AM Markets: Corn Recoils from 6-Month Top Ahead of Data Slew

(Agrimoney) – Corn futures, having on Tuesday in Chicago closed above their 200-day moving average for the first time since June, set another landmark in the last session, in achieving their highest finish since July.

Whether Thursday provides a third successive momentous session… well that may well depend on that the US Department of Agriculture reveals in its monthly Wasde crop report on world supply and demand, although other countries are having a big say in price discovery too.

Brazil’s Conab also later releases official data, on domestic crop supply and demand.

And China, which is proving a bit of a market focus at the moment, has already issued its monthly crop report, the Casde, which did provide a bit of interest for corn watchers, in cutting the estimate for the domestic supply surplus in 2016-17 by 700,000 tonnes to 4.41m tonnes.

The downgrade to the supply figure, which came in at 33.73m tonnes last season, reflected a higher estimate for consumption, besides a 200,000-tonne cut to the import forecast, which look less appealing thanks to the weaker domestic values encouraged by the scrapping of a guaranteed price regime.

China is attempting to sell down huge state stocks built up as a result of offering farmers set values which were typically well above market rates.

Price moves

On China’s Dalian exchange, best-traded corn futures for May closed at 1,608 yuan a tonne, their highest finish in nearly eight months, and in decent trading volumes.

Still, in representing a rise of just 0.5% on the day, that was not enough to set pulses racing in Chicago, where March futures stood 0.4% lower at $3.69 ¼ a bushel as of 09:45 UK time (03:45 Chicago time).

There is, after all, an idea that Chicago corn futures may already be looking toppy.

The recent gentle rally potentially reflect market expectations that the Wasde will show a bigger cut to the estimate for US stocks of the grain at the close of 2016-17 than the 20m-bushel downgrade to 2.335bn bushels flagged by a survey of analysts.

‘Sharp correction’

Benson Quinn Commodities said: “I think many in the trade are positioned for lower estimates for corn” inventories than shown by the survey (with the same going for soybeans too).

This means that carryout stocks estimates must show a downgrade in the Wasde just “to maintain these values” we have at the moment.

“If ending stocks aren’t reduced I wouldn’t be surprised if the market doesn’t make a sharp risk-off correction.”

It could be that early softness in futures reflected a bit of profit-taking by investors while gains were definitely there to be had.

Demand factors

The dollar too has hardly been so helpful of late in recovering a touch, after a week ago hitting its lowest in more than two months, of 99.23 against a basket of currencies.

The greenback stood at 100.19 in early deals, back above the psychologically important 100 mark (and the 100-day moving average), and making dollar-denominated exports such as many grains that much less affordable.

The strong US export performance has been one reason why many investors expect a downgrade in the Wasde to the forecast for US corn stocks at the close of 2016-17, another being strong ethanol production.

Data on Wednesday showing US ethanol production last week, while down 6,000 barrels a day from the previous week’s record, at a still-strong 1.055m barrels a day.

“Corn annualised use [for ethanol] is a record 5.576bn bushels at 1.055m barrels, omitting sorghum for ethanol,” said Terry Reilly at Futures International.

That compares with a current USDA estimate for the full 2016-17 of 5.325bn bushels.

‘Wave of fresh business’

Soybeans were a touch lower too, down 0.4% at $10.54 ½ a bushel for March, with some investors also taking the opportunity for guaranteed profits after a run up of $0.30 a bushel, and more, so far this month.

There is an idea that Chinese buyers, which would typically be turning to Brazil for soybeans at this time of year, as the South American country’s harvest ramps up, are keeping more business than might be expected, thanks to the impact on relative prices of a strengthened real.

“The Brazilian real is also pushing up towards 18+ month highs, and so giving US dollar prices a competitive boost,” said Tobin Gorey at Commonwealth Bank of Australia.

Joe Lardy at CHS Hedging flagged “lots of talk about China [coming] back into the market. China was on holiday all last week so the market has anticipated a wave of fresh business.

“Rumours of buying from both the US and Brazil kept the market afloat.”

The latest rumour circulating in the US was that “China was thought to have bought at least four cargoes of late July and August US soybeans and possibly a June cargo,” Futures International’s Terry Reilly noted.

‘Hitting margins pretty hard’

Still, such talk has not been confirmed though official export announcements.

“The market has been raising South American production estimates in recent days and while is talking new China demand, has yet to see daily sales supporting or confirming this talk,” Benson Quinn Commodities said.

And there is a worry that higher soybean prices, which are being reflected in China too, could choke off demand, in cutting processing margins.

CHS Hedging’s Joe Lardy said: “Chinese soybean prices have shot back up lately,” a factor which is “really hitting crush margins in China pretty hard.

“Levels are now back down to values not seen since early November. If margins continue to weaken, we could see a slowdown in exports.”

In fact, Dalian soybeans for May eased 0.2% to 4,350 yuan a tonne overnight.

‘Temperature roller coaster’

Back in Chicago, wheat futures eased too, by 0.4% to $4.30 ¾ a bushel, as worries over a cold snap in the former Soviet Union failed to spur concerns over crop losses.

Agritel said that “low temperatures in place in southern parts of Ukraine and Russia from the start of the week could put winter crops at risk”.

However, Ikar spurred doubts over the extent by raising its estimate for Russia’s wheat harvest this year by 500,000 tonnes to 67.5m tonnes, if a figure still well below last year’s record of 73.3m tonnes.

Weather focus may not switch back to the southern US Plains, which Benson Quinn Commodities said “are on a temperature roller coaster with 30-40s Fahrenheit on Wednesday, which is expected to be followed by 70-80s on Saturday”.