For a second day, early deals witnessed bears getting some traction in agricultural commodity markets, notably in wheat, which set course for a third day of losses, on a neutral day for external markets. (Tokyoshares closed up a smidgen, but oil and copper futures were marginally lower.)
There was some fundamental reason for investors to get more bearish on the grain, with conditions improving for Australia’s crop, albeit with a couple of months or more to go before harvest.
"The Western Australia wheat belt could receive up to 10mm of rain on Friday," Paul Deane at Australia & New Zealand Bank said.
"The front is forecast to move over Victoria and New South Wales by Sunday, where rains of up to 35mm could be expected for the southern Riverina in New South Wales and northern Victoria."
Rain – but how much?
Furthermore, there is the rain forecast for drought-afflicted areas in the US South, where farmers are gearing up for hard red winter wheat sowings.
"Parts of Texas are forecast to receive some moisture ahead of planting. They have been stuck in a drought for nearly a year," Lynette Tan at Phillip Futures said.
Not that all observers are convinced over the precipitation.
"While rain to improve conditions for planting are welcome, the forecast is fairly sporadic and it will take substantial amounts of moisture to correct the drought conditions in Texas and Oklahoma," Dave Lehl at Benson Quinn Commodities said.
‘Correction in order’
But some reasons for Chicago wheat’s 1.7% drop to $7.37 ¾ a bushel for September delivery, as of 07:20 GMT (08:20 UK time) were technical.
(Indeed, wheat in Kansas, down 0.1% at $8.67 a bushel, and Minneapolis, 0.2% higher at $9.43 a bushel, markets less popular with speculators, achieved far better performances.)
Traders have noted a renewed enthusiasm for "short wheat, long corn" spreads, with wheat’s recent strength encouraging profit-taking.
"Wheat has rallied sharply lately," Mike Mawdsley at Market 1 noted, terming a correction "in order" and pointing to moving averages as support levels. (The September contract has already fallen through its nine-day moving average, at $7.45 a bushel.)
Benson Quinn’s Mr Lehl said: "The wheat charts still have a longer term bullish bias to them but are beginning to look like they are losing some short term momentum and possibly up against some resistance."
And this before factoring in the date, with month ends often viewed as encouraging weaker markets, as funds undertake a clean-out of their portfolios before, perhaps, pumping in fresh money at the start of the next month.
Indeed, spreading with wheat or not, it was not as if traders had much enthusiasm for corn, which fell 0.5% to $7.77 ½ a bushel for December delivery
"The yield story is being priced in with the market seemingly working with yields of sub-150 bushels an acre for corn and sub-41 bushels an acre for soybeans," ANZ’s Mr Deane said.
Michael Cordonnier, at Soybean & Corn Advisor, became the latest to downgrade yield expectations, forecasting 148 bushels an acre for corn, down from 150 a week ago, and 40.5 bushels per acre for soybeans, a drop from 41.4 bushels an acre.
"It’s been a dry August for central Illinois, central Iowa and southern Minnesota. I think this dry end is going to cut the growing season short, especially in the driest areas," Dr Cordonnier said.
"We knew there were problems in the eastern Corn Belt, but the big development in the past few weeks has been Iowa and Minnesota. They were in good condition until the rains tapered off in early August. Now they are slipping as well."
The issue is whether this has already been priced in.
"Market bears are convinced that the market has achieved a level that is already rationing demand out of the export channel as well as for domestic feed and ethanol," Benson Quinn Commodities said.
Sure, there are some lingering concerns about an early frost, as forecast by World Weather’s Drew Lerner, if disputed by others.
"The northern plains are expected to receive their first taste of fall weather shortly after Labor Day," Benson Quinn said, adding that "a fair percentage f the soybean crop in the northern plains has the potential to be impacted by a normal frost".
"It does not appear that a freeze event is imminent, but the trade will be paying close attention to potential changes in this forecast."
Still, corn fell 0.5% to $7.71 ½ a bushel, and soybeans dipped 0.3% to $14.52 ½ a bushel.