(AgriMoney) – How much is demand being affected by price rises?
Sure, yield expectations are still getting worse, as results from this week’s ProFarmer tour of Midwest crops, which winds up today, and actual harvest returns, indicate.
Richard Feltes at RJ O’Brien said: “The increasing flow of actual corn yield returns are more alarming that ProFarmer Tour reports and serve as a potential ongoing flow of bullish supply news in the ramp up to the September crop report.”
(The US Department of Agriculture’s September crop report, that is.)
Russia downgrade
Meanwhile, the oilseeds got another production concern when Canada’s bumper canola crop was pegged by officials on Wednesday as not quite so generous, at 15.4m tonnes rather than the 16.4m tonnes investors had expected.
And in wheat Russia’s farm minister, Nikolai Fyodorov, on Thursday revised to 75m tonnes, from 75m-80m tonnes, the forecast for the country’s grain harvest, of which wheat is the most sensitive part.
“Clearly it will not be 80m tonnes, it is more likely 75m,” Mr Fyodorov told the Rossiya 24 television channel.
Data later
A further insight into demand will be gained later, when the USDA unveils weekly export sales data which will at least show how much importers are feeling the pinch.
“We would expect the trade to remain focused on whether higher soybean prices have finally begun to slow old crop, as well as new crop, demand down,” Benson Quinn Commodities said.
For wheat, the question is whether “demand is beginning to pick-up with ongoing reports that yields are weakening in the Black Sea region and quality issues could be surfacing in areas of Europe”.
US to buy UK wheat?
In fact, US wheat is barely competitive on world markets, working out some $15-20 a tonne more expensive than European Union supplies, and $30-40 a tonne more pricey than Black Sea supplies, despite poor Russian harvest prospects.
Ironically, the small Russian crop is only lowering prices by heightening the risk of encouraging shippers to scramble to secure export deals before the government imposes trade curbs to protect domestic supplies, a measure many commentators see as inevitable.
Meanwhile, it even “looks like UK feed wheat works into the east coast” of the US, Benson Quinn said, even as hopes for the UK crop continue to deteriorate – although it looks like quality downgrades will at least bolster supplies of feed wheat.
The UK shipped its largest exports to the US in years in 2011-12, as high corn prices prompted livestock feeders to look elsewhere for grain – a dynamic which has of late seen them snap up Brazilian corn.
Ethanol uplift
For soybeans, US export sales are expected to drop substantially, from 1.0m tonnes to 500,000-650,000 tonnes, given the lack of activity reported through the USDA’s daily reporting system for large orders.
And corn’s forecast to come in at 200,000-350,000 tonnes, a historically weak number, in line with the 253,000 tonnes last time.
Still, the domestic demand signs look more upbeat, with data on Wednesday showing US weekly ethanol production higher for a fourth successive week, this time up 4,000 barrels per day to 823,000 barrels per day.
That said, the increase more than matched demand. Inventories climbed 46,000 barrels to 18.49m barrels.
Signal from options?
Firm US cash markets, especially for soybeans, also bode well as a sign of demand.
“Cash sources indicate that end-user pricing is more prominent than farmer selling, which suggests that spreads will stay firm until farmer selling accelerates, which is unlikely until the later stages of harvest when the producer has better handle on the crop,” RJ O’Brien’s Mr Feltes said.
And investors are still trying to assess the signal from huge JPMorgan purchases of corn call options, some above $10 a bushel, rumoured to be on behalf of Cargill, and implying that a well-connected organisation believes prices may go much higher yet.
“There I no confirmation that a major grain company was behind massive JPMorgan call buying yesterday,” Mr Feltes said.
However, “the market knows that major ‘merchants of grain’ have a long history of conducting comprehensive domestic crop estimates derived in part from their extensive network of cash related facilities staffed by experienced observers”.
Mixed prices
Factor in broadly positive external markets, with the minutes of the latest Federal Reserve monetary policy meeting hinting at a greater willingness to intervene to boost economic growth, and the net result in Chicago was, well, something of a standstill.
Wheat eased 0.3% to $9.14 a bushel as of 09:15 UK time (03:15 Chicago time), doing its bit to get back on terms in export markets, while December corn dropped all of 0.1% to $8.34 a bushel.
November soybeans did best, adding 0.3% to $17.32 ¼ a bushel, having earlier set a fresh contract high of $17.44 ¾ a bushel.
‘Exports will not be restricted’
Soft commodities gave a mixed early showing too, with cocoa staging a bit of a recovery, bouncing 1.2% to $2,408 a tonne in New York for December delivery, but raw sugar dropping 0.7% to 19.80 cents a pound.
Besides data later from Unica expected to show Brazil’s Centre South cane crush progressing fast, doubts over Indian production are easing too, despite the weak monsoon, with officials indicating that a 10% rise in cane area in Uttar Pradesh may compensate for lower yields expected in Maharashtra.
The government has also “reiterated the country’s stance that exports will not be restricted”, Lynette Tan at Phillip Futures noted.
“Nonetheless, the unseasonable dryness in this monsoon period, which was supposed to provide at least 55% of moisture for the country’s agriculture crops, will still put pressure on the country’s sugar output,” she added.
