(Agrimoney) – If it looked like US Department of Agriculture had opened the door to let bears back into grain markets, well, their claws remained sheathed in early deals at least.
Corn and wheat futures suffered “dismal closes” to the last session, Richard Feltes at RJ O’Brien noted, falling some 2% and 3% respectively, after the USDA, in its monthly Wasde crop report, upgraded the estimate for the domestic wheat harvest by more than investors had expected.
“US weather may not be perfect but there isn’t anything in the June [Wasde] crop report that’s bullish,” Mr Feltes said.
Forecasts for corn, soybean and wheat balance sheets for 2015-16 “do not represent any ‘call to action’ for the bulls”.
At Commonwealth Bank of Australia, Tobin Gorey said that the USDA had reminded the market “that US wheat stocks are well higher than anyone planned”.
At Benson Quinn Commodities, Brian Henry said that “the picture in wheat looks pretty bleak and the report didn’t offer any new inspiration for the length”.
“Supplies are expected to remain ample and the USDA increased potential domestic and global production despite various hints that production in India and/or Australia could be lowered.”
Back to the weather…
Still, the selling storm of the last session had passed as of 09:00 UK time (03:00 Chicago time) at least, as investors focused on the idea that the USDA data were, after all, estimates and that there are plenty of wetness and dryness yet to warrant thinking twice about selling too much.
“I would anticipate the residual effects of the report to be short lived as weather forecasts will remain the chief price driver moving forward,” Benson Quinn’s Brian Henry said, flagging in particular the prospect of further wetness for the US.
“The market will be paying close attention to the moisture forecasted to begin towards the end of the week,” showing, over five days, 2-4.5 inches of rain “with coverage extending from the southern plains into central Iowa.
“The moisture threatens to halt planting in the Midwest and harvesting in the southern Plains.”
‘Ongoing planting delays’
At Futures International, Terry Reilly said that the “US Midwest will be in a wet pattern bias the western areas over 7-10 days.”
“Ongoing planting delays in Missouri and Kansas for the soybean crop are expected.”
Sure, rains are, largely, beneficial for crops in the ground, supporting yield prospects, although there have been reports of flooding too in, for example, Indiana.
But they have also raised concerns over whether US farmers will be able to complete corn and soybean planting programmes, particularly without the incentive of elevated prices.
‘Weather worries persist’
For wheat, meanwhile, rain spells not only harvest delays for autumn-sown crop, but quality challenges too, with moisture encouraging diseases and sprouting of ripe grain.
“US hard red winter wheat country will see more than wanted rainfall Thursday through Tuesday of next week,” Mr Reilly noted.
CBA’s Tobin Gorey said that “weather worries nevertheless persist.
“Weather forecasters continue to expect heavy rainfall on many US hard red winter wheat crops that has the potential to further reduce wheat quality.”
Rabobank said that for US wheat “absolute volumes are currently not the key issue, as ongoing rains are raising quality concerns”.
‘Room to sell’
And this is before getting to the issues abroad which are worrying farmers too, such as the dryness in Canada’s Prairies, a huge region for producing rapeseed variant canola and spring wheat.
“Weather forecasters now expect Canada’s dry Prairies to get a little rain over the next few days but the amounts are unlikely to be enough to alter the desperate need for more moisture in the region,” Mr Gorey said.
Canola futures for November actually nudged Can$0.10 a tonne higher to Can$489.00 a tonne in Winnipeg while, south of the border in Minneapolis, spring wheat futures for July fell a modest 0.25 cents to $5.66 ¾ a bushel.
Chicago soft red winter wheat, the world benchmark, fared worse, but its losses were limited to 0.2% for July futures, taking the contract to $5.12 ¼ a bushel.
Benson Quinn’s Brian Henry said that “besides the negative fundamental picture, the issue in wheat is the likelihood that the funds have pared their net short positions to manageable levels”, meaning that further support for prices from short-covering may be curtailed.
“Wet conditions through the southern Plains may limit the appetite on the sell side until it plays out and harvest is allowed to resume.”
However, he was “inclined to believe the path of least resistance is lower due to the funds having room to sell”.
Ethanol record
Fellow grain corn, however, fared better, adding 0.1% to $3.57 ¾ a bushel for July, reducing below $1.55 a bushel its discount to wheat, which touched $1.71 ¾ a bushel early on Wednesday.
There will likely be more attention today on the Brazilian safrinha corn crop, which the USDA upgraded by 3m tonnes in the Wasde, and on which Brazil’s own crop bureau, Conab, will issue data later on (along with stats on other crops such as soybeans too).
However, on the more positive side for prices, besides the potential for some US acres lost to wetness, is the ethanol market, with data on Wednesday, somewhat overshadowed by the Wasde, showing US output of the biofuel matching an all-time high last week.
“Ethanol production matched the weekly production rate record of 992,000 barrels per day set back in December 2014,” CHS Hedging said.
“This is up from last week’s 972,000 barrels per day,” and production “has also moved above the 976,000 barrels-per-day average which is needed to match the USDA’s projected corn for ethanol demand” for 2014-15.
Ironically, the USDA in the Wasde cut its estimate for corn use in ethanol in 2014-15, citing findings of a report on US grain crushing up to April.
‘Slight tone of reluctance’
Meanwhile, soybeans for July added 0.3% to $9.52 a bushel, having actually been relatively favoured by the Wasde, which cut the estimate for US stocks, and closed lower with what Benson Quinn termed a “slight tone of reluctance”.
The broker added: “So far we are seeing no indication that the US crusher is slowing down and export shipments are on track to reach USDA’s latest forecast,” upgraded in the Wasde.
CHS noted that soybean basis, at US Gulf ports, was holding steady at $0.81 a bushel over futures.
Producer selling was “steady, though spotty”, it added, while there was “continued strength in the crush margins”.
Car trouble
Elsewhere, palm oil recovered some ground lost in the last session, on data from the Malaysian Palm Oil Board showing higher-than-expected Malaysian stocks, adding 0.2% to 2,295 ringgit a tonne.
The Wasde was actually somewhat helpful in tone for prices of rival vegetable oil soyoil, in cutting by 55m pounds to 1.36bn pounds the estimate for US stocks at the close of 2015-16, reflecting increased estimates for biodiesel usage in both 2014-15 and next season.
Chicago soyoil itself for July added 0.5% to 34.03 cents a pound.
However, on the downside for prices of palm oil, and therefore vegetable oils overall, carmaker BMW has reportedly warned that B10, ie 10% biodiesel in diesel, which Malaysia is trying to promote may cause engine damage.
