(Agrimoney) – They call corn the golden grain. But, in pricing terms, the metal and maize have never been so far apart.
The conversation about when grain markets might set a bottom – talk that turned up in volume this week, when futures have at least slowed their decline – has thrown up some unusual ideas of signals for price support.
One is the relative price of gold and corn which is at a historical high, in the metal’s favour.
“Some traders are looking at the relative value of gold to corn, which is at its lowest in 25 years,” said Terry Reilly at Futures International, the Chicago broker.
In fact, corn may be at its cheapest compared with gold in nearly 40 years, according to AgriVisor, which believes the grain is “dirt cheap”.
One ounce of gold buys more than 370 bushels of corn, the most since data for US trading begin in 1975, the Illinois-based group said, adding that it was “not the time to short corn”.
‘Off the charts’
And there may be some investors willing to take the broker at its word, with December corn adding 0.2% to $3.26 ½ a bushel in Chicago for December delivery.
This despite the usual fistful of strong yield talk from the early US harvest.
“Unless something changes, the yield reports will continue to offer resistance,” Brian Henry at Benson Quinn Commodities said, terming the early figures as “off the charts”.
And all the ideas of yields of 200, 250 bushels-per-acre results look unlikely to “go stale until we are deeper into harvest”, in terms of weighing on prices.
Besides, harvest progress, and implied pressure on prices from ramped up supplies, looks like being strong too for now, with CHS Hedging saying that “The US Corn Belt is expected to see dry and warm conditions into Monday for much of the belt aiding harvest.
“Temperatures should be above normal with 70s and low 80s Fahrenheit for highs.”
‘Lofty level compared to corn’
Soybeans couldn’t keep up with corn’s pace.
Indeed, they declined 0.3% to $9.20 ¼ a bushel for November delivery, in line with the idea among many investors that the oilseed will underperform corn.
“The market knows that the world is in a flush soybean carryout situation and continues to price soybean futures lower as we progress into harvest,” one US broker said.
“Soybeans are still trading at a lofty level compared to corn and we want to remain sold in that soybean market.”
Indeed, should ideas, which are circulating the market, be realised of a US soybean yield of 50 bushels per acre, that could “inflate ending stocks from the US Department of Agriculture’s estimate of 475m bushels by 125m bushels”, Benson Quinn Commodities said
That said, US export sales of soybeans are running strong, in hitting 61% of the figure the USDA has forecast for the full 2014-15, compared with 57% a year ago, the broker added.
Russian price fall?
Wheat in fact fared worst of all of the Chicago majors, dropping 0.5% to $4.71 ½ a bushel for December delivery, although yet to set a fresh four-year intraday low.
There had been some ideas that futures might see a firm end to the week thanks to profit-taking – hedge funds have a large net short position in the grain.
Furthermore, the resilience of Kansas City hard red winter wheat in the last session offered bulls some hope too.
Terry Reilly at Futures International flagged “renewed concerns of a possible shortage of US hard red winter wheat supplies by the end of the crop year”, after a pick-up in US export sales of the variety, revealed through weekly data on Thursday and a one-off sale of 120,000 tonnes to Nigeria on top.
However, on the downside, Mr Henry flagged that, in the soft wheat marker, it “looks like Russia sold a cargo of 12.5% protein for November at roughly $234 a tonne, which wouldn’t offer any help to futures”, being well below levels offered to Egypt at the weekend, signalling a continued race to the bottom in prices.
Further strength in the dollar on Friday, up 0.1% against a basket of currencies, also boded ill for US export competitiveness.
Cotton bounces
Elsewhere, palm oil’s rally stalled on some pre-weekend profit taking, with Kuala Lumpur’s December contract easing 0.5% to 2,186 ringgit a tonne.
But, in New York, cotton sought to end on a positive note a topsy turvy week, which has been dominated by talk from China.
Early in the week, China dented the market by saying it was to limit its import quota to the 894,000 tonnes demanded by World Trade Organization commitments.
However, since then, it has offered cotton bulls the olive branch of an estimate of a 2m-tonne shortfall in domestic production, behind consumption (more than the USDA foresees) and, now, an apparent commitment to suspend sales from huge state inventories.
According to the Xinhua news agency, the decision to ditch sales from state stocks until August 2015, in essence for the whole of the 2014-15 marketing year (as calibrated in China) has been taken “to guide enterprises to actively purchase, process and sell new cotton”.
Ice cotton for December stood 1.9% higher at 62.58 cents a pound.
As Agrimoney.com pointed out on Thursday, every 1 cent move per pound in cotton prices equates to a change of $22.0 per tonne – or $300m in terms of the value of the overall inventories of 13.5m tonnes that China held at the close of 2013-14 on USDA estimates.
