(Agrimoney) -If grain bulls felt disappointed in the last session by corn’s retreat from intraday highs, reached after the US made a surprise cut to its harvest estimate, Tuesday trading offered a little bit to alter their mood.
December corn futures stood at $3.70 ½ a bushel at 08:50 UK time (02:50 Chicago time), up 0.3%.
But soft red winter wheat’s strong finish to Monday’s trading was no indication of where it would start this one, with Chicago’s December contract down 0.4% at $5.15 a bushel.
A stronger dollar offered some pressure, in making dollar-denominated exports, such as grains, that much more expensive to buyers in other currencies.
This when “US corn and wheat remain high priced relative to competing origins”, according to Richard Feltes at Chicago broker RJ O’Brien.
And a further set of US Department of Agriculture data released overnight, after the Wasde report which made the unexpected downgrade to the domestic corn yield forecast, offered little on which to pin hopes of a rally.
Harvest catch-up
The US corn harvest proceeded at pace last week, with farmers harvesting 15% of their crop to reach 80% done, catching up with the average completion rate at this time of year, even after the slow start.
“Illinois, Indiana and Iowa all made strong gains,” CHS Hedging said, referring to three of the most important producing states.
That offered a reason to remove last vestiges of risk premium for futures, although it may also speak of lower harvest pressure on values ahead as the market has to turn to luring crop from farmer storage.
For winter wheat, the report showed an improvement in overall US crop condition, with 60% rated “good” or “excellent”, as improvements in the southern Plains more than offset some deterioration in the Midwest.
‘Well-supplied’
Still, many, brokers remain loathe to take a more bullish view of price prospects after the Wasde downgrade of 0.8 bushels per acre, to 173.4 bushels per acre, in the USDA’s forecast for the domestic corn yield.
“Observers view the change as being too small to alter a well-supplied view of the world,” said Tobin Gorey at Commonwealth Bank of Australia.
“The USDA report does not change our long-term projection on prices,” said Terry Reilly at Futures International, who has said that a corn price of $2.85 a bushel for Chicago’s March contract is “still not out of reach” before it expires, although that would require ” a lot of” fund liquidation.
Another US broker said that the market had appreciated that “demand estimates are nearly maxed out and carryout projections are still very abundant.
“There is no way to burn through the large grain and oilseed supplies that exist in the US and around the world without having cheap prices for an extended period of time.”
‘Jerky price action’
Richard Feltes saw some reason for price support, in that the “absence of a bearish surprise” in the Wasde report may “prompt select end users to extend forward coverage”, ie encourage some buying pressure.
But the upside to values is “limited”, thanks to “improving South American weather”, which is allowing some catch-up on sowings,
The “bottom line” was there was “nothing” in the Wasde “to change the overall narrative of a relatively thin near-term pipeline against a backdrop of large overall supplies—especially corn and soybeans“.
The market may be in for a “quiet/low-volume finish to the year, which sets stage for jerky day-to-day price action that may be difficult to explain” from analysis of supply and demand fundamentals, Mr Feltes added.
‘Price trend will be lower’
For soybeans, Anne Frick at New York broker Jefferies said that the market appeared to have some disappointment to deal with, after the USDA kept at 450m bushels its forecast for domestic stocks
“The sell-off after the Wasde suggests that traders were looking for a bullish surprise in this report that they did not get, even though the situation does not look more bearish than it did after last month’s report,” Ms Frick said.
Besides, there are the improved South American sowing conditions to deal with.
“As planting and crop development advance, without a weather threat, price trend will be lower,” Benson Quinn Commodities said.
Still, it “may take till January, and the market being assured of South American production, before the harvest low [for Chicago soybean futures] at $9.05 a bushel can be tested or penetrated”.
‘Could see lower prices’
Besides, the rally in soymeal, which has led the soy complex, and indeed grains, higher over the past few weeks, may be losing some of its lustre.
Chicago’s December soymeal contract was up, but only by a modest 0.2% a short ton to $381.80 a short ton, not enough to avoid a cut to $16.00 a short ton its premium over January soymeal, which added 0.3% to $365.80 a short ton.
Some analysts see a drop below $15 in the premium as a sign of less tight near-term supplies, which could trigger a tumble in values.
“Given the run up in prices over the past month in soybeans, and even more visible in soymeal, the soy complex could see lower prices for the balance of the week,” said Terry Reilly at Futures International.
“The only piece of bullish data the market has left is the tight supply pipeline which is easily remedied as the crop is harvested and the farmer sells.”
Soybeans themselves for January were 0.1% lower at $10.24 ½ a bushel.
A 0.9% drop to 4,339 yuan a tonne in May soybeans on China’s Dalian exchange did little to help.
Technical support?
Still, it was not all doom and gloom for ag bulls, with cotton recovering some of the ground it lost in the last session after the USDA upped its estimate for the domestic harvest, and for inventories at the close of 2014-15.
“For all the activity” in cotton futures in the last session, which saw the December contract trade over a range of more than 5%, “the market has not really moved all that far out of recent ranges”, CBA’s Tobin Gorey said.
Cotton for December added 0.8% to 62.95 cents a pound.
Spring forward
Back in the grains complex, Minneapolis-traded spring wheat futures made small headway too, adding 0.1% to $5.55 a bushel for December, after a downgrade in the Wasde to the estimate for US year-end stocks of spring crop.
The USDA cut by 30m bushels to 217m bushels its forecast for end-2013-14 inventories of the grain, reflecting a resurvey of northern US growing districts and a 20m-bushel switch in export demand to the variety, from hard red winter wheat.
“The new hard red spring wheat export estimate of 280m bushels is in line with the current pace of exports,” said Brian Henry at Benson Quinn Commodities.
