Grain futures ease as key data approaches

February 19th, 2015

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Category: Grains, Oilseeds

Corn-on-Cob450x299(Agrimoney) – Are grain futures stuck in a time warp?

“Thus far February is looking a bit like October – soybeans, wheat, and corn have rallied all month,” bar some setback in the last session, said Mike Mawdsley at Market 1.

Whether they can continue that way may depend on what emerges from a day which offers the first formal crop estimates for 2015-16 from the US Department of Agriculture, whose forecast set benchmarks and have a habit of moving markets.

At its Outlook conference, it will over the next two days issue estimates on the likes of sowings, production and stocks for the main domestic crops, with a few international snippets likely thrown in too, eg on Chinese cotton.

“In recent years, as the market craves newer and fresh information, the Outlook Forum has become a market mover,” said Kim Rugel at Benson Quinn Commodities.

“Last year, soybeans rallied $0.53 a bushel in the week after the forum.”

‘Aggressive sellers’

Whether they can do so this time, well, they would face some headwinds, with a record crop being harvested in Brazil, where farmers are now back from carnival celebrations.

Indeed, in the last session “Brazilian producer awake from Carnival to find the beans had rallied and were aggressive sellers once the day session resumed”, Ms Rugel said.

“It remains to be seen if beans can engage in a seasonal rebound with the Brazilian producer undersold, at 38% of the crop sold compared to the 57% average, and the world now awash in beans both from US and South America.”

Soybeans vs corn

Furthermore, the ideas of a huge swing in US spring sowings this year from corn to soybeans are taking a bit of a knock.

CF Industries this week estimated corn sowings at 90m acres this year, only a little below last year’s 90.6m acres and some 1.5m-3m acres above industry forecasts.

While a fertilizer group might be seen as easily persuadable on high sowings of corn, a nutrient-hungry crop, the soybean: corn ratio has shifted to levels which are less warped towards the oilseed.

One broker noted the average prices of November soybeans and December corn in Chicago so far in February – a month for which the mean value will be used to set US insurance prices, and so have a big influence on growers’ sowing decisions.

“We are now 12 days into the spring federal crop insurance price discovery period and corn is so far averaging $4.15 ¼ a bushel and soybeans $9.64,” a ratio of 2.32: 1 – still biased a little towards soybeans by historical comparisons, but not  to a no-brainer extent.

Prices will have a hard time moving far from these numbers since we have over 63% of it locked.”

‘Below cost of production’

The broker also added that the prices “mean revenue guarantees will be roughly 10% lower for corn and 15% lower for soybeans from where they were last year.

“This is below cost of production for many producers.”

Soybeans for the new crop November lot were 0.2% lower at $9.74 ¾ a bushel as of 09:20 UK time (03:20 Chicago time), while the better-traded, old crop May contract was down 0.2% at $9.97 ¾ a bushel, having blotted its copybook somewhat in the last session by surrendering the newly-regained $10-a-bushel mark.

‘Could turn bearish quickly’

Corn did little better, in edging 0.1% lower to $3.91 ½ a bushel for May delivery, setting itself up for a confrontation with its 100-day moving average, at a little over $3.91 a bushel.

“The 100-day moving average has been the main line of support over the last two weeks,” Benson Quinn Commodities noted.

“If we trade lower and test this level, charts could turn bearish quickly.”

As to what could push it below the line, besides the USDA data, the day also brings the corn market weekly statistics on the country’s production of ethanol, for which the grain is the main raw material in the US.

According to Terry Reilly at Country Futures, ethanol output is “expected to be steady to off 15,000 barrels per day from the previous week of 961,000 barrels.

“Stocks are expected to be up 25,000-50,000 barrels from 21.135m barrels last week.”

Still, oil futures fell sharply on Thursday, by 2.8% to $58.83 a barrel, boding ill for the energy complex overall.

Egyptian tender

As for wheat, it shed 0.3% to $5.22 a bushel in Chicago for May, still smarting from Egypt’s decision on Wednesday to reject all offers to an all-US tender.

These offers, at $287 a tonne and above excluding freight, hardly looked like bargains, it has to be said.

“Egypt cancelled their tender because of high prices, and figured they could purchase wheat cheaper from other world players,” said CHS Hedging.

In fact, it will be the turn of other exporters today to see what they can deliver, with Egypt’s Gasc authority reissuing its tender overnight, but to a number of major origins, including Argentina, Australia, Canada, France and Romania, besides the US.

‘Stocks are drying up’

In fact, it is deemed unlikely that US wheat will be resubmitted, and another major origin, Russia, will probably be absent too, given the export tax it has applied on wheat since the start of this month, to preserve domestic supplies.

Not that this appears to be doing that much to slow exports, prompting Russia to say that it may review the levy after February shipments are accounted for.

But how much difference would a raised tax make?

Already “stocks are drying up for the current marketing year,” Futures International’s Terry Reilly said.

‘Large cut to US planting’

Cotton will also be under the microscope at the USDA’s Outlook forum as the low prices which had reigned until late had been expected to depress US sowings of the fibre.

Still, futures have rebounded strongly over the past month, and in the last session, “cotton futures closed at their highest level since mid-September to burnish the rally’s credentials,” said Tobin Gorey at Commonwealth Bank of Australia.

“Analysts are expecting a large cut to US planting this year.”

In early deals on Thursday, investors took a bit of profit, sending the May lot down 0.3% to 65.15 cents a pound.

Even so, cotton is up 12% from a January 23 low. Will this renew its appeal to farmers in the US and elsewhere?

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