(Agrimoney) – Corn and soybean futures defied the expectations of many commentators by closing higher, but for the likes of sugar and wheat there was no respite from selling.
Weakness had been forecast for US row crops after weekend frost proved, from first assessments, to have caused only mild damage.
“The frost was too late to impact corn and did not result in any significant damage to soybeans,” said Don Keeney at weather service MDA.
At Futures International, Terry Reilly said that “cold temperatures over the weekend were not as threatening as expected”.
Benson Quinn Commodities said that “the lack of a significant frost/freeze event late last week or over the weekend is the fresh negative input” for futures, seeing crop damage in important producing areas as only “cosmetic”.
‘Record crop yields’
So this leaves investors bracing for the strong yields reported for the US south to spread to the Corn Belt proper as harvest heads north.
“Record crop yields continue to come in,” CHS Hedging said, adding that “some Arkansas farmers are getting record soybean yields of over 100 bushels per acre”.
However, bears, for once, found themselves on the back foot thanks to a credible threat to crop production from acreage, rather than yield, and the release on Tuesday of updated Farm Service Agency data on crop sowings, drawn from insurance filings.
At Country Futures, Darrell Holaday said that the last set of FSA, last month “was supportive as it indicated that US corn and soybean acres may be lower” than the levels the US Department of Agriculture has pencilled in.
CHS Hedging flagged “expectations for corn acreage to be 1m-2m below USDA numbers, and soybean numbers are expected to be down 1m acres from the USDA estimates”.
‘A lot of moisture’
While that is not enough to threaten ideas of record US production of both crops, it gave investors cause to pause from selling corn and soybeans, and even undertake a bit of short-covering.
And as an extra reason for caution, there is the potential for further Midwest rainfall too, at a less-than-ideal time, as harvest ramps up.
“We really feel that a more supportive factor is the tropical storm coming out of Baja that could put a lot of moisture in the Plains and Corn Belt later in the week,” Mr Holaday said.
“It is currently a hurricane and the track of the storm is difficult to project, but it is likely to through the central part of the US. If it does, it will put a halt to harvest activity.”
Corn vs soybeans
It was actually corn that did best, adding 1.3% to $3.43 a bushel for Chicago’s December contract, in its first day as the spot lot, outperforming soybeans, up 0.4% at $9.89 ½ a bushel for November, even though it was the oilseed which had better credentials on many scores.
At a technical level, hedge funds have a far more short-biased position in soybeans (the biggest gross short position on record) than corn, meaning more to cover.
And turning to demand, soybeans did better on weekly US exports, at 255,020 tonnes, up from 173,732 tonnes the previous week, while corn volumes fell to 741,230 tonnes, from 1.20m tonnes last time.
On export sales revealed through the USDA’s daily alerts system, the two were evens, with China buying 118,000 tonnes of US soybeans, and Mexico 120,000 tonnes of corn.
Still, there was a dog which didn’t bark, in terms of hopes being unrealised for now that a Chinese trade delegation meeting today in Milwaukee will unveil a large ceremonial purchase of US soybeans.
Furthermore, on domestic US demand, the monthly Nopa crush number came in at 110.633m bushels, 1, bushels below market expectations.
Soyoil prices to revive?
Where the data were more bullish was on soyoil, showing US stocks at 1.21bn pounds last month, down from 1.59bn pounds in July, and below the 1.67bn pounds in August 2013.
And that tallied with a more upbeat feel on soyoil from other sources too, with prices of rival vegetable oil palm oil recovering, closing up 0.8% at a one-month high of 2,101 ringgit a tonne in Kuala Lumpur.
Jefferies Bache analyst Anne Frick noted that while soyoil futures “edged to a new contract low again last week”, there are “inklings that the market may be finding some support.
“After setting a new low, soyoil put in a key reversal higher in an outside range week, a constructive technical indicator.
“It appears that soyoil may have at least an interim low in place and possibly the cycle low.”
‘Aggressively bid’
There was little such optimism around for wheat, although the relative dearth of quality supplies continues to provoke talk of decent milling premiums.
“With ample supplies of low quality wheat throughout the world, millers continue to aggressively bid for high protein wheat,” CHS Hedging said.
But high protein, hard red spring wheat actually underperformed in Minneapolis, ending down 1.6% at $5.68 ½ a bushel, a contract closing low, amid ideas of a speedier US harvest.
CHS Hedging said: “Spring wheat harvest was estimated at 59% complete last Monday, and is expected to be 75-85% complete as of this afternoon’s {USDA crop progress] report.”
Big crop
That compared with a 0.4% fall to $5.00 ¾ a bushel in Chicago wheat, the world benchmark.
Hedge funds already have a historically big net short in this contract, potentially a deterrent to further such positions.
Still, the contract was always going to struggle, with expectations for Russia’s harvest growing yet further, with an upgrade to 104m-106m tonnes, from 98m tonnes, in SovEcon’s estimate for the country’s overall grains output.
“This would be the second largest result in all post-Soviet history,” the Moscow-based analysis group said, with the top one being the 2008 result of 108m tonnes.
The Russian wheat crop estimate was upgraded by 2m tonnes to 60m tonnes.
In Paris, milling wheat for November closed down 0.8% at E161.50 a tonne, while London feed wheat ended down 0.4% at £112.00 a tonne, having set a fresh four-year low earlier of £111.30 a tonne.
Sugar tumbles
In New York, raw sugar for October also notched up a four-year low, of 13.52 cents a pound, before regaining a little ground to end at 13.67 cents a pound, a drop of 0.8% on the day.
“It remains a time of big offers from Brazil and Thailand, and reports now indicate that smaller producers like Central America, Mexico, and other countries in South East Asia are offering,” said Jack Scoville at Price Futures Group.
“Weak demand remains a problem, but mostly the ideas of big supplies after four years of surplus production remain the overriding theme – most analysts expect a fifth year of surplus production compared to demand in the coming year.”
There are technical forces at work too, with the expiry today of October options, and the futures contract itself about to enter the expiry process.
The expiry of options and position limits coming into force on the October futures lot should allow a “clearer” picture of the market, “and we will begin to assess the likelihood of deliveries [against October futures] and the emergence of a receiver”, Sucden Financial said.
“We suspect most of the deliverable sugar will come from Thailand and Central America and a potential receiver will have up to December 15 to find homes for it.”
Rising inventories
New York arabica coffee for December dropped too, by 1.3% to 182.20 cents a pound, amid talk of needed rain in Brazil, to help stabilise flowering ahead the 2015 crop, besides some better news on short-term supplies.
“Besides the high availability of high-quality coffee from Colombia at present, the inventory data that have been published” have helped depress prices, Commerzbank said.
“The International Coffee Organization reported an 18% increase in stock levels between March and June following very brisk trading.
“In June alone, the European Coffee Federation reported an increase of a good 5%. Stocks also increased in the US.”
