AM markets: corn futures extend new (marketing) year gains

(Agrimoney) – The happy new (marketing) year for corn bulls ran into a second day on Friday. And there is some hope that the recovery in prices is this time for real.

CHS Hedging flagged price moves in 2009 and 2014, the last two years where US corn yields saw “jumps” to “new big numbers”, of 164.7 bushels per acre and 171.0 bushels per acre respectively.

In both of those years, December corn futures in Chicago “posted a low in September and rallied $0.75-0.95 cents per bushel” by the time of expiry.

And the graph is taking a similar shape, so far, for 2016, for which the yield is currently forecast by the US Department of Agriculture at a record 175.1 bushels per acre.

Could the contract low reached on Wednesday (when spot futures set a seven-year low) mark the market’s nadir?

Yield question

Such thinking could gain extra legs if the US corn yield does not turn out to be as chunky as the USDA has forecast.

“What happens is the USDA cuts yields [estimates]” on September 12, when it releases its next monthly Wasde crop report on world crop supply and demand, CHS Hedging’s Joe Lardy asked.

Certainly, there are ideas that, on corn (if not soybeans) the USDA may be being a little overoptimistic, with the Pro Farmer crop tour last week ending with an estimate of a 170.2 bushels-per-acre figure, while a survey by broker Allendale put the yield at 172.6 bushels per acre.

“Many forecasts are calling for a final yield of 171-174 bushels per acre,” said Benson Quinn Commodities.

‘Keep a close eye on Brazil’

Further yield estimates are due later from Informa Economics and, after the market’s close, broker FC Stone.

But as of 09:45 UK time (03:45 Chicago time), December corn futures were up 1.1% at $3.27 ¼  bushel, setting course for what would be a second successive positive session, after an eight-session losing streak.

Earlier the contract shook hands with its 10-day moving average for the first time in seven sessions.

And while there remains a little disappointment over US export sales , with weekly data released on Thursday deemed “poor” by CHS Hedging, there is cause yet for some hope for corn bulls from the demand side.

Benson Quinn Commodities advised investors to “keep a close eye on Brazil, with corn shortage becoming a noticeable problem” after a disappointing safrinha crop followed on from an overexuberant 2015 export programme.

“Brazil has imported corn from Argentina that arrived on a vessel this week.  If Brazil would import US corn I would suspect funds covering short positions.”

‘Upward correction can continue’

What was good for corn was good for wheat which, given the large proportion of the world’s huge crop seen as being of poorer quality, faces a particular contest with its rival grain to price itself into feed rations.

“If corn can post higher trade, I expect the [upward] correction in wheat can continue through Friday.  Perhaps, into early next week,” said Benson Quinn Commodities, in what passes these days in wheat for a fit of uncontrolled bullishness.

From a technical perspective, in a positive price sign, Chicago wheat futures in the last session saw a further narrowing in the discount of the September contract to the December one, to $0.26 ½ a bushel from a low on Tuesday of $0.30 a bushel.

A narrower discount means a reduced (if still significant) incentive to producers to hold on to crop, rather than sell now.

And deliveries against the expiring Chicago September contract have, at an aggregate 767 lots so far, been well below estimates of 2,000-3,000 lots traders were talking about last week for first notice day alone.

‘Better global interest’

There was also some idea that the soft US weekly export sales of wheat reported on Thursday did not tell the whole story of world demand.

While acknowledging that there was “very little interest in US supplies last week”, Benson Quinn Commodities said that “it does feel like there has been better global interest in the hard wheats this week”.

Certainly, in Australia, Peter McMeekin, origination manager at the Australian branch of ag trader Nidera , said that “it seems that the dramatic fall in domestic wheat prices over the past couple of weeks has put Australian wheat in play from an export viewpoint.

“Sales of new crop wheat have been reported into Thailand, Philippines and Vietnam over the past week and the trade is seeing further export enquiry for both the old and new crop shipments.

“Over 200,000 tonnes of business is reported to have been concluded, with APW [Australian premium white wheat] values pegged at $213 a tonne CNF Thailand and ASW [Australian standard white wheat] at $203 a tonne CNF Philippines for February shipment.”

Importers’ needs

“Perhaps the question of quality in Russian wheat has those with interest looking elsewhere,” Benson Quinn Commodities added.

It was a thought echoed by Tregg Cronin at Halo Commodity Company, thinking in particular of the higher protein wheat which looks to be in relatively short supply despite the huge world harvest of wheat overall.

“It is slowly becoming apparent that Middle Eastern and North African destinations could need to come to the US for hard wheat needs they can’t source from Europe because of quantity and quality, and have rules in place which prevent them from taking Russian,” he said.

Certainly, Kansas City-traded hard red winter wheat has been regaining a premium against Chicago soft red winter wheat, taking it back to a high of $0.13 a bushel in the last session (December basis), compared with a discount of $0.24 a bushel touched two months ago.

The spread nudged a little higher in early deals, when Chicago futures for December were trading 0.5% higher to $3.96 ¾ a bushel, compared with a 0.6% gain to $4.09 a bushel for its Kansas City peer.

‘Additional acres’

Arguably the one of Chicago’s big three over which there is the biggest bearish question mark is soybeans, given that there are diminishing doubts as to whether the US is on for a record yield.

Commodity Weather Group on Thursday lifted its forecast for the US yield by 1.1 bushels per acre to 50.1 bushels per acre, well above the USDA estimate of 48.9 bushels per acre.

Furthermore, there are ideas that the USDA is currently underestimating sowings too, at 83.7m acres.

“Traders are looking ahead with anxiety to the October 12 crop report, which some fear will tack on additional soybean acres,” Richard Feltes at broker RJ O’Brien said, flagging the “unusually low” area of soybean land which US farmers were unable to sow in the spring.

“A mere 500,000 acre gain in October soy planted area would add an additional 25m bushels of soybeans onto US supplies.”

‘Funds are just way too long’

And hedge funds have plenty of selling potential, in terms of retaining a large net long position in the oilseed, but having already notched up sizeable net short holdings in corn and wheat.

“A record soybean harvest is almost upon us and the funds are just way too long,” said Benson Quinn Commodities.

Certainly, there was plenty of talk of the unwinding in the last session of long soybean-short corn spreads, explaining the oilseed’s relatively feeble performance.

But there appeared less in evidence on Friday, when soybeans for November gained 0.6% to $9.49 ¾ a bushel, gaining support from continued evidence of decent demand for US export supplies.

Hurricane worries overblown?

However, in New York, cotton futures for December failed to build on their bravura performance of the last session, when the lot soared 4.1% on strong US export data and concerns of crop damage in Georgia and the Carolinas from Hurricane Hermine.

“Clearly the market was very impressed by the latest US export sales report which showed net sales of 309,200 running bales for 2016-17,” said trading house Ecom.

But the concerns over crop damage may have been overblown said Tobin Gorey at Commonwealth Bank of Australia.

“While the situation warrants close watching, we are wary of overstating the potential impact on crops at this stage,” he said.

But with Georgia and the Carolinas forecast to produce around 23% of total US upland cotton this season, and only about one-quarter of the states’ crops in the vulnerable open boll stage, “perhaps 4% or so of the US crop will be vulnerable to damage”.

December cotton futures eased back 0.7% to 67.74 cents a pound.