(Agrimoney) – Was the recovery in grain markets in the last session a flash in the pan, or did it herald a longer-term stabilisation?
Deutsche Bank, saying that “true to form, the agricultural sector has succumbed to its tendency to displays seasonal weakness during the summer months”, had some mixed comments.
“History would suggest that August may see some stabilisation in returns,” the bank said.
However, “this is unlikely to persist for long.
“Indeed, September has typically marked the heaviest losses of the year and most notably for grains.”
‘You pick’em day’
Before the market even gets to August, it has the turbulence of month-end to negotiate, and the prospect of funds closing positions.
Wednesday is a “‘you pick’em’ day – could be higher or lower as market squares positions into month end”, said Benson Quinn Commodities.
That said, typically month-end fund moves are seen as negative to prices, as cash is withdrawn to pay off clients.
And that might seem likely to prove the case this time, given the huge net long that managed money has in ags, even after sell-downs earlier in the week.
Chicago exchange data for Tuesday showed a large drop in open interest (which many had expected for Monday), at -12,242 contracts for wheat futures, -32,820 for corn and -16,347 lots for soybeans.
“The trade has to respect the managed money position and assume that additional long liquidation is likely,” Benson Quinn Commodities said.
‘Weather still mostly favourable’
And so it proved in grains in early deals, with corn feeling fresh pressure from the failure of July – a key month for yield prospects, in bringing pollination – to spring a surprise, and indeed for crop condition to show late-month improvement.
Futures International this week raised its forecast for the US corn yield this year to 167.5 bushels per acre, from 166.8 bushels per acre last week, after official data nudged higher the condition rating on the crop.
“US weather is still mostly favourable for pollination,” the broker added.
Influential analyst Michael Cordonnier said that “the condition of the corn crop has stabilised for the time being at a lower level than last year, but a little better than the long term average.”
Meanwhile, the strong Brazilian second-crop corn harvest, and the weakness of the real, is seen as only enhancing the competition on export markets.
Corn for September fell by 1.5% to $3.69 ¼ a bushel as of 08:50 UK time, (02:50 Chicago time), while the new crop December lot dropped by 1.5% to $3.79 ¾ a bushel.
Tour results
That put fresh pressure on rival grain wheat too, which eased by 0.7% to $5.07 a bushel in Chicago for September delivery, also feeling some pressure from the early result of the US Wheat Quality Council tour of northern Plains spring wheat crops.
The tour’s first day pegged the average yield for hard red spring wheat at 51.1 bushels per acre – the highest day one result on records going back 21 years, and well above the figure of 48.3 bushels per acre a year ago.
The prior five-year average for day one findings is 43.4 bushels per acre.
‘Surprisingly heavy rain’
And this too when decent Prairies rains have eased concerns for the Canadian wheat crop, which is mainly spring seeded.
“Canada’s Prairies got some surprisingly heavy rain that will, for a time, mean further crop downgrades are unlikely,” said Tobin Gorey at Commonwealth Bank of Australia.
Futures International’s Terry Reilly noted that the “bulk of the rains slated this week for Saskatchewan fell from Monday into Tuesday”, bringing “flash flooding in many areas, including Coronach, Saskatchewan”.
Minneapolis spring wheat for September fell by 0.6% to $5.37 ¼ a bushel.
‘Critical growth period still ahead’
Canola also eased, by Can$0.20 to Can$462.60 per tonne for the November contract, with the Prairies rains supporting expectations for the harvest of the oilseed too.
And rival oilseed soybeans weighed, easing by 0.3% to $9.72 a bushel for the August contract, and by 0.4% to $9.41 a bushel for the November lot, feeling pressure from the benign US weather outlook, but in turn maintaining more risk premium than corn.
“The soybean condition is now just slightly better than the long term average,” Dr Cordonnier said.
Still, “as we all know, the eventual soybean production will depend on the weather during August”, he added.
At RJ O’Brien, Richard Feltes said that “soybeans, which harbour more risk premium than grains compared with mid-June lows, will give up value grudgingly, as the critical growth period is still ahead”.
‘Tested and survived again’
In New York, cotton eased too, feeling pressure from fellow row crops corn and soybeans, but also from technical, after a rally in the last session stopped short of giving the December contract the scalps of the 200-day or even 10-day moving averages.
Still, down 0.4% at 64.37 cents a pound, the contract remained above something of a technical floor.
CBA’s Tobin Gorey noted that in the last session “December cotton futures closed above 64 cents a pound as supportive buying again showed up at that level.
“The floor has been tested and survived again though further macro commodity selling may yet provide sterner tests.”
