(Agrimoney) – Corn has been the star for Chicago bulls this week, leading grains higher on Monday and in the last session avoiding the setbacks to soybeans and wheat.
Can it continue its run?
That may depend largely on how comfortable hedge funds with their net short in Chicago corn futures and options, as revealed in data late on Friday, after having already run up net shorts in soybeans and wheat.
“Funds are estimated to be short corn at the moment and short covering was assumed the catalyst for corn’s most recent rally,” said Brian Henry at Benson Quinn Commodities.
Open interest, ie the number of live contracts, in corn futures and options fell by 5,600 contracts on Tuesday, giving credibility to that theory.
Data ahead
And there are reasons for investors to reconsider ideas that corn futures are due a fall, at least short-term.
One is the prospect next week of US Department of Agriculture data on domestic spring sowings prospects, and grain stocks, which are taking an increasing profile as they draw near.
Both reports have a habit of moving markets, but the sowings report is being viewed with particular interest this time given the potential for it to show a large switch in acreage from corn to soybeans.
Terry Reilly at Futures International noted that in the last session “profit taking was a feature, and positioning ahead the USDA reports already started”.
‘Delayed planting’
In fact, a Bloomberg survey of analysts sees US corn area reaching 88.87m acres, down from 90.6m a year ago, and soybean area rising from last year’s 83.7m acres to reach a record 85.95m acres.
And ideas of strong corn plantings have hardly been helped by the slow start to plantings in the US South, where Louisiana farmers, for instance, had only 1% of their corn in the ground as of Sunday, compared with an average of 48% by then.
The slow pace reflects wet soils, which remain an issue with Mr Reilly saying that “delayed planting and fieldwork conditions will continue this week across the Delta.
“But the region will not be as wet this week and next, as it was over the past two weeks” he added.
That said, the Midwest, where planting pace is a far bigger issue, given its dominance over US corn production, “will see poor conditions for early fieldwork through the next two weeks as regular rounds of precipitation will occur coupled with cool temperatures”.
‘Potential for increased disease’
Delayed corn sowings tend to boost prices of the grain, and depress soybean values, as the oilseed has a later planting window. So slow planting seasons tend to see more soybeans seeded than might otherwise by the case.
CHS Hedging said that “there are concerns of possible yield loss and potential for increased disease and insect damage to the corn crop if wet soils persist”.
And there were some other causes for some optimism in corn prices too, with Central American and Japanese buyers said to be in the market.
US ethanol data later are expected to show some increase in production of the biofuel, which in the US is mainly made from corn.
That said, “it will be difficult for corn to continue graining ground on wheat and beans at Tuesday’s pace”, said Mr Henry.
And South African officials are expected later to edge higher their forecast for the domestic corn harvest.
Chicago corn for May gained at a more modest pace than of late, by 0.3% to $3.94 ¼ a bushel as of 09:45 UK time (04:45 Chicago time).
‘Mostly favourable weather’
Still, that was better than soybeans could do, falling 0.2% to $9.80 ¼ a bushel for May delivery, undermined by the idea of the extent of area being switched by US farmers to the oilseed.
(Although, of course, Tuesday’s USDA data will show whether that preconception is justifiable.)
Furthermore, forecasts for South America’s harvest look OK, implying extra supplies and pressure on prices on this score.
“South America’s harvest moves along with mostly favourable weather conditions this week,” said CHS Hedging, adding that “there is a bit of dryness in parts of Argentina”, which would not be ideal for crops yet to mature.
Brazil vs US
But the news from South America was not all price negative, with concerns remaining of the truckers’ strike in Brazil kicking off again, slowing supplies of crop to port, and therefore exports.
“There is talk of Brazilian truckers reorganising their coup,” Mr Henry said.
Furthermore, Brazilian cash prices have not fallen victim as much as might be expected to pressure from ramped up supplies from the harvest, now roughly 60% through.
“Despite numerous reports of a steady flow of Brazilian soybeans to port, Brazilian basis levels remains firm,” Mr Henry said.
“It doesn’t look like US [export] offers are that far off the mark into China,” the top soybean importer.
‘Not really positive news’
Wheat, meanwhile, eased 0.1% to in Chicago in early deals at $5.23 ¼ a bushel for May delivery, losing early gains, amid continued debate over the potential threat to the southern Plains winter wheat crop from dryness – and how much relief rains in the forecast might bring.
“Weather forecasters do have a smattering of rain for the plains in their forecasts. And, weather models are generating some more significant rain events in early April,” said Tobin Gorey at Commonwealth Bank of Australia.
“Nonetheless, the nuances mean that this is not really positive news for hard red winter crops.
“Hard red winter wheat regions are very dry.
“Forecasters’ assessments of near term rainfall will barely move the needle on replenishing those moisture deficits.”
‘Substantial weather premium’
Mr Gorey added that “what we can take” from the last session’s price retreat “is that the market has a substantial weather premium in prices now and can move up or down as precipitation forecasts wane and wax”.
Forecasts for Russia, where dryness is also an issue, are also being closely watched.
Meanwhile, on the demand side, CHS Hedging flagged that US demand “is fairly slow with ideas that many mills have their needs covered for the better part of the year already”.
Iran bought 80,000 tonnes of wheat from Germany and the Black Sea.
Palm falls
Elsewhere, palm oil recouped early losses to stand up 0.3% at 2,163 ringgit a tonne in Kuala Lumpur, helped by data showing an improvement in Malaysian exports.
Shipments from the second-biggest exporter rose 3.5%, month on month, in the first 25 days of March, cargo surveyor Intertek said.
For the first half of the month, exports fell by 3.4%.
