(Agrimoney) – The last session in agricultural commodities brought “a very strong hint of buyers’ remorse”, as Benson Quinn Commodities put it, at least in the wheat market.
Futures in wheat followed corn sharply lower, after the US Department of Agriculture estimated domestic stocks of, and sowings prospects for, the yellow grain above market expectations.
In early deals on Wednesday, however, it was sellers who had cause for remorse, with grain futures getting off to a strong start.
This was a somewhat different scenario than many investors had expected, after the US data, which showed US corn stocks as of March 1 more than 130m bushels above market expectations, and sowings prospects more than 500,000 acres larger than investors had forecast.
“It may take several sessions to fully discount today’s bearish surprise on corn stocks,” Richard Feltes at RJ O’Brien said in the immediate aftermath of the last session’s 5% slump in corn futures.
As a rule of thumb, traders say that a reversal typically lasts for three sessions before taking a breather.
Prices rise
But corn rebounded in early deals on Wednesday, adding 0.6% to $3.78 ½ a bushel for May delivery, as of 10:00 UK time (04:00 Chicago time).
The recovery tallied with ideas that, even with the extra corn sowings identified in the USDA plantings report, US inventories will decline next season.
“Assuming a trend yield of 163 bushels per acre, the USDA’s corn plantings forecast of 89.2m acres, even so almost 0.5m acres above trade expectations, will result in a slight reduction of the 2015-16 ending stocks,” said Rabobank, restating a “neutral” forecast on corn futures.
‘Ratio could widen’
Furthermore, there are ideas that corn sowings this high will not materialise anyway.
The immediate reaction of the market was to lift the price ratio between November soybean futures and December corn futures, viewed as a crude measure of the crops’ relative appeal in spring planting programmes, to 2.38 from 2.27 – implying extra area swinging the oilseed’s way.
And there are ideas that this ratio could widen further, cutting further prospects for corn acres (albeit implying underperformance for now of new crop corn futures).
“Our opinion is that this ratio could widen to 2.40-2.50 given the current outlook on US corn plantings and slowing demand for US corn for export,” Terry Reilly at Futures International said.
‘China has shown interest’
Still, there was some talk of improved corn demand prospects too at the lower prices.
Brian Henry at Benson Quinn Commodities noted that “China has shown interest as of late in US corn”, if adding that “contractual issues still remain a headwind” and questioning whether there was “serious potential to rally from the demand side”.
One other potential source of support is from fresh cash, with month beginnings having a reputation for bringing in new fund money.
‘Neutral to a touch supportive’
That applies to other crops too, and wheat futures, having been squashed in the stampede from corn in the last session, dusted themselves off on Wednesday too, adding 0.8% to $5.15 ¾ a bushel in Chicago for May.
One help was that the fall in the last session, driven by buyers’ remorse or otherwise, defied some modestly bullish USDA data, in terms of stocks and sowings forecasts being a touch below market expectations.
“Compared to estimates, Tuesday’s report was neutral to a touch supportive,” Mr Henry said.
‘Little rain has fallen’
And then there are the ever-present concerns about dryness in the US central and southern Plains.
“Little rain has fallen in hard red winter wheat regions and weather forecasters reckon there is little that can be relied upon in the next week or so,” said Tobin Gorey at Commonwealth Bank of Australia.
“Weather models are conjuring rain events the weekend after next but forecasters remain sceptical.”
That said “weather forecasters are now looking at a change in weather patterns elsewhere in the US that might allow more rainfall beyond that horizon,” he added.
RJ O’Brien’s Richard Feltes said: “US hard red winter wheat can still be revived with late-April rains.”
Soybean data
For soybeans, meanwhile, the last session was less torrid, with USDA data showing smaller-than-expected data for US March 1 stocks and sowings this year (if with both statistics indicating large rises year on year, so signalling stronger supplies).
The question was whether gains of the last session could continue without the closure of long corn-short soybean futures, which appeared a key force on Wednesday.
And, indeed, whether soybeans could rise given the prevailing idea that farmers will, in the end, sow more soybeans than Tuesday’s report suggested.
‘May not be quite as burdensome’
In fact, soybeans managed gains too, adding 0.4% to $9.77 a bushel for May.
The recovery was helped in part by technical aspects, with the contract in the last session reviving to recover above its 10-day moving average.
Besides, there was the fact that the USDA numbers that traders had in front of them indicated that “2015-16 ending stocks may not be quite as burdensome as private analysts’ estimates”, Benson Quinn Commodities said.
“Assuming a 46.0-bushels-per-acre trend line yield and demand from USDA Outlook Forum estimates and 2015-16 ending stocks forecast looks closer to 420m bushels versus some private analysts’ estimates that are over 550m bushels.”
Sugar gains
Among soft commodities, raw sugar, which was not directly affected by Tuesday’s USDA data, managed healthy early gains, adding 0.7% to 12.01 cents a pound in New York for May delivery, rebounding from its lowest close in six years.
The Brazilian real was a touch stronger against the dollar, boosting values in dollar terms of assets in which the South American country is a big player.
There was also a decent performance overnight by white sugar futures on China’s Zhengzhou exchange, where September futures ended up 0.5% at 5,414 yuan a tonne, its best finish since May last year.
China represents one of the few bullish stories in sugar, with ideas that Chinese demand has been underestimated.
Another bullish factor is the consensus over sugar’s bearish credentials, a potential contrarian buy signal.
