(Agrimoney) – Fridays often brings something of a trend reversal in agricultural commodity markets, as investors book profits.
That seemed to be something of a theme this time, with grains trading a little softer in early deals, without any apparent change to expectations for supply and demand fundamentals.
Bears, of course, would say that the market has anyway been ignoring the prospect of huge crop supplies, given the forecasts of record world harvests of corn, soybeans and wheat.
‘The big story’
But that said, Professor Darrel Good at the University of Illinois has flagged the strength of demand too, saying that “if current production and consumption forecasts actually verify, the big story this year will be that extremely large corn and soybean crops resulted in less than burdensome year ending stocks.
“The modest level of stocks relative to the consumption base opens the door for a tighter supply and consumption balance for the 2015-16 marketing year, particularly for corn.
“If consumption next year remains near the projected level for this year, a corn crop less than 13.66bn bushels would result in a drawdown in stocks.”
Ags vs oil
Certainly, there is some idea that prices got too low in late September, when soybeans and wheat set four-year lows in Chicago, and corn futures hit its weakest in five years.
At Chicago broker RJ O’Brien, Richard Feltes noted an idea among managed funds that some agricultural commodities were “considered undervalued relative to recent years”, with “positive chart action” adding to their appeal.
Ags are doubtless appearing more attractive than some energy contracts, with Brent crude trading at a four-year low below $78 a barrel.
“It looks like the funds are shifting money out of energies and into ag futures,” a US broker said.
“Traders noted another inverse correlation between crude futures and corn futures on Thursday which may be the source of this corn strength.
“There is no doubt that the funds have had a major impact on the price of corn, beans, and soymeal these past few weeks. ”
At Benson Quinn Commodities, Brian Henry said: “The weakness in the energy market is likely driving investment capital into commodities that are showing significant upward momentum.”
‘Nerves are still jangled’
There is the slight complication in all this that many ags are linked to the energy sector through their use in making biofuels.
Ethanol plants, for instance, are expected to consume more than one-third of this year’s record US corn harvest.
Still, there are other ideas for bulls to use to support their case for higher prices, with cold weather testing the last stages of the US corn and soybean harvests, and threatening winter wheat seedlings too, although there are varied opinions on the severity of the threat.
“Market nerves are still jangled by the cold US weather,” said Tobin Gorey at Commonwealth Bank of Australia.
“Nevertheless the area where extremely low temperatures and exposed crops coincide is modest.”
At Chicago-based Futures International, Terry Reilly said that “little, if any, recently winter wheat will be impacted by the current cold event across the northern US.
“But some weather forecasters mentioned a small area for winter grains will be impacted. ”
‘In the risk zone’
Sticking with the weather, there are growing concerns too of Ukraine following neighbouring Russia in seeing vulnerable winter grains crops heading into winter.
At the Ukrainian Hydrometeorological Center, Tetyana Adamenko, head of the agriculture department, said that “about 30% of crops are in the risk zone”, in being sown late, in the second half of October, and so lacking time to develop and harden off before winter.
And, in Australia, rains have now become an issue, in slowing the harvest in Western Australia, the top grain-producing state.
“Widespread rain across the state has brought the harvest to a near standstill,” said CBH, the co-operative which handles the vast majority of Western Australia grains.
Key will be whether the rain has damaged kernels, so adding to the squeeze on the world’s supplies of high grade wheat, a tightness which is in Europe, for instance, boosting demand for German and Polish grains – in contrast to the the likes of France, which will see inventories soar, Strategie Grains said on Thursday.
Prices fall
Nonetheless, with that Friday feeling taking hold, wheat for December fell 0.5% to $5.50 ¾ a bushel in Chicago as of 09:15 UK time (03:15 Chicago time).
That put a bit of a drag on corn too, which eased 0.7% to $3.83 ¾ a bushel for December.
Soybeans, meanwhile, dropped 1.1% to $10.41 ¾ a bushel for January delivery, little helped by soymeal, which has been the Chicago leader of late, but which dropped 1.9% to $386.00 a short ton for December delivery.
The January contract was 1.8% down at $372.70 a short ton, reducing a little its discount to the December lot – a gap which is being closely watched for signs that the short-term squeeze on meal supplies may be weakening.
Data later
There is plenty yet, though, on the radar which could move markets, including any potential updates in the Russia-Ukraine situation, with wheat markets in particular tending to move in line with the region’s tensions.
Informa Economics will later release updated estimates for US corn and soybean area in 2015.
Their previous forecasts were 87.771m acres for corn, 88.512m acres for soybeans, and 56.428m acres for wheat, including 41.791m acres of winter wheat.
And the US Department of Agriculture will release US crop export sales data for last week, expected to come in a 250,000-400,000 tonnes for wheat, compared with 265,796 tonnes last time, and 400,000-600,000 tonnes for corn, compared with 478,163 tonnes.
Soybeans export sales are expected at 1.10m-1.20m tonnes, compared with 1.61m tonnes last time.
For soymeal, a number between -100,000 tonnes (ie net cancellations) and +100,000 tonnes is expected.
Cotton nudges higher
In New York, cotton, which had a dire session on Thursday, falling to five-year lows, recovered a touch, although potentially only thanks to pre-weekend short covering.
December cotton added 0.3% to 59.89 cents a pound, and the better-traded March lot 0.5% to 59.04 cents a pound, both failing to set camp back above the psychologically important 60 cents-a-pound mark.
“Global cotton weather is benign or better for now,” said CBA’s Tobin Gorey.
Cncotton.com, an industry website funded by the state-run China National Cotton Reserves Corporation, pegged the Chinese cotton harvest in 2014-15 at 6.51m tonnes, down 7% year on year, and a smidgen below the 6.53m tonnes at which the USDA estimates the crop.
