Midwest. More rain is expected over the second half of the week, although it will turn a little warmer. USDA has moved ahead and given very reasonable estimates for production based on current conditions and can be expected to trim more production potential as the year progresses. There is no real reason at this time to think that Corn futures will not trade above $5.00 per bushel at some point during the Summer and into the new crop year, but just how much higher prices can go is a big question.

There will be a lot of competition for sales in the new marketing year as the South American production has recovered and other world producers are expected to have bigger crops. The US continues to have trade wars although it seems to have found trade peace with Mexico and Canada, our biggest customers. The trade wars will hurt demand for all US goods including all agricultural goods.

Soybeans and soybean meal

Soybeans and Soybean Meal were higher last week as chart support held and USDA said it would start to make modifications to the Soybeans supply and demand data with the July updates. The weather is becoming a feature in this market as it has for Corn. The trade had assumed that some of the unplanted Corn area could be planted to Soybeans, and this is still very possible. However, the planting of Soybeans has been just as difficult as planting has been for Corn. More rain is in the forecast after rains were reported over the weekend, so planting this week will be difficult. Producers in eastern areas will most likely get the most rain. Producers suggest that they will try to plant through early July and then give up.

The total planted area for Soybeans this year will be tough to determine and it is very possible that less will get planted even if producers want to plant more. The trade is also worried about a permanent loss of demand from China due in part to the Swine Flu there and in other parts of Southeast Asia and the trade war with China. This is also happening and the Brazilian producer has been the beneficiary. The US has been selling Soybeans almost everywhere else as US prices have been competitive, but the biggest buyer in the world will not buy from the US due to the increased trade tensions.

Neither side seems ready to make a deal right now and in fact the tensions seem to be escalating. China has continued to buy US pork meat as it needs meat in a big way due to the Swine Flu. It is also making deals to buy pork from just about everyone else as the demand is going to be big enough to demand imports from all corners of the globe. The Brazilian Real has firmed again in the last week. This will increase Brazil prices and will help the US remain competitive in world markets for everyone besides China.

Rice

Rice was a little lower in consolidation trading last week. The good news was that export sales were solid for the week and that there is trade peace with Mexico, at least for now. Mexico buys a lot of US Rice so the news was important to the market. The weather seems to be better in Rice country. There was less rain to interrupt the last of the planting. Some of the producers in Mississippi, Arkansas, and southern Missouri will stop trying to plant Rice and will try to plant Soybeans instead. There can be little doubt now that total planted area will be somewhat reduced, especially in Mississippi and Arkansas. Just how much the planted area will be reduced seems to be a guess at this point. California is also having some weather problems from too much rain.

The crop was planted a little late and the crop condition ratings have not been as strong as is normally seen in the state. Crop development seems to be generally good and crops in southern areas are now in flood. This has helped ease some quality concerns for producers. World prices remain stable to firm so there is a good chance for more US sales to the west. The main competitor for this business is Brazil, and they have little Rice to offer this year. Prices there are higher in the world market than US prices.

Palm oil and vegetable oils

Palm Oil was a little lower after trading both sides of unchanged. The demand for Palm Oil has held well over the last couple of months, but the market also talks about big supplies. It will get monthly data from MPOB this week and that data will help decide on the next direction for prices. That direction could be up if the Chinese buy more Palm Oil. They are buying less Soybeans and will need to buy additional vegetable oils in the world market to make up for the lost domestic production of Soybean Oil.

They could and will also buy Soybean Oil in Argentina but will try to avoid buying from the US. Canola retrenched on Friday, but was higher for the week as a drought is developing in the Canadian Prairies. It has been very dry there and the crops in the region really need a drink. There were chances for some precipitation over the weekend. There are hopes that Chinese demand can return as well. China bought a lot of Canadian Wheat last month and much more than its normal purchases. The big Wheat purchases could mean that Canola demand will improve as well. Soybean Oil was firm due to the rally in Soybeans. The move lower in Crude Oil and products implies less demand for bio fuels, but Chicago Soybeans futures are rallying on the potential for less production. Trends are up in Soybeans and trends could turn up in Soybean Oil in sympathy.

Cotton

Cotton was a little higher for the week as traders become more concerned about planting progress and crop development of this crop. Trends have turned down on the daily and weekly charts with the price action of the last couple of weeks. The weather has been bad, especially in the Texas Panhandle, where there are concerns that it has been too wet and cool for the crop to be developed well. The Delta has also been wet and it has been dry in the Southeast except for the big rains of a week ago. Cotton planting fell behind the five year average last week and this trend is expected to continue this week and overall development is expected to stay behind the average. Crop condition ratings should also be less due to the weather. Demand is a problem for traders due mostly to moves made in Washington.

Cotton is already experiencing lost business potential with China and Turkey and could get hurt if Vietnam is targeted for tariffs later on. Also pressuring the market are forecasts for big production around the world. USDA sees no shortage of Cotton anywhere in the coming year. However, it could be that the Indian monsoon gets off to a slow start and production potential gets hurt there and in Pakistan. It has been dry so far and is turning hotter, but this is considered pre monsoonal weather. Below normal rains are now in the forecast for June and longer range forecasts call for a drier September as well as the monsoon should be generally weaker than normal.

Frozen concentrated orange juice and citrus

FCOJ was a little lower again last week as the weather in Florida remained tranquil. Speculators have been buying in anticipation of the hurricane season, but there are no storms on the horizon this early in the season. The season started on June 1. Trends are sideways to down on the daily charts and sideways weekly charts as the market looks at a big orange crop and weak demand for FCOJ. USDA production estimates are above 70 million boxes and represent a remarkable recovery from the greening disease and the small crops of just a couple of years ago. Inventories in Florida are still 17% above a year ago.

That means that there should be no shortage of oranges available to the market to make FCOJ. The increase is coming from less demand along with the increased domestic production. Fruit for the next crop is developing and are as big as golf balls. Crop conditions are called good. Irrigation is being used a few times a week to help protect crop condition. Mostly good conditions are reported in Brazil as the harvest there is active.

Coffee

Futures were lower for the week despite a firm Real. A strong export pace from Brazil remains a problem for the bulls. Brazil exported over 3.0 million bags of Coffee again last month. The Brazil harvest is moving along at a slow pace. Reports indicate that the yields are not real strong and that the quality of the crop is poor due to extreme weather seen early in the growing season. Vietnam is also reporting lower yields for the current crop as the weather was not good for flowering earlier in the year.

There have been some hot and dry spells that have hurt yield and quality for these crops as well. Buyers are now more actively pursuing other origins, especially for certified or higher end coffees. Roasters were scale down buyers on the extended down move and now have more than ample supplies in house or on the way. Brazil had a big production year for the current crop, but the next crop should be less as it is an off year for production. The charts show that both markets could trade in a sideways to up pattern for now as the market looks at weather and production potential of the next crop.

Sugar

Futures closed higher as the Real remained stronger. The move higher in the Real increased world prices, as did more reports that Brazilian processors prefer to make Ethanol for the domestic market rather than Sugar for the export market. Processing of Sugarcane in Brazil has been off to a slow start and there are some ideas that Sugarcane production was not all that strong this year due to uneven weather. Processing is faster now with the harvest in full swing. Chart patterns on the weekly charts are sideways in both markets. The fundamentals still suggest big supplies, and the weather in Brazil has improved to support some of the big production ideas.

Demand seems to be average and routine. There are concerns that the Indian monsoon will not be strong this year and that Sugarcane production could be hurt. It is hot and dry there so far, but there are signs that the monsoon is ready to develop. Even so, there are now a lot of private forecasts that June rains in both India and Pakistan will be below average. The government weather services there is looking for a normal monsoon, but many private forecasters expect less rain and warmer temperatures than normal. Very good conditions are reported in Thailand. Demand for Sugar has been average, and demand for ethanol is reported to be increasing.

Cocoa

Futures closed a little lower on some speculative long liquidation. Ghana Cocoa authorities noted disease problems in its crop and said that mid crop production could be hurt. The disease could hurt the mid crop and probably will affect the next main crop that will be harvested at the end of the year. They say that about 50,000 tons were lost in the midcrop. The mid crop harvest is winding down in West Africa and reports are generally positive, although some Nigerian producers have complained that the weather is not giving them the best conditions for top yields. Ivory Coast arrivals are as strong as the exports.

The weekly arrivals pace is about 15% higher than a year ago and is holding this level. Demand appears strong and the market saw stronger than expected grind data when the quarterly grind is released in the EU, North America, and Asia in the last month. Growing conditions are generally good in West Africa. Periods of showers and cooler temperatures were beneficial, and most in West Africa expect a very good mid crop harvest. Cameroon and Nigeria are reporting less production and prices there are reported strong. Conditions appear good in East Africa and Asia, but East Africa has been a little dry as has Malaysia.

(Featured image by DepositPhotos)

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DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation for writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.