Morning markets: wheat piles on gains, as Australia soaks

More rain in Australia, more gains for wheat.

The grain started off this week where it finished the last, firmly, coming just 2 cents short of $8 a bushel for the best-traded March contract at a one point, as the downgrades for the Australian crop poured in.

Commonwealth Bank of Australia cut its forecast for Australian exports. "We estimate that the harvest is at least one month behind schedule, and that at least 6m tonnes of wheat will be of downgraded in quality," albeit not all to feed, Luke Mathews, CBA agri commodities analyst, said.

At National Australia Bank, Michael Creed put the downgrade at 10m tonnes of a total crop the bank has estimated at 10m tonnes.

Chasing money

And this when fears over external factors, such as Chinese inflation and eurozone sovereign debt, have calmed down too.

"It now appears we are back in that mode where the main focus is to chase money," Jonathan Watters at Benson Quinn Commodities said, noting the "pain" the trend has caused for proponents of a long corn, short wheat spread popular during the autumn.

Not that there is no rational fundamental reason behind further gains.

"For all the talk of speculative money flows dominating this rally, it is interesting to see cash markets remain strong and even lead the way," he said.

"The impression is that a large number of end users have little in terms of forward coverage. Given waning European Union supplies and the quality crisis in Australia, options are limited for those unwilling to pay higher US prices."

And those were, at 08:15 GMT, $7.90 a bushel for Chicago's March lot, up 11.0 cents on the day, with the spot December contract adding 10.0 cents to $7.48 a bushel in thin trade.

Ethanol worries

Thinking of the spread with corn, this again worked mildly against its autumn direction, with the March contract down 0.5 cents at $5.73 a bushel.

That was a disappointment to some after the grain had appeared to have got out of its, relative, rut on Friday.

Momentum had looked as if was "turning up again", Mike Mawdsley at Market 1 said, with the March contract breaking above 20-day and 50-day moving averages, which can prove tough to crack through, either on upward or downward moves.

But the grain continues to be dogged by fears that the US will fail to renew a tax perk for blenders of ethanol, made in the US in the main from corn, into forecourt fuel.

'Concurrent tightening'

Soybeans, meanwhile, showed a bit of a mixed start, losing 0.25 cents to $13.06 ½ a bushel for January , but with later lots higher.

The May 2011 contract, for instance, added 1.25 cents to $13.09 ½ a bushel.

While production of rival oilseed canola in Australia is also expected to be hurt by heavy rains, the crop of the rapeseed variant in Canada was upgraded by 1.4m tonnes on Friday.

But there were some doubts as to how long soybeans may remain muted, given ongoing dryness concerns in Argentina, the third-largest producer of the oilseed, and the need to secure northern hemisphere acres come the spring sowing season.

"Amid the concurrent tightening across major crops, the slightest indication of a weaker-than-expected crop may generate an increase in buying," Ker Chung Yang at Phillip Futures in Singapore said.

"Notably, Brazil and Argentina... are counted on to relieve the strain on US supplies in the face of strong global demand, particularly from China."

(Source: http://www.agrimoney.com/marketreport/morning-markets-wheat--piles-on-gains-as-australia-soaks--866.html)