(Agrimoney) – Having marched grain prices to the bottom of the hill in the last week or more of August, investors continue to drive them back up again.
The somewhat counter-seasonal market rally (corn and soybean futures often succumb to pressure from the US harvest and soaring supplies at this time of year) lasted into early deals on Thursday, at least.
Of course, a weaker dollar helped, with the greenback (undermined by reduced chances of an imminent rise in US interest rates) easing 0.2% against a basket of currencies to make dollar-denominated exports, such as many agricultural commodities, that much more affordable.
Yield questions
But there was more to the revival in grain prices than that, with a number of early reports from the US corn harvest at least raising questions over whether the US yield will reach quite the record 175.1 bushels per acre that the US Department of Agriculture has forecast.
Analysis group Lanworth – extending the rash of estimates ahead of the USDA’s Wasde crop report on Monday, which will revisit figures such as domestic corn and soybean yield estimates – overnight pegged the corn result at 168.2 bushels per acre.
The analysis group noted that August minimum temperatures were “consistently 1-3 degrees Fahrenheit above average throughout most of the Midwest, with portions of the eastern Corn Belt experiencing average minimum temperatures up to 6-7 degrees above normal.
“This has likely resulted in faster-than-average [crop] development, shortening the duration of grain fill.”
‘Sudden death and mould’
And this before getting to the wet turn in US weather which is not viewed as being so appealing, now that harvest is in prospect.
“Early season fieldwork will be sluggish in the lower Midwest as rain continues to fall,” said Tobin Gorey at Commonwealth Bank of Australia, albeit adding that “forecasters say there is still time for conditions to improve for the majority of crops.
“The market will nonetheless be sensitive to wet weather delaying the arrival of new season supply.”
Besides delaying harvesters, the rain could be causing crop damage too.
At CHS Hedging, Joe Lardy said, thinking in particular of soybeans: “The market is now starting to look at the late August/early September rains as too much, and no longer beneficial.
“Reports of sudden death and mould are starting occur with more frequency.”
Farmer selling strategy
If this is proving cause to inject a bit of premium back into corn and soybean prices, the question remains which one to prefer.
There is reason to select corn, given ideas of less acute farmer selling in the grain during the harvest period.
“Farmers are still going to try to hold as much corn off the market at harvest as possible while letting soybeans go off the combine,” said Tregg Cronin at Halo Commodity Company in North Dakota.
At Chicago-based RJ O’Brien, Richard Feltes said that “commentators continue to report that farmer will sell soybeans and hold corn at harvest”.
Still, it was soybean which proved, marginally, more buoyant in early deals, adding 0.4% to $9.79 a bushel as of 09:25 UK time (03:25 Chicago time), versus a rise of 0.2% to $3.34 a bushel in December corn.
The oilseed had the technical kudos of, in the last session, closing back above its 200-day moving average, besides the 10-day line.
But what continues to attract comment is the strong demand for the US soybeans, after a series of recent data, the latest being USDA announcements on Wednesday of the sale of 264,000 tonnes of soybeans to an “unknown” import destination, and 220,000 tonnes to China.
“The current pace of new crop sales is 40% above last year’s pace to date,” Benson Quinn Commodities said, “new crop” referring to 2016-17, which started on September 1.
Indeed, it “would not be surprising” if the USDA, in Monday’s Wasde, raised the estimate for US soybean exports in the new season, the broker added.
‘Grossly overestimating stocks’
Still, more comment surrounds the 2015-16 season just finished, for which many observers see a marked upgrade to the US export estimate due in the Wasde – with implications for the end-of-season stocks figure so important in pricing.
US Census data earlier this week showed that the “USDA is grossly overestimating 2015-16 soybean carryout” stocks, given the drain from “stronger-than-expected exports”, said Halo’s Tregg Cronin.
“It looks as though the USDA’s current marketing year objective of 1.880bn bushels worth of soybean exports is going to be light by 60m-65m bushels when official data is released the first week of October.”
Implications for 2016-17
Working the numbers through, such a change “should be enough to take 2015-16 carryout below 200m bushels, a psychologically important level”, Mr Cronin said.
And this “holds implications” for 2016-17 too, given weaker inventories heading into the year (assuming he is right).
“Keeping all else unchanged, 2016-17 carry-out drops to 270m bushels,” he said, if acknowledging that “national average yield estimates are on the rise”, a factor which would offset at least some of the impact of bumper exports.
Still, there is enough there to give some encouragement to soybean bulls, and keep price recovery ticking over.
‘Lacks any sort of bullish fundamental’
The revival in row crop prices has helped wheat futures, if only because the low-quality world wheat crop sharpens the link between values of wheat and feed grains such as corn, in terms of enhancing the competition for inclusion in feed rations.
And, indeed, wheat’s premium (earned by higher protein levels) to corn in Chicago, December basis, remained comfortably below $0.70 a bushel, down from a high of $1.18 ½ a bushel reached in July.
Still, on its own terms “wheat lacks any sort of bullish fundamental other than northern hemisphere harvest is nearing completion and relieving a little bit of sell hedge pressure,” said Benson Quinn Commodities.
And Chicago’s December soft red winter wheat lot indeed eased 0.1% to $4.02 ½ a bushel, little helped by continued comment of the rejection by Egypt of a 63,000-tonne cargo of Romanian wheat, thanks to contamination with the ergot fungus.
Egypt has caused consternation among merchants for reimposing a zero tolerance rule on ergot in wheat purchases and, being the biggest wheat importer, has disappointed market bulls too.
‘Enhance scepticism’
“We are not sure how Egypt will buy wheat going forward. Nearly every cargo contains some form of the fungus,” said Terry Reilly at Chicago-based Futures International.
Whatever, Egypt’s move “will only enhance scepticism on whether Egypt will be a 12m-tonne a year wheat importer”, said RJ O’Brien’s Richard Feltes.
Futures in higher protein wheat fared a little better, in line with ideas of a relative squeeze in supplies of quality grain, with Kansas City’s December hard red winter wheat contract adding 0.1% to $4.11 ¼ a bushel.
Minneapolis hard red spring wheat for December gained 0.4% to $4.89 ¾ a bushel.
Canola, cotton fall
Elsewhere, Winnipeg canola for November continued its modest retreat, shedding 0.1% to Can$459.10 a tonne, after officials on Wednesday hiked estimates of the 2015 harvest, having found far more inventories of the rapeseed variant than expected.
New York cotton for December shed 0.7% to 69.07 cents a pound, reversing gains of the last session, and little helped by an easing of 0.2% to 14,090 yuan a tonne in the January cotton futures contract on China’s Zhengzhou market, the first decline in six sessions.
Still, there is uncertainty hanging over the market, with traders still gathering evidence of damage to the US crop from Hurricane Hermine last weekend.
The ongoing US rains look a setback for cotton crops too.
“Forecasters say rain will continue to fall in the southern Plains at a time when crops are in need of drier weather,” said CBA’s Tobin Gorey.
