Have grain prices already set their harvest low?

October 14th, 2014

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Category: Grains, Oilseeds

Wheats-and-Cereals450x299(Agrimoney) -There is a big question on grain traders’ lips.

And that is, “has the harvest low in corn and soybean prices been put in already”?

The consensus idea, to judge by brokers Agrimoney.com is in contact with, is that the answer is “no”. Typically, the feeling goes, harvest has to be about 75+% through before a low is formed.

And that is nowhere near the case – indeed, unusually slow harvest progress is seen as a major factor behind the gentle revival in prices over the past couple of weeks.

‘Bat out of hell’

While the US Department of Agriculture did not, thanks to the Columbus Day holiday, unveil its weekly crop progress report on Monday as usual, the data are, when they are released late today, for expected to show corn harvest progress of 25-30%, compared with an average of 43%, according to CHS Hedging.

“Crop progress is expected to show soybean harvest at 35-40% complete versus 53% on average.”

Next week’s data “will be behind too”, the broker added, following rain delays already this week.

Weather service WxRisk.com late on Monday reported a “large and powerful weather system going like a bat out of hell” through US growing areas “with a strong line of severe storms from southeast Texas into the north west half of Louisiana, all of eastern Arkansas”.

The rains were “about to enter northwest Mississippi, then into moderate storms and heavy rains over eastern Missouri, the western half of Illinois, southern/ eastern Iowa, the far north west of Missouri, the eastern third of Kansas into north central Oklahoma”.

And there is more to come for areas bar the western Corn Belt and the Plains, with the next four days to see a “large area of 1-3 inch rains with 75% coverage over the eastern Corn Belt, the Delta, the Deep South into the eastern half of Iowa and the south east”.

‘No need to ration supplies’

But back to the initial question, and will row crops subside once combines resume in earnest, and harvest pressure on prices ramps up.

Richard Feltes at RJ O’Brien said: “What remains unresolved is whether recent price strength is merely a minor corrective rally in long term bear market or the establishment of fall lows.

“We still lean toward the former, along with a host of other players, which suggests that additionally flushing of entrenched longs may be necessary before row crop markets embark on the next leg lower.

“There is no apparent need to ration supplies with higher prices given abundance of global grain supply and prospects for further gains in record global soybean stocks in coming months.”

‘Not an easy trade’

At Benson Quinn Commodities, Brian Henry said: “I would favour the idea that the market will work lower.

“But it isn’t going to be an easy trade going forward.”

Or will it? If prices do fall, the floor could yet be some way off, with Anne Frick at Jefferies Bache suggesting that, for soybeans, “downside risk if the $9.04-a-bushel level [the current harvest low] does not hold may to be $8.00”, a price gained from comparison with “similar years”.

Front month soybean futures have not traded at $8.00 a bushel in Chicago since late 2008, during the world economic crisis, and even then only briefly.

Prices at this level may depress South American sowings, but thereby allow a price recovery “into 2015”.

‘Prices may well hold’

Still, Ms Frick said that what “may be the more likely scenario” was that the harvest low in prices has actually already been put in.

“Prices may well hold the low as users scramble to refill depleted pipelines, crushers aim to take advantage of very high crushing margins and the export book demands filling,” she said.

And there was a historical signal as such from Friday’s US Department of Agriculture Wasde report, which showed a soybean yield of 47.1 bushels per acre, 0.5 bushels per acre short of market expectations.

“In 11 of the 13 years when the October crop estimate was below the average pre-report forecast, as was the case this year, the September-November low in November soybeans occurred before the October crop report,” she said.

The downside for bulls is that this could leave the door open to a more generous picture for South American supplies, “a larger US crop in 2015, and the very real possibility of a two season bear market where the ultimate price low is not reached until the fall of 2016”.

‘Would be good business’

For now, November soybeans added 0.9% to $9.53 ¼ a bushel as of 08:10 UK time (02:10 Chicago time), buoyed by the improving technicals encouraged by the October price recovery, with the contract ending the last session above its 20-day moving average for the first time in two months.

December corn gained 0.4% to $3.47 ½ a bushel, earlier coming just 0.25 cents short of its 50-day moving average, which it has not touched in nearly five months.

These gains helped wheat higher too, with Chicago’s December contract standing up 0.2% at $5.06 a bushel.

Benson Quinn Commodities’ Brian Henry noted “talk of US hard red spring wheat being traded to Brazil out of the lakes, which cannot be confirmed, but would be good business”.

While dryness is growing as a concern for sowings of Brazilian row crops, excess moisture, and therefore quality concern, has been an issue for southern wheat-growing areas.

Rabobank issued a forecast for Australia’s dryness-tested wheat crop of 23.75m tonnes, which is a little below the estimate from the official Abares bureau of 24.2m tonnes, but above numbers as low as 22m tonnes which have been floating around the market.

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