(Agrimoney) – If grain investors earlier in the month were blinkered to bearish arguments, now it is bullish talk that is failing to get a look in.
Take the US Corn Belt weather in which, as Benson Quinn Commodities’ Kim Rugel noted, the trade sees forecasts “drier weather for the next 10 to 14-days helping the row crops, with some analysts starting to raise yield estimates on better than average western crop ratings”.
However, Ms Rugel also highlighted that “the market seems to be overlooking the rains that have fallen in saturated eastern Corn Belt and Missouri these past five days”.
Indeed, at Martell Crop Projections, Gail Martell underlined that “weather conditions last week continued wetter than average in Midwest corn and soybean [areas] with 1.15 inches of rainfall, 32% above normal.
“Persistent wetness is having a negative impact on yields.”
Prospects are worse for soybean crops than corn with the oilseed “planted later and more susceptible to flooding, due to their smaller size”, Ms Martell said, adding that a “bumper” US soybean result “is still out of the question, however, due to flood damage”.
‘Highly variable’
Influential analyst Michael Cordonnier also noted that the weather in Indiana, Ohio and Missouri “continued to be excessively wet so in general, I don’t think there has been much improvement in the eastern Corn Belt” in terms of crop condition.
In the key state of Illinois he said that “two words could describe the crops – ‘highly variable’.
“Crop yields will range from very good to zero depending on location.”
Price moves
Nonetheless, soybean futures closed generally weaker in Chicago, with the best-traded new crop November lot down 0.8% at $9.95 ½ a bushel.
Old crop August soybeans did manage some gains, up 0.2% at $10.18 ¾ a bushel, amid talk of a short-term squeeze on supplies, just as soymeal is encouraging processors to keep crushing.
August soymeal ended up 1.5% at $363.50 a short ton.
Winnipeg canola proved something of a stalwart in oilseeds too, edging up 0.2% to Can$520.80 a tonne after a downgrade by Canada’s farm ministry to its forecast for the domestic harvest.
Back in Chicago, corn finished down 0.9% at $4.02 ¾ a bushel for September delivery, and by 1.0% at $4.13 ½ a bushel for the best-traded new crop December lot.
Canada debate
For wheat, there were varying interpretations of the comment issuing from the CWB tour of the drought-hit Prairies.
“Reports from the first day of the wheat tour found better than expected crops as recent rains have helped the drought stressed wheat and canola,” Ms Rugel said.
However, CHS Hedging said that “a tour of Canada by the CWB to scout wheat fields showed fields that were disappointing and looked likely to produce below-average yields”.
Investors did not hesitate to take the more bearish interpretation, sending spring wheat [which accounts for the great majority of Canada’s crop] down 2.1% to $5.47 a bushel at the close in Minneapolis for September delivery.
Benchmark Chicago soft red winter wheat futures for September ended down 1.6% at $5.16 ¾ a bushel.
Hard vs soft
Kansas City-traded hard red winter wheat ended lower too – but by less of a margin, finishing down 1.3% at $5.11 ½ a bushel for September.
This “outperformance” may appear contrary to the improved expectations for the hard red winter wheat crop, tested by extremes of dryness and then excessive rains, with worries spreading to soft red winter wheat, for which persistent moisture has damaged quality.
However, much of this has been factored in – it is unusual for Chicago wheat to have a premium over its peer.
And there is a history of Kansas City wheat outperforming at this time of year.
Richard Feltes at RJ O’Brien flagged “a strong tendency for Kansas City wheat to advance on Chicago wheat from mid-July through mid-October”.
And it is a “rare event” that the two are trading around par, with the even pricing a reflection of “low” demand for US hard red winter wheat exports, and a hangover from a June surge in Kansas City prices that “sparked harvest selling [by producers], allowing the pipeline to refill”.
‘Rediscover equilibrium’
One negative factor for all the major grains that investors are aware of is the threat to demand from more competitively-priced supplies from other origins, as highlighted in the wheat market on Tuesday with result of an Egyptian tender (Russian origin was bought).
ADM Investor Services noted that, for grains and oilseeds in general, “prior to the June rally, the US was trying to compete demand-wise against foreign export competition.
“That competition never went away and, with weather/crop production concerns easing and speculators now long, markets are retreating in an attempt to rediscover equilibrium.”
The demand question will come into particular focus on Thursday, with the release of weekly US export sales data.
Forward sales of corn and soybeans for 2015-16 have been unusually slow, although the USDA did on Wednesday announce the sale of 120,000 tonnes of new crop US soybeans to China.
One demand signal on Wednesday was a touch negative, with US ethanol production (mainly from corn) falling by 11,000 barrels a day last week, albeit to a still elevated 973,000 barrels a day.
‘Beset by oversupply’
Among soft commodities, fallers were easy to find too, with raw sugar for October ending down 0.45 at 11.38 cents a pound.
Investors were apparently relaxed over the prospect of data on Thursday from industry group Unica showing a sharp drop in output in Brazil’s Centre South in the first half of July, as rain hampered cane harvesting.
“The general belief is that sugar continues to be beset by oversupply and high stocks leading to a surplus for this year,” said Sucden Financial.
“Whatever the weather concerns may be in the short/medium term, especially in Centre South Brazil, these seem to be negated by the lack of substantial demand.”
Besides, “weather forecasters continue to expect most of south Brazil’s cane regions to experience dry conditions for a week or more”, Tobin Gorey at Commonwealth Bank of Australia said.
Robusta in demand
A weaker Brazilian real did not help either, shedding 1.7% against the greenback, and so cutting the value in dollar terms of assets in which the South American country is a major force.
Indeed, a bigger decline might have been expected in New York-traded September arabica coffee futures too than the 0.7% drop to 125.05 cents a pound that was experienced, were it not for strength in rival robust beans.
London-traded robusta coffee for September added 1.0% to $1,681 a tonne, helped in part by ideas of a short squeeze on the expiring July lot, which gained 1.1% to $1,801 a tonne.
Furthermore, there are reviving concerns over dryness in Vietnam, the top robusta coffee producer.
Weather service MDA said that Vietnam’s central highlands and north east received only some 25-30% of normal rain in past two months, with below-average precipitation forecast for next two weeks.
