May 31, 2012

 

US wheat down over 1% to two-week low

 

 

As a surging dollar and mounting concerns over Europe's debt crisis, US grains fell sharply Wednesday (May 30), with wheat dropping more than 1% to a two-week low, triggered a broad commodities sell-off as investors fled risky assets.

 

Corn and wheat futures declined despite a larger-than-expected downgrade in US crop conditions, while soy tumbled to their lowest in a week on news that top soy importer China was unlikely to pass a stimulus package.

 

The US dollar index, which measures the strength of the greenback against a basket of currencies, rose to its highest since September 2010 amid the euro zone banking crisis and slow growth in China, making dollar-priced commodities expensive for importers.

 

The dollar typically has an inverse price relationship with commodities, which are priced in dollars. So for importers a stronger US currency makes commodities cost more.

 

"It's a risk-off attitude," said Citigroup grains analyst Sterling Smith. "Pick a country in Europe and pick a problem. The Spanish banking crisis seems to be the most acute issue and that is creating a situation where commodities in general are selling off along with equity markets."

 

Wheat for July delivery was off US$0.09 at US$6.47-3/4, declining for the second straight day at the Chicago Board of Trade, while July corn was down US$0.06-3/4 at US$5.55-3/4 and July soy US$0.19-1/4 lower at US$13.67-1/2.

 

Weakness in other commodities, especially crude oil and metals, also pressured the grains complex, analysts said.

 

"We are seeing something of a tug-of-war each day between the depressed micro economic environment and weather conditions especially in the Black Sea region and the US," said Rabobank analyst Erin FitzPatrick. "A lot of the moves today were based on the depressed macros, yesterday we saw more fundamental influence."

 

Russia's Grain Union on Wednesday gave an upbeat picture of the country's upcoming crop and exports.

 

Traders were keeping a close eye on weather forecasts after wheat prices came under pressure after reports of rain in dry southern Russia since the weekend, with Russia's state forecaster predicting more rainfall this week.

 

"We do have some improved weather forecasts for the US this week but the longer-range forecasts are still not very positive," FitzPatrick said.

 

The USDA's weekly crop progress report on Tuesday (May 29) said that 72% of the crop was in good-to-excellent condition, down five percentage points from a week ago. Analysts polled by Reuters expected the crop's rating to drop two to four percentage points.

 

US corn and soy crops now need an urgent round of rain and there are some forecasters calling for showers in the Midwest this week.

 

Rain is also seen in portions of the lower Midwest, providing critical relief to stressed corn crops in those areas, although more will be needed to foster development. Traders said rain was unlikely to penetrate the dry sub-soils that were slowing soy emergence.