(Agrimoney) – One hope for bullish grain investors, and growers, is that, with futures at current depressed levels, crop prices won’t fall much further.
And such hopes were borne out in early deals. That is that prices trended lower early on, but had recovered lost ground by 09:30 UK time (03:30 Chicago time).
That said, direction later will likely depend much on weekly US export sales expected to come in at 200,000-400,000 tonnes for wheat, up from 226,738 tonnes the week before.
For soybeans, the figure is expected at 700,000-1.1m tonnes, implying a slight declined from the 1.30m tonnes the previous week.
And for corn, export sales are forecast at 500,000-700,000 tonnes, in line with the 618,627 tonnes last time.
‘Beneficial rains’
In early deals, the somewhat negative trend in pricing reflected in part the turn more benign in world cropping weather of late, notably in the former Soviet Union, where dry crops have received some rain, and enough warmth so as to be able to benefit from it before winter dormancy strikes.
“An active weather pattern will dominate the western former Soviet Union, over the next week,” World Weather said.
Furthermore, in the US, where dryness has also been an issue in the southern Plains hard red winter wheat area, Richard Feltes flagged “beneficial rains”.
This is “setting the stage for further improvement in US hard red winter wheat ratings on Monday” when the US Department of Agriculture unveils weekly crop condition data.
‘Portents not quite so bright’
That said, Kansas City hard red winter wheat futures for December added 0.1% to $4.59 ¼ a bushel, closing a little more of their unusual discount against Chicago soft red winter wheat, which for December was down 0.1% at $4.83 a bushel.
Another spread attracting attention is that of Kansas City wheat is to Paris wheat futures, viewed as a measure of export competitiveness, and which is actually proving a little more reassuring to US wheat growers.
(The US in 2014-15 exported twice as much hard red winter wheat as soft red winter wheat.)
Tobin Gorey at Commonwealth Bank of Australia said that in the last session, “Kansas’s discount to Paris increased again though despite another decline in the euro-dollar exchange rate.
“The Kansas discount is now closer to $20 a tonne [to Paris], to restore some value to US wheat.”
That said, the widening discount did not follow through as had been hoped, “so the portents for export sales a week or so ahead are not quite so bright”.
‘Bearish aroma’
Back to the weather, and the other major improvement being talked of in ag markets is that in South America, where dryness no longer seems the potential production setback, for soybeans, that it once was – although that might not be the same for all the region’s crops.
“Global weather continues to omit a bearish aroma with both Brazil and Argentina receiving continued moisture, along with [for wheat] areas in the Black Sea,” Benson Quinn Commodities said.
“The most notable Brazil dryness risks seem to remain focused on coffee and far north east soy/safrinha cornareas, with only modest deficits expected in key sections of Mato Grosso,” Commodity Weather Group said.
Mato Grosso is, by a distance, the top Brazilian soybean producing state, where dryness last month had raised particular concerns over plantings.
Richard Feltes at broker RJ O’Brien added that “latest model guidance indicates another rain event for the Centre West Brazil during the 11-15 day period”.
‘Eroding crush margins’
Also encouraging soybean bears is the weakened profitability of soybean crushers in China, the top importer of the oilseed, hinting that maybe that import demand may show some signs of easing off after monthly records earlier in the autumn.
“China cash crush margins were last running at around $0.41 a bushel, down from $0.57 last week,” said Terry Reilly at Chicago-based Futures International.
Mr Feltes flagged “eroding Chinese crush margins and building Chinese in-port stocks,” following the import surge, besides flagging a dearth of announcements, through the USDA’s daily alerts system, of US soybean export sales to China.
Benson Quinn Commodities said that “with China hand-to-mouth recently” on import purchase, the weekly US export sales data “are not expected to be bullish”.
Soymeal slump
In fact, Benson Quinn Commodities flagged talk that Chinese crush margins “are in the red”, little helped by depressed soymeal values.
Indeed, soymeal futures for December on China’s Dalian exchange touched 2,362 yuan a tonne earlier on Thursday, the lowest for a spot contract in eight years.
The better-traded January lot settled 0.5% lower at 2,408 yuan a tonne, a contract closing low, and down 10.5% over the past month.
‘Skinny margins’
Nor are US crushers doing as well as they were, with Benson Quinn noting that talk of a “talking processor slowdown due to skinny margins”, affected by an “easier” soymeal basis, particularly in the western Corn Belt.
“The interior cash market has been able to back off on its cash bids for beans,” the broker said.
Still, Chicago soymeal futures for December, which closed the last session at the lowest for a spot contract in nearly four years, did attract some bargain hunting, gaining 0.1% to $286.00 a short ton.
That helped Chicago soybeans for January recover early losses to stand up 0.1% to $8.58 ¼ a bushel, although later contracts remained in the red.
Support level
The prospect of Argentina’s elections on Sunday leading to reforms which will fuel huge crop sales, and potentially encouraging plantings ahead, remains a live issue too for soybeans but, to a lesser extent, for corn.
In fact, the bigger-than-expected USDA upgrade last week to its estimate for domestic production, and stocks, continues to take a high profile in the corn market.
“The trade is still attempting to wrap their hands around last week’s bearish production numbers relative to the firm interior cash markets,” said Benson Quinn Commodities, with cash markets seen supported by slow farmer selling.
A hope for corn bulls that the worst of the storm is over is a technical one, with the chart offering some hope that a price floor is close
“I expect the market to continue to define a bottom end of a range, with $3.60 a bushel on the December contract seemingly support,” said Benson Quinn.
The contract stood 0.1% higher at $3.62 a bushel.
‘Some flooding’
In New York, cotton for March was up 0.1% at 62.99 cents a pound, facing something of a technical confrontation too, on the threshold of the psychologically important 63.00 cents-a-pound mark.
The 100-day moving average, at 63.12 cents a pound, which the lost has closed over only once in the past three months, is not far away either.
Prices are being supported by ideas of rains slowing harvest, and threatening crop quality, in the southern US.
“Widespread rain and some flooding occurred in the US Delta yesterday,” CBA’s Tobin Gorey said.
“The US South East will be wet today.”
