When will grain futures find a floor?
Futures in corn, soybeans and wheat have lost all their gains, and much more besides, made since bullishly-received US acreage and crop stocks data on June 30 sent them soaring.
Yet historically, futures in both corn and soybeans “tend to base late July”, said Richard Feltes at broker RJ O’Brien, when corn pollination is largely over, allowing the market to price appropriately to how that important development period is likely to have gone.
Wheat, meanwhile, “bottoms seasonally early July”.
That is usually when, after all, the winter wheat harvest is well advanced, focusing investors’ minds on the end of harvest pressure on values.
‘Liquidating commodities to cover equity positions’
However, Mr Feltes also noted the plethora of external factors acting on ag markets this year.
“Outside factors which are adding to summer ag market weakness include Chinese equity market volatility, and a 10% summer drop in the CRB commodities index, led by crude oil and gold,” he said.
Indeed, there is increasing attention on what is going on beyond crop market fundamentals, with talk of cash switching from non-ag commodities to ags, from shares to ags, as well as from ags to shares.
Terry Reilly at Futures International noted that, amid the last session’s sell-off, there was “speculation Chinese were liquidating commodities to cover equity positions, and vice versa, weighed on global commodities”.
‘Widespread commodity selling’
Mr Reilly also flagged “widespread commodity selling that is expected to roll into Tuesday’s trade if funds continue to liquidate general commodities”.
And that is on top of the selling expected by funds in ags in particular, after data on Friday showed managed money extending its net long positions in Chicago corn and soybeans, contrary to expectations for reductions
The position data “surprised the market”, CHS Hedging noted.
“Speculators were much larger with net long positions… than trade estimates,” said ADM Investor Services, adding that this “helped fuel the downside” in prices in the last session.
Still, in this session, grain futures actually staged some early gains, managing something of a “turnaround Tuesday”, seen as a common feature of Chicago trading, with prices in the second session of the week reversing a strong trend of the first.
It was supportive that Shanghai shares managed a, relatively, decent close in losing a modest 1.7%, having stood down more than 4% earlier in the day.
The dollar was stronger against a basket of currencies but not by much, adding 0.2%.
And it helped that funds have already cleared out a stack of long positions in ags, selling an estimated 30,000 corn contracts, 14,000 soybeans and 4,000 in wheat in the last session.
Furthermore, data overnight from the US Department of Agriculture on US crop condition held some support from bulls in showing the soybean rating holding steady at 62% “good” or “excellent”, compared with the improvement that many investors expected.
Corn’s rating was up 1 point at 69%, meeting forecasts.
This helped counter a continued benign weather outlook for the US Midwest, “much of which will continue to see favourable conditions for crops”, World Weather said.
“A good mix of sunshine and rain is expected with most areas not likely to receive enough rain to prevent overall drying during the period.”
In Chicago, corn futures for September rebounded 0.4% to $3.74 Ѕ a bushel as of 09:40 UK time (03:40 Chicago time), albeit recovering only a fraction of their losses of the last session.
Best-traded December futures added 0.4% to $3.85 a bushel.
Soybeans for August gained 0.8% to $9.69 ј a bushel, while the November lot added 1.0% to $9.42 ј a bushel, given an extra boost by the US crop condition data.
Chicago wheat for September added 0.9% to $5.07 a bushel, with Minneapolis spring wheat lagging, in adding 0.7% at $5.40 ѕ a bushel, after the US crop condition report showed the condition of the US spring wheat crop improving by 1 point to 71% rated good or excellent.
“The report shows condition ratings for spring wheat well above normal and counter to late season trends,” said Mark Welch at Texas A&M University.
Big day for cotton?
In New York, cotton for December edged 0.1% higher to 63.85 cents a pound, on what could prove a key day technically for the fibre after a sharp fall too in the last session.
“December cotton futures closed below 64cents a pound ‑ a level where buying support has been found before,” said Tobin Gorey at Commonwealth Bank of Australia.
“Unless that buying shows up again on Tuesday, the market’s confidence may be shaken enough for prices to fall to new lows.”
Mr Gorey added that “weather forecasters are looking for largely benign weather conditions for US cotton crops over the next week or so”.
The USDA kept at 57% its estimate of the proportion of US cotton in good or excellent condition.
Still, “despite the USDA’s condition rating, some temperature stress is noted across the Mid-southern and South Eastern states”, said Louis Rose at the Rose Report.