(Agrimoney) – Can the big crop report later foster a revival in ag prices?
External markets were certainly a bit equivocal, in terms of offering support for grains.
Oil futures were higher, which was a bit of a fillip, with Brent crude up 1.3% at $33.29 a barrel as of 09:10 UK time (03:10 Chicago time).
But share markets held a negative surprise, in terms of a 5.4% slump in Tokyo stocks, with Sydney shares tumbling by 2.9%, although London equities did post a 0.2% gain, reversing a small portion of their 2.7% losses of the last session.
The dollar held steady.
And while gold was higher, at an eight-month top of $1,192 an ounce, that could be taken as a sign of the extent of market uncertainty, rather than in a bullish element.
For ags, “bearish macro market sentiment just continues to reinforce bearish market fundamentals”, said Benson Quinn Commodities, thinking in particularly of soybeans, but a comment which applies to a range of other contracts too.
‘Bearish rather than bullish surprises’
But grain investors at least have the prospect of the US Department of Agriculture’s Wasde crop report later potentially to instil a bit of a change of course, after grain market woes accelerated in the last session.
Not, it has to be said, that investors have huge hopes of the Wasde clearing clouds from markets.
“The report is more likely to harbour bearish rather than bullish surprises,” Richard Feltes at broker RJ O’Brien said.
‘Overstated crush’
Let’s return to soybeans.
Investors anyway expect the report to add, a little, to the estimate for US stocks of the oilseed at the close of 2015-16, lifting it by 5m bushels to 445m bushels, meaning extra supplies which in turn implies more pressure on prices.
And the number will actually end up “closer to 465m bushels”, given that the USDA appears to have “overstated” the estimate for the domestic crush, Mr Feltes said, tapping into a longstanding market niggle.
Benson Quinn Commodities said that the Wasde “is not expected to offer many changes in sentiment or trend”.
‘Crops looking just fine’
Nor is the Wasde expected to offer much of a downgrade to South American production prospects which would support values.
Indeed, the outlook for Argentine and Brazilian crops has only recovered over the past week or so.
“Argentina got the rainfall that forecasters expected over the weekend and on Monday,” said Tobin Gorey at Commonwealth Bank of Australia.
“Consequently soybeans crops are now looking just fine in both Argentina and Brazil.”
‘Mountain to move’
For corn, dynamics are much the same.
As far as the Wasde goes, the report is expected to make upgrade, of 7m bushels to 1.809bn bushels, in the estimate for US stocks at the close of 2015-16, amid suspicions that further upgrades are in the pipeline.
“Analysts suspect the Wasde may be 50m-75m bushels too high given the abundance of low-priced alternative feed grains and better pasture and range conditions than last year,” implying less need to buy corn, Mr Feltes said.
CBA’s Tobin Gorey reminded that “there is still a mountain of US corn to move in a market that will soon be awash with South American crops”.
And as for South America, “trade seems to think bigger production in Argentina will offset the lower production in Brazil” in Wasde estimate revisions, Benson Quinn Commodities said.
Australia upgrade
Meanwhile, for wheat, the Wasde is also expected to raise the estimate for end-2015-16 US stocks a touch, by 6m bushels to 947m bushels, against a backdrop of such poor exports that a bigger inventory upgrade could lie in the wings.
Mr Feltes flagged that US wheat sales for 2015-16 are currently trailing year-ago levels by 3.2m tonnes, “more than twice the USDA’s forecasted 1.5m-tonne decline” for the season, which has only three months left to go.
And while South America is not such a big issue for the grain, with latest crops newly harvested, the southern hemisphere provided another negative force overnight with an upgrade by Abares, the official Australian commodities bureau, by some 240,000 tonnes to 24.2m tonnes in its estimate for the also newly harvested domestic wheat crop.
(The barley harvest was upgraded too, by 300,000 tonnes to 8.49m tonnes, although canola output received a small downgrade, of 40,000 tonnes to 2.95m tonnes.)
US vs the rest
CBA’s Tobin Gorey said: “The market is feeling the pressure because too much wheat remains at origins like the US and EU.
“Moreover there is little prospect of that changing in the coming season unless there is some serious weather problems for winter wheat crops.”
While US growers have “sort of got the message” from low prices, in dollar terms, to cut sowings, as reflected in plantings data last month “other farmers are not getting such a pointed message”, Mr Gorey added.
“Some countries, Australia included, are looking at prices in their local currencies that are only a little lower than last year.
“Others, such as Argentina, are looking at the highest prices in a decade or more.”
Oversold?
If there is hope for ag bulls, it is that the gloom has reached such a consensus that it becomes a contrary price indicator, as can happen, with markets already having reflected and more bearish pressures.
Benson Quinn Commodities said that for corn, “it seems like bigger stocks have been priced in at this point and therefore a surprise [in the Wasde] could come in the form of steady stocks”.
For soybeans, “short-term indicators are becoming oversold, weekly indicators turned down with Friday’s lower trade, and monthlies have been in the cellar and extremely oversold for many months”, the broker said.
In wheat too, “after three days of lower trade, markets are approaching oversold conditions.
“This could trigger a minor recovery.”
Price moves
Certainly, Chicago soft red winter wheat futures for March were a touch higher in early deals, adding 0.2% to $4.59 ½ a bushel for March delivery, recovering from a near-contract closing low in the last session.
And soybeans were higher too, by 0.1% to $8.63 ¾ a bushel for March delivery.
Corn, however, lagged, dropping 0.4% to $3.60 ¾ a bushel for March, targeting what would be a fifth successive negative session.
The moves have hallmarks of position closing ahead of the Wasde, with funds having already closed a stack of short positions in corn of late, potentially making a further such shift unlikely.
In soybeans and wheat, funds have stuck with sizeable net short positions, which are offering potential for taking profits ahead of the uncertainty presented by the report.
