(Agrimoney) – It’s a big day for political speeches on both sides of the Atlantic. The UK will witness the Queen’s Speech, when the monarch will read out the legislative programme drawn up by the re-elected (just) Conservative government.
For ag markets, more momentous could be an address by US President Donald Trump, who will hold a “Make America Great Again” rally in Iowa.
Biofuels announcement?
This is not the first such rally since Mr Trump was elected.
But what is raising ideas that it might make waves is that it is occurring at a time when there is a persistent talk that he will use the rally to unveil updated details of the US biofuels mandate (which would normally be announced by the Environmental Protection Agency).
And given that Trump administration talk on biofuels has offered supportive elements – eg ideas of steep import taxes on US imports of Argentine and Indonesian biodiesel, and expanded availability of E15 (gasoline containing 15% ethanol – well, what better place than Iowa to announce changes.
(Iowa is the top US state for producing corn, the main raw material for US ethanol plants, and soybeans, the source of soyoil, which is the main raw material for US biodiesel manufacturers.)
Terry Reilly at Futures International said that “some traders are looking for an RVOs announcement during this visit” to Iowa – RVOs, or renewable volume obligations being one of the two mechanisms the EPA uses to implement the US biofuels mandate.
The talk is that Mr Trump could announce figures for 2018 and 2019.
Soyoil vs palm oil
Ideas of favourable changes are one reason why soyoil, up 2.1% so far this month in Chicago for July delivery, has outperformed rival vegetable oil palm oil, down 2.9% in Kuala Lumpur in dollar terms.
Palm oil has also found headway tricky thanks to ideas of weaker demand from importers, with the starting of Ramadan and the end of the pre-Ramadan stocking period.
And such ideas have only found support in data from cargo surveyors, with ITS estimating Malaysian palm exports down 14.8%, month on month, in the first 20 days of June, while SGS put the drop at 16.7%.
And palm oil continued to underperform on Wednesday, dropping 1.3% to 2,432 ringgit a tonne as of 09:15 UK time (03:15 Chicago time), little helped by a 1.9% tumble to 5,212 yuan a tonne in palm oil futures on the Dalian exchange in China, a major importing country.
Chicago soyoil for July was pulled below early highs, but stood a modest 0.1% down at 32.00 cents a pound.
Data later
Energy markets more generally remained less supportive, with Brent crude falling again, by 1.0% to $45.54 a barrel, although not quite yet matching the seven-month intraday low set in the last session.
How weekly US ethanol production data, due later, will pan out could have a big influence on corn futures for the later session.
Still, for now, corn for July stood up 0.2% at $3.70 ¾ a bushel, caught between the pull from the buoyant market for rival grain wheat and the pressure from a largely benign Midwest weather outlook.
‘Rallies can’t find follow-through’
“Rallies can’t find follow-through because there isn’t fund buying to be done,” said Benson Quinn Commodities, adding that “for the time being, the funds have given a pretty good sign that they don’t want to build a net long position”.
At the moment, it is really only dryness in parts of the western Corn Belt that is ringing alarm bells among investors.
“The cooler temperatures expected for the Corn Belt are non-threatening for areas that have had moisture and a benefit for areas that are dry,” said Benson Quinn Commodities.
Futures International said it had raised its US corn yield forecast for this year to 171 bushels per acre, a touch above the official estimate, following Monday’s weekly USDA crop reading.
Soybean futures fared a little better than corn, helped by soyoil, but still shed 0.25 cents to $9.27 ½ a bushel for July.
Spring wheat yield
Could wheat, the toast of grain bulls at the moment, fare any better?
Well, Minneapolis spring wheat managed to hold its ground, standing unchanged at $6.59 ¼ a bushel for July delivery, after an early uptick to a fresh two-year high of $6.60 a bushel ran out of steam.
And there is a case for higher prices, given that the high-protein wheat is difficult for millers to replace.
Richard Feltes at Chicago broker RJ O’Brien, saying that the latest official USDA crop rating (of 42% of US sping wheat rated “good” or “excellent”) suggested a yield of 38 bushels per acre, down from 46.1 bushels per acre last year.
“Recall final US hard red spring wheat yields in 2007 and 2011 of 36.2 and 35.2 bushels per acre respectively.”
Minneapolis futures in those seasons peaked at $24+ a bushel in late February 2008, and in 2011 at $11.20 a bushel, in late June.
Key dynamics
The Minneapolis July contract “may be topping out near term”, Mr Feltes said.
Nonetheless, it “will remain well supported until we know more about US spring wheat yields”, besides the protein level (said to be low) in the US winter wheat harvest, “along with the quality of foreign high protein wheat production including Canada, the Baltics, eastern Europe and the European Union”.
Markets will also “closely monitor” US exports of spring wheat, to gauge the drain on US supplies from that score.
“If sales pace fails to slow, look for Minneapolis wheat to work higher in a classic demand-pull bull market similar to 2007-08.”
Wheat vs corn
However, Chicago soft red winter wheat failed to keep up its rally, feeling the weight from lower prices of corn, a rival in feed markets.
Chicago wheat for July dropped 1.0% to $4.67 ¾ a bushel, allowing a reversal in the wheat-corn spread which had topped $1.00 a bushel in the last session.
It is still up some 70% in seven sessions.
Direction later may depend on weather forecasts worldwide, as well as in the US, with Benson Quinn Commodities underlining for instance that “concerns about the hot/dry conditions in Western Europe extending into eastern regions has gotten the attention of the trade”.
Australian prices
In Australia, where dryness is also a worry for newly-planted winter wheat, January east coast wheat futures closed up Aus$2.00 at a 17-month high of Aus$279.00 a tonne.
“Weather forecasters and models are, pleasingly, now adding a little rain to the outlook for dry winter crop regions of Western Australia and South Australia,” said Tobin Gorey at Commonwealth Bank of Australia.
“The rainfall is modest to be sure and is only likely to yield a temporary boost to soil moisture in most places.”
