Unusually hot and dry weather strengthens wheat market
04.02.2010, 16:02
Wheat futures moved higher on continued concern over the state of hard red spring (HRS) crops in the northern plains, which endured mostly hot and dry weather this week.
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Crop stress in spring wheat areas was leading the uptrend in Wednesday's trade, and unfavorable weather conditions were expected to persist through to next week. Traders noted that strength in the Minneapolis wheat market was helping firm Kansas City and Chicago wheat prices as well.
While poor weather forecasts maintained the momentum in wheat markets, drought damage could already be detected in Monday's crop progress report. The report indicated that 20 percent of the spring wheat crop was poor to very poor for the week ending July 2, up from 3 percent the previous week. This was largely due to abnormally dry conditions in South Dakota and North Dakota n- the country's leading HRS producer.
Good-to-excellent ratings for the HRS crop dropped to 52 percent, compared to 57 percent the week before. This illuminated the toll that persistently dry weather patterns have taken on wheat crops. Support in the wheat market was buoyed by heat and dryness in northern crop growing regions like Montana, and these conditions were likely to creep into Canada's spring wheat region next week.
Oil: New York crude oil futures hit $75.40 a barrel (an intraday record) after North Korea test-fired missiles into the Sea of Japan on Wednesday. The move sparked concerns about supply disruptions to major consumption regions in Asia, as analysts noted that a worsening geopolitical situation could obstruct the free flow of crude oil in the area. Moreover, Asia is a leading energy consumer, and trouble in the oil-hungry nation could thwart its fast-paced consumption rate.
The conflict involving North Korea and the outside world firmed crude oil prices, with speculation over dwindling U.S. gasoline inventories lending more support ahead of Thursday's Department of Energy report.
The report, however, was able to alleviate some supply fears, as crude oil stocks came in better than expected and there was a build in gasoline stocks. Further, DOE data showed that crude oil and gasoline stocks were above average, allowing the market to put some pressure on energy prices.
Nevertheless, strong demand for gasoline, which rose 1.4 percent despite a spike in prices, was bullish for the energy market. Oil prices have risen 23 percent already this year, mostly on account of the geopolitical conflict with Iran and steady consumption rates. With demand resolute and dual global confrontations threatening oil supplies -- not to mention the impact on outputs in Nigeria and the Gulf of Mexico n- analysts predicted crude oil prices to move higher still.
Orange juice: Frozen concentrated orange juice (FCOJ) futures soared to 15-year highs on Wednesday, as heavy speculative buying assailed the second trading day of the FCOJ notice period.
More buying was encouraged after FCOJ futures ran into stops, propelling the most active September contract to its highest level since November 1991. Traders identified bullish technical indicators, as well as the potential for tropical storms along the Florida border as forward-looking components for the orange juice market.
Traders also conceded that they would rather not be caught in sell positions ahead of the August start to the hurricane season, which, if categorically grave, could leave its destructive mark on key crop growing fields in September. FCOJ scaled back on its gains the following day, as profit taking put pressure on nearby spread differentials.