(Agrimoney) – Many traders say that grain market surprises typically take an initial three sessions to work their way through.
But grain futures struggled on Tuesday to keep their eye on a third successive session after Friday’s release by the US Department of Agriculture of a bigger-than-forecast drop in the estimate for the domestic corn yield this year.
It was a mixed start for futures on what is the first day for November soybeans and December grains in the spot contract position in Chicago, and Monday’s expiry of September lots.
And there are, after all, plenty of uncertainties facing the market.
US acreage question
Not least of these is the prospect on Wednesday of fresh data from the US FSA giving an indication of land farmers were unable to plant, and crop acreage.
“The consensus for prevented planting numbers is for the harvest area to shrink for soybeans and cornrelative to August data,” said Terry Reilly at Futures International.
“It’s hard to estimate what FSA will come out with but one analyst does look for the interpretation to call for a 1m-acre reduction in the soybean harvested area and at 200,000 acres for corn.”
US interest rates
But some influences are not directly agriculture related – notably the worries over China (where Shanghai shares were down 3.6% in late deals, on course for their third weakest close of 2015), and of course over whether the US will raise interest rates.
According to Bloomberg calculations, fixed income markets are estimating at just 30% the probability of a rate rise on Thursday, at the Federal Reserve’s monthly monetary policy meeting.
However, investors still believe a rate rise this year may be on the cards, with fixed income markets seeing a 59% of a December move.
The dollar, for which interest rates are a big influence, was a smidgen lower against a basket of currencies, just below its 200-day moving average, as of 09:25 UK time (03:25 Chicago time), but more than 3% below an August high – easing pressure on that score for dollar-denominated exports such as many commodities.
‘Dollar rally faltering’
The “overall impression” is that the “big dollar’s rally is, for now anyway, faltering”, said Tobin Gorey at Commonwealth Bank of Australia.
“Traders and investors appear to have concluded that US interest rates will not increase near term.”
And that is “helping the mood” on US grain markets, which are the world benchmarks.
“The US dollar stabilising, or even retreating on some currencies, eliminates that ‘auto pilot’ downward pressure” on US prices, Mr Gorey said.
Corn rating
Still, even if the dollar rally is over for now, there are other matters in ag markets themselves for investors to focus on.
For instance, the USDA unveiled its weekly crop progress data overnight (which showed the US cornharvest 5% complete as of Sunday, below the average of 9%, but not in worrying territory, and indeed 1 point ahead of progress last year).
Signally, the data also showed corn condition remaining at 68% rated “good” or “excellent”, defying expectations among investors for a downgrade of 1 or 2 points.
When yields are currently so high profile, that reading was a setback to the camp foreseeing further cuts by the USDA to its estimate for the domestic corn result.
‘Short of expectations’
That said, the market consensus is still of actual results from the field coming in disappointing so far.
“Early yield reports have been coming in at the undefined and elusive ‘less-than-expected’ [level],” said broker CHS Hedging, if adding that “in reality harvest isn’t far enough along to draw any conclusions”.
Richard Feltes at Chicago broker RJ O’Brien said that “central and eastern Midwest row crop yields continue to fall short of expectations”.
But he added that “stable corn ratings and slower than normal maturity suggest corn yield potential is steady to higher”.
Corn futures for December stood down 0.1% at $3.93 a bushel in Chicago.
‘Talk of freezing temperatures’
And that was better than December wheat managed, easing 0.4% to $4.99 ¼ a bushel – signally, falling back below the psychologically important $5-a-bushel mark.
OK, in the last session, as CHS Hedging noted, “talk of freezing temperatures across a portion of Brazil’s wheat-growing region offered support”, in potentially damaging the crop.
According to Commodity Weather Group, temperatures did reach the highs 20s Fahrenheit, when crop damage might seem a problem, but “largely east of the prime wheat-growing areas in northern Rio Grande do Sul.
“More significant wheat-growing regions in north-central Rio Grande do Sul – about 10% of national production area – reportedly dipped only slightly below freezing.
“Low temperatures of 28 degrees Fahrenheit or colder would have been needed in most of this region to threaten significant losses.”
Exports pick up
OK, on a more lasting positive note, the USDA released strong export data for wheat last week.
“Export inspections of 23.79m bushels were well above our range of expectations and above last week’s 16.76m bushels,” said Terry Reilly at Chicago-based Futures International.
They were also, reportedly, a high for 2015-16, and ahead of the 16.8m bushels a week needed to meet the USDA forecast for US wheat exports for the whole of the season (to May).
However, higher prices may reduce that newly-rediscovered export demand, in what is a highly competitive world market.
“Bears note that the more US wheat rallies, the less likely that US exporters will attract buyers,” said RJ O’Brien’s Richard Feltes.
Condition decline
Soybeans actually fared best among Chicago’s big three, adding 0.5% to $8.88 ¾ a bushel for November delivery, but having not enjoyed the same run-up, having emerged with an unexpected, and bearish, yield upgrade from Friday’s USDA Wasde crop report.
Still, bulls gained some credibility for their argument that the USDA was too generous with the crop progress report overnight reporting a 2-point drop, to 61%, in the proportion of US soybeans rated “good” or “excellent”.
That is well behind the 72% a year ago, which resulted in a record yield (which many investors believe itself was overstated).
“If soybean crop conditions were to remain unchanged from now until the end of this month, we estimate USDA will lower its soybean yield by 0.3 bushels per acre to 46.8 bushels per acre,” Futures International’s Terry Reilly said.
That said, confusingly, actual early soybean harvest yields are not seen, by some commentators, as coming in as poorly as those for corn.
“Bean yields seem to be holding up a bit better than corn currently from what I’m hearing,” said Mike Zuzolo at Global Commodity Analytics.
Data later
On the demand side, the market will also have monthly US crush data for August, from the National Oilseed Processors Association, to negotiate.
The figure is expected at 135.02m bushels, which would be an eight-year high for the month, although below the July figure of 145.23m bushels.
Soyoil stocks are pegged at 1.53bn pounds, down from a July figure of 1.62bn pounds.
Soyoil for December was 0.1% lower at 27.10 cents a pound, dragged lower by a declining palm oil market, which dropped 1.6% to 2,158 ringgit a tonne in Kuala Lumpur.
The decline in palm oil was attributed to profit-taking, encouraged by technical factors, after the lot surrendered after only a day its 200-day moving average, on a continuous chart, early in the session.
Latest Malaysian palm oil export data were actually OK, with cargo surveyor Intertek reporting a 6.9% rise month on month for shipments in the first 15 days of September.
