The big end-of-June day for US crop reports lived up to its reputation for causing massive swings in crop prices.
Both corn and soybean futures enjoyed their strongest sessions in five years.
But what next?
Would profit-taking kick in? Or would the weakened US corn and soybean supply expectations warrant a further round of price rises, with the word “rationing” now beginning to appear again in market talk?
‘Officially off the rails’
It was hard to gauge too much of a direction in early deals, althoughwheat did appear to be getting a touch of vertigo, after closing the last session at its highest of 2015, September basis, and up nearly 18% in four sessions.
After all, the grain, unlike the row crops, emerged actually with worsened fundamentals from Tuesday’s reports, with the US Department of Agriculture unveiling above-forecast estimates for domestic inventories of the grain (as of June 1) and sowings for this year’s harvest.
Rabobank, among others, termed the data “bearish” for wheat, “as acreage and stocks were above expectations”.
Indeed, to some eyes, current values are a selling opportunity
“Producing selling of all three [wheat] markets [Chicago, Kansas City and Minneapolis] remains very, very good,” said Brian Henry at broker Benson Quinn Commodities, terming futures “officially off the rails right now”.
‘In deep trouble’
OK, the wheat story is not all about the US, with dryness in the likes of Argentina, Canada and the European Union a concern too.
“Weather forecasters continue to expect Canada’s Prairies to dry further this week,” said Tobin Gorey at Commonwealth Bank of Australia, adding that the outlook was “dry conditions in parts of Europe that may evolve into yield reductions given already dry soils”.
WxRIsk.com said that “with respect to precipitation over last 14 days, we can notice France is in deep trouble with respect of normal precipitation.
“Large areas of Spain and France have seen anywhere from 20-60% of normal.”
And more heat is on its way.
“The official temperature forecast from the GFS model shows temperatures reaching 98 degrees Fahrenheit/ 37 Celsius over Paris on Friday and 91-95 Fahrenheit/ 32-35 Celsius over much of Germany,” an outlook which the weather service saw a “probably underdone”.
Still, prices cannot skyrocket for ever, and CBA’s Mr Gorey, for instance, suggested that in Australia, producers might consider pricing a bit of crop.
“We think taking advantage of these prices – for an appropriate share of production – is a good idea,” he said, even as Sydney wheat for January rose a further Aus$3.00 to a fresh 13-month closing high of Aus$334.00 a tonne.
“For anyone with zero (or close) hedging this is does represent a fortuitous moment.
“We are not suggesting that prices cannot go higher – they can – but attempting to call the exact top is a very difficult exercise.”
Meanwhile, Benson Quinn’s Brian Henry said that “while the idea that the global crop is not getting bigger offered enough support for a correction, the market has blown through any reasonable objective on a correction”.
Wheat charts, while looking “good, are very overbought,” he said, adding that “would like to think we are within days of putting a top on this move.
“Length should be taking profits and producers should stay engaged on the sell side.”
‘Sign of unusual stress’
And Chicago soft red winter wheat indeed fell, by 0.9% to $6.10 ½ a bushel for September as of 10:00 Uk time (04:00 Chicago time), allthough maintaining its unusual premium over Kansas City hard red winter wheat for September, down 0.5% at $6.07 a bushel.
Kansas City wheat, having more protein, usually has the premium.
“Chicago’s premium is a sign of unusual stress in the market,” Mr Gorey said, the stress caused by the particular setback to winter wheat in the Midwest, where soft red winter wheat is grown, from persistent rains.
Minneapolis-traded spring wheat for September eased 0.4% to $6.34 ½ a bushel, also caught between bright prospects for US production, and deteriorating ones for Canada’s harvest.
Stocks estimates slashed
As for fellow grain corn, it extended its gains, adding 0.9% to $4.25 ¾ a bushel for September delivery, and 0.9% to $4.35 ¼ a bushel for the best-traded new crop lot, as the lower-than-expected data from the USDA stocks and acreage reports continued to be priced in.
Indeed, the “dramatic tightening of new crop US corn/soybeanbalance tables may take the balance of the week to fully price,” said Richard Feltes at RJ O’Brien, which slashed its estimates for US corn stocks at the close of 2015-16 by 583m bushels to 1.245bn bushels, once both the prospect of lower carry-in stocks and weaker production is factored in.
For soybean stocks, the brokers’ estimate for end 2015-16 was cut by 297m bushels to 135m bushels.
And this comes against a backdrop too of waning expectations for yields, with crops receiving too much of a good thing in terms of excess rains.
“I suspect our new crop corn and soybean yield [estimates] of 165 bushels per acre and 43 bushels per acre will be viewed as optimistic,” Mr Feltes said.
‘Left at the station’
Such talk will remain in sharp focus, not just because futures are now trading in a definite weather market, where every change in forecast is likely to be seized upon by investors, but the prospects on July 10 of further US Department of Agriculture data, with the monthly Wasde world crop briefing, which might alter estimates for domestic yields.
“I suspect ‘left at the station’ end users will be prone to advance coverage [ie forward purchases] ahead of the July 10 report,” Mr Feltes said.
Rabobank noted that prices had rise “most in the front months”, meaning that deferred contracts “might offer some opportunities for buyers to hedge some of their needs”.
In fact, buyers were not that active in soybeans at all in early deals, with the August lot up 0.4% at $10.53 ¼ a bushel, and the new crop November lot adding 0.1% to $10.38 a bushel.
(Source – http://www.agrimoney.com/marketreport/am-markets-corn-remains-in-rally-mode.-but-wheat-retreats–3200.html)