(AgriMoney) – US farmers received an unfortunate Thanksgiving present, with an official forecast that their incomes will drop 38% this year, to a 13-year low of $55.9bn.
That figure, downgraded from an estimate in August of $55.9bn, would be the steepest drop since 1983, the data, from the US Department of Agriculture, showed, with the decline down to lower crop and livestock prices.
At least farmers are heading through this period of lean with finances supported by year of fat beforehand – allowing many still luxury of being able to hold on their crops, and choose their selling point, rather than forced into disposal for cash reasons.
“In 2013 producer income was a record $123.3bn,” Terry Reilly at Futures International noted.
“This is one reason producers have been reserved sellers and US interior basis is running on average near historically high levels for this time of year.”
‘Historically good’
This is turn has helped ensure that grain futures have not plumbed quite the depths that many viewed earlier in the year as likely, given strong global harvests and a strong dollar, which stems the affordability of dollar-denominated assets such as many ags.
“Basis levels are historically good for this time of year given the absolute dearth of farmgate selling,” said Tregg Cronin at Halo Commodity Company, although adding that this could be setting up markets for chaos.
“Storing grain until the last possible minute, and then trying to jam as much grain into local elevators as possible along with all other neighbours in the county, has caused problems the past couple of years and looks to be setting a similar stage this year.”
CHS Hedging said that, for corn, “strong domestic cash markets are keeping delivery ideas to a minimum”, speaking of idea of how much of the grain might be delivered against Chicago’s soon-to-expire December contract.
‘Certainly supportive’
Still, there was more than that involved in the positive start by Chicago’s main contracts on Wednesday.
“All three of the major ag markets are trading better from a technical perspective,” Futures International’s Terry Reilly said.
“And the fact funds have reassigned notable amounts of capital to the short side of our markets is certainly a supportive feature”.
Especially before a US holiday, when many investors might be tempted to cover positions, a process which – given that they are short – would put upward pressure on prices.
Mr Reilly also noted that regulatory data indicated that “commercials have been buying [through the futures market], and seem to be suggesting fundamental value at these levels” at a time when “farmer selling remains notably absent”.
In corn, commercial investors have cut their net short position (which they typically hold) by more than 100,000 lots, to 138,000 contracts, in two weeks, while in Kansas City-traded hard red winter wheat they have turned net long, by a record 10,000 contracts.
Argentina…
OK, there remain some bearish fears around too to prevent any sense of a sustained price recovery being in the offing.
Argentina is one of these, and the prospect of Mauricio Macri, elected president at the weekend, enacting reforms such as cuts to crop export taxes, and export limits, when he takes office in two weeks’ time.
“Additionally, there could be a devaluation of the Argentine peso due to the lifting of the current currency controls,” said Michael Cordonnier, the respected crop analyst.
“All of these actions would result in a price increase for Argentine farmers.”
Rumour mill
That said, it is unclear exactly what he will do.
“One rumour is that he might significantly reduce the soybean export tax for a 90-day period as a way to stimulate sales,” but longer term enact only a five-point cut to 30% in the tax, Dr Cordonnier said.
“Another rumour is that he will allow a significant devaluation of the peso, also for a 90-day period as a way to stimulate sales, and then let the peso reach more of an equilibrium.”
The talk is that corn and wheat exports taxes will be ditched completely.
Still, as Benson Quinn Commodities said, “the fact that Argentina still needs to generate revenue is a key point to keep in mind”.
Higher meal
Indeed, soybeans – over which there are most concerns over the prospect of Argentine farmers releasing a flood of supplies for shipment – gained 0.3% to $8.56 ¾ a bushel for January delivery as of 09:00 UK time (03:00 Chicago time), grappling with its 20-day moving average.
It helped that soymeal for January gained 0.4% to $285.00 a short ton, with the feed ingredient having come under particular pressure from Argentina fears too, given that the South American country is the top exporter, and could see supplies soar if farmers release hoarded crop for processing.
Soymeal futures have been under pressure “on ideas Argentina’s soymeal export campaign will significantly increase in about a month or two”, Mr Reilly said.
‘Declining global inventories’
For soyoil, the Argentina factor is not so significant, with Mr Reilly flagging “declining global inventories for vegetable oils in part to an increase in vegetable oil use for biodiesel use for feedstock”.
Chicago soyoil for January stood 0.6% higher at 28.75 cents a pound, close to its 100-day moving average, after in the last session exceeding its 40-day moving average.
Meanwhile, rival vegetable oil palm oil nudged higher by 0.1% to 2,277 ringgit a tonne in Kuala Lumpur, helped by weakness in the ringgit, which makes Malaysian exports more affordable, and by a rise in futures on the Dalian exchange in China, a major oilseeds importer.
Dalian palm oil for January rose by 0.8% to 3,722 renminbi per tonne, while soyoil itself for May (the best-traded contract) gained 1.4% to 5,534 renminbi per tonne.
Dalian soymeal gained 1.4% to 2,316 renminbi per tonne, although soybeans themselves managed only a 0.2% increase to 3,729 renminbi per tonne for May futures (at least allowing raised margins for processors).
Wheat rebounds
Back in Chicago, among the grains, corn gained 0.3% to $3.70 ½ a bushel for March delivery, helped by pre-Thanksgiving short-covering.
And soft red winter wheat for March added 0.5% to $4.90 ¾ a bushel, gaining a little extra boost from a fresh sign of demand, with Egypt’s Gasc grain authority late on Tuesday unveiling its latest tender.
Kansas City hard red winter wheat for March gained 0.8% to $4.76 ¼ a bushel, closing its (unusual) discount below $0.25 a bushel.
‘Harvest that never ends’
In New York, cotton gained too, by 0.4% to 62.18 cents a pound for March delivery, rising back above its 50-day moving average, helped by the continued slow pace of the US harvest.
USDA data earlier in the week showed the harvest 70% complete as of Sunday, up 6 points week on week, but well behind the 82% a year before.
At Commonwealth Bank of Australia, Tobin Gorey said: “Texas and parts of the South East continue to lag behind.
“Fieldwork was disrupted in the Carolinas by rain over weekend. And now weather forecasters expect heavy rain in West Texas and Oklahoma this week to further delay harvesting.
“It seems to be the harvest that never ends.”
