Did the strong performance by grain futures in the last session signal the market had found a floor, and might be poised for fresh headway?
Some expressed doubts.
“Whether [Monday’s] bounce marks the end of the downside correction” following rally spurred by the US Department of Agriculture’s Wasde crop report on September 11 “remains to be seen”, said Richard Feltes at Chicago broker RJ O’Brien.
“I suspect upside follow-through will be limited as the bulk of harvest is still ahead, there is no evidence as yet of any change in the non-competitiveness of US corn and wheat.”
Furthermore, end users of grains are “likely to sustain a hand-to-mouth buying pattern until improved Chinese economic metrics suggest a bottom” for commodities markets, on which the country, as a large buyer, has a significant influence.
Certainly, grains were in early deals intent on giving back some gains, giving the session the appearance of a good old Turnaround Tuesday.
(Chicago traders see the second session of the week as often reversing a strong trend of the first.)
And a reversal was a particularly predictable call in soybeans, after the US Department of Agriculture overnight, in a weekly report, raised by 2 points to 63% the proportion of the US crop of the oilseed rated “good” or “excellent”.
The upgrade, unexpected by investors, reflected a broad improvement in ratings through both western and eastern parts of the Corn Belt, offset a touch by deterioration in the southern states of Mississippi and Tennessee.
‘Largely exceeding expectations’
And a higher condition rating speaks of improved yield prospects at a time of some uncertainty over whether the crop will meet elevated expectations – although it has to be said the anecdotal talk is more and more encouraging.
“Minnesota soybeans are largely exceeding expectations, ditto for Iowa and Nebraska, although from far fewer reports so far,” Mr Feltes said.
CHS Hedging said that “early indications are that the yields could be higher than what the USDA is currently projecting.”
At ADM Investor Service, Steve Freed said that “early yields are still coming in slightly above farmers’ estimates”.
He added that “the two-week Midwest forecast is for warm and clear weather. This should help maturation and harvest pace”.
In Brazil too, the second-ranked soybean producing country after the US, there is some idea of rains ahead for the key central growing belt, easing broader concerns over dryness, at a time when the sowings window has now opened ahead of the harvest early in 2016.
Mr Freed flagged “talk of drier-than-normal conditions of parts of northern Brazil” too.
Still, soybean futures for November fell by 0.4% to $8.70 Ѕ a bushel as of 09:15 UK time (03:15 Chicago time), retreating back close to six-year lows.
‘Stunt palm fruit growth’
Not that all the oilseed complex was on weak form, with palm oil for December gaining 1.1% to 2,174 ringgit a tonne in Kuala Lumpur, helped by weakness in the ringgit, which lost 0.4% against the dollar, boosting the competitiveness of Malaysian exports.
The haze in South East Asian caused by slash and burn farming techniques, and which is seen lowering palm production potential by reducing photosynthesis, is also taking a higher profile, with Indonesia starting legal action against four companies.
“Smoke/smog across Indonesia and Malaysia is threatening to stunt palm fruit growth and delay harvesting,” said Terry Reilly at Chicago broker Futures International.
How much palm output is lost to the smog remains to be seen, but there is too the El Nino to worry about, which has a habit of causing undue dryness in South East Asia.
(Also, it should be noted that Malaysia has a national holiday on Friday, a factor which some believe could provoke a weaker session on Thursday as investors take gains ahead of the long weekend.)
‘A good pace’
Back in Chicago, grains sided with soybeans in showing losses, withcorn seeing pressure from the expectations of good harvest progress, meaning strong supplies of the crop coming off combines, and allowing investors to withdraw the last weather premium from prices.
OK, the USDA data overnight showed the US corn harvest at 10% complete, 5 points behind the average rate.
But that represents “a good pace given the late planting season”, Mr Reilly said.
The question remains over what yields the harvest is producing, with CHS noting that “early yield reports are mixed and could indicate a smaller yield than what the USDA is currently estimating”.
Mr Feltes said that “Illinois corn yields continue to be highly variable and consistently 30-40 bushels per acre below last year”, but also flagged reports of “excellent” results from Kentucky and Tennessee,
Steve Freed at ADM Investor Services said that “early corn yields are coming in better than initial yields, but in most cases still lower than last year”.
Still, weighed by harvest progress, corn for December fell by 0.4% to $3.83 a bushel.
And wheat futures for December followed suit, dropping 0.3% to $4.95 ј a bushel, after again finding its 40-day moving average, at a little over $4.96 Ѕ a bushel, a hard nut to crack, proving a ceiling to an early rally.
In fact, much of the news flow on fundamentals has turned more positive for wheat, with talk of dryness in the former Soviet Union, where farmers are planting ahead of the 2016 harvest, and in Australia, where wheat needs moisture for its final grain fill.
“Ongoing dryness is expected in about one-third of former Soviet Union and Australian wheat areas for next two weeks,” Mr Feltes said, noting that in the former Soviet Union a lack of moisture could mean poor germination and undermine winter hardiness.
CHS Hedging noted that in the US “wheat basis levels have had a firmer tone since early last week when the break in futures slowed farmer selling”.
Still, with worries remaining over strong competition in wheat export markets, investors were reluctant to press futures higher.
In New York, cotton for December fell too, by 0.2% to 60.68 cents a pound, undermined too by USDA weekly data, which eased concerns over a late-developing crop.
The data showed the proportion of US cotton developing bolls at 57%, behind the average, but by a modest 4 points.
Crop harvested, at 7%, was only 2 points behind the average, while the proportion of cotton rated good or excellent held at 52%, up from 48% a year ago.
“Fundamentally, this season’s crop appears to be catching up with respect to maturity – at least on paper,” said Louis Rose at the Rose Report.
“But that’s what beautiful weather will do to a cotton crop as autumn progresses.”