(Agrimoney) – Grain and soybean prices behaved on Monday.
That is, they continued to work lower, in line with the broad market idea, tested by the recovery in futures for much of October, that values should indeed be becoming cheaper at this time of year, given the ongoing US corn and soybean harvests.
Tobin Gorey at Commonwealth Bank of Australia flagged the “consensus view” that “soybean prices are too high”, particularly when compared to values of corn, and that “prices should have little traction given the harvest pressure that is still to come”.
One US broker said: “Between now and the end of harvest we could still see those remaining bushels pressure the market.”
Harvest progress
And the hopes of a decent weekend for the US harvest appeared to be fulfilled, at least judging from the weather, which came in much as expected for the Midwest.
“Mostly dry weather prevailed” over the weekend, weather service MDA said.
And this week, while there are rains forecast for today and Tuesday, they will produce only “minor corn and soybean harvesting delays”, the weather service said.
A speedier harvest means an uptick in supplies, more farmer hedging and removes the need even for the last slither of weather premium in prices.
More on the US harvest will be revealed later with the weekly US Department of Agriculture crop progress report
‘Begin to rebuild moisture’
As for another major weather worry for markets, Brazilian dryness in the soybean sowing season, that seems to be easing too.
Weekend rainfall in areas including Mato Grosso, the top soybean producing state – besides southern areas of Minas Gerais, the biggest coffee growing state – were “near expectations”, MDA said, meaning “coverage of 45% for corn and soybeans” with amounts generally of 0.25-1.25 inches.
And more rains are in the forecast.
“Showers in Minas Gerais, Goias, and Mato Grosso will begin to rebuild moisture for corn/soybean germination,” the weather service said.
Election result
Brazil gave another negative to agricultural commodity markets in the form of victory, just, by Dilma Rousseff in presidential elections.
If the real behaves has it has done in the run-up to the poll, ie weakening as the chances of victory by Ms Rousseff rose, the result bodes ill for grain prices.
A weaker real will improve the price in local terms of dollar-denominated crops, improving margins for Brazilian growers and the likelihood of large sowings – with negative implications for values worldwide.
Already US corn export pricing is “probably still rich”, CBA’s Mr Gorey said.
And, with “restricted demand” for corn from ethanol distillers, “rallies are likely to be met with scale selling”, he said.
Prices fall
Not that a rally was an issue early on Monday, when November soybeans were 0.3% down at $9.75 a bushel as of 08:30 UK time (03:30 Chicago time), dropping back below their 50-day moving average.
Signally, soymeal – which has been such a prop to the soy complex of late thanks to strong demand for supplies squeezed by the weak soybean carryover from 2013-14, and the slow start to the current harvest – fell 0.3% to $349.20 a short ton.
Chicago corn for December dropped 1.0% to $3.49 ½ a bushel, falling below its 10-day moving average.
Wheat was lower too, down 0.9% at $5.13 ¼ bushel for December delivery, surrendering both its 10-day and 50-day lines.
Wheat weather
For Chicago-traded soft red winter wheat, grown largely in the Corn Belt, better US corn and soybean harvesting progress is a negative too, in freeing up land for sowings.
Wheat plantings in Illinois particularly have been held back by row crop harvesting delays.
Furthermore, for this grain too, “rich US physical pricing seems to be proving a headwind for the rally”, Mr Gorey said.
Still, as some help to prices, weather conditions remains “too dry” in some areas in South Australia, if “accommodating” elsewhere, he added.
“Continued hot temperatures will not help” South Australian prospects.
Cotton weakens
Among soft commodities, only the cotton market was open, and down 0.6% at 63.42 cents a pound in New York for December delivery, pressed by the better US harvest weather.
Still, the Brazilian election results could bode ill for cotton too, in terms of the country being a major grower and exporter of the fibre, and gaining a competitive advantage from a weaker real.
The result could have an extra significance for the sugar market, in that Ms Rousseff’s government has operated a cap on gasoline prices which has, in turn, constrained ethanol values, and so having a knock-on effect on sugar prices too.
Higher ethanol values would force sugar prices to fight harder, ie rise, to ensure their share of the cane harvest.
Technical factors
Back among grains, the question is whether the easing in prices will turn into something of a rout, if farmer selling picks up, or indeed if technical factors encourage funds into fresh selling.
Already there are ideas that short-covering in corn has gone far enough to open the door to a new wave of negative positioning.
Chart studies for corn are also “showing weakness with a poor close on Friday after a fresh high for move,” Benson Quinn Commodities said.
The broker said it would take a “lower close on Monday to confirm a reversal”, adding that this outcome would not be a surprise.
‘Significant reversal possibility’
For soybeans Benson Quinn Commodities cautioned that trade below the 50-day moving average, as indeed has occurred on Monday, “would entice more selling by the institutional trader”.
And for wheat also, trading below key moving averages “sets up a significant reversal possibility on the charts, dependent on Monday price action”.
