Were investors a bit over-gloomy on corn in the last session?
Futures in the grain tumbled 2.2% then after the US Department of Agriculture, in its monthly Wasde report on Friday, raised its estimate for the domestic corn yield.
However, prices recovered some ground in early deals on Monday. And this despite a further downbeat fundamental factor, with the weather looking open for the US harvest this week, meaning strong supplies and, in theory, a plethora for buyers to choose from.
‘Will favour fieldwork’
In the Midwest, “mostly rain-free weather will favour fieldwork this week and next week,” said weather service MDA.
WxRisk.com said that, in the forecast, “all areas of the Plains, Midwest and Delta regions look dry and many areas will be 100% over the next six days.
“Many areas will see only 5-25% of normal rainfall.”
WxRisk.com stressed wetness in the outlook next week, seeing a dry start give way to a rainy finish.
Still, forecasts for that far out tend not to carry so much weight as the near-term outlook, which are more dependable.
‘Store a lot of grain’
Nonetheless, December corn futures stood up 0.2% at $3.83 ½ a bushel as of 09:30 UK time (03:30 Chicago time), as investors mulled what harvest supplies would be available, whatever the US harvest may be turning out.
Broker CHS Hedging, for instance, noted that while yields had remained “very good” in the western Corn Belt, selling into the US cash market had proved “slow”.
Rabobank said that the “US corn harvest is picking up speed, after farmers cut soybeans first, but are not more and more focusing on corn again.
“The pipeline will fill quickly. But we expect farmers to store a lot of grain after the harvest, which could temporarily support US futures”.
‘Tough time buying corn’
At Chicago-based Futures International, Terry Reilly said that despite the Wasde changes, an “outlook for a lacklustre China grain import demand, and US weather favouring harvesting activity, we like owning corn over the short term” thanks to some pressures in the cash market.
“Processors all over the eastern Corn Belt are having a tough time buying corn.”
Indeed, last week “some of the cash trades across the northern Midwest were expensive”, Mr Reilly said, noting that corn basis was “too high for this time of year”, given the forecast for a 13.555bn-bsuhel crop.
He added: “When basis breaks in the US, look for several major importers to come in for US corn.”
Such thinking might have been behind a USDA decision to stick in Wasde by its forecast for 2015-16 of 1.85bn bushels, despite a weak start to the season for orders.
As an extra reassurance for corn bulls, the December contract fell below 40-day and 50-day moving averages at just under $3.81 a bushel earlier in the session, but found no barrage of automatic sell orders sitting below to fuel further price falls.
‘Acreage cuts were the surprise’
Still, soybeans fared better, adding 0.7% to $8.92 ¼ a bushel for November delivery, although here the 50-day moving average, at a little over $8.94 a bushel, was providing a ceiling rather than a floor.
The contract has not closed over this line for two months, and in the last session mounted an attempt only to fall short.
The Wasde was seen as generally somewhat bullish for soybean prices, in cutting the acreage forecast by more than expected, and more than offsetting a yield upgrade to leave the USDA no longer forecasting a record crop.
“The size of the acreage cuts were the surprise, while the yield increase was smaller than expected, if anything,” CHS Hedging said, flagging “slow” producer sales in the oilseed too.
Meanwhile, while forecasts for the Brazilian soybean crop (to be harvested early in 2016) are large, coming in above 100m tonnes, that assumes farmers get the crop in the ground promptly.
Mato Grosso, Brazil’s top soybean procuring state, “is running behind on planting progress”, Futures International’s Terry Reilly noted, with dryness an issue.
MDA said that “dryness will linger in north eastern Mato Grosso, northern Goias, northern Minas Gerais and southern Bahia” this week, the forecast for Minas Gerais proving a potential issue for the coffee market too, given moisture needed for blossoming and for cherries to set.
“Showers should favour Rio Grande do Sul this week,” in the south of Brazil, “with lighter showers expected in western Mato Grosso, Mato Grosso do Sul, southern Goias, southern Sao Paulo, Parana, and Santa Catarina.”
And as an extra boost to price prospects, futures rose on the Dalian exchange in China, the top soybean importer, by a modest 0.7% to 3,916 yuan a tonne for January delivery, but a rise nonetheless after two days of sharp decline.
Furthermore, elsewhere in the oilseeds complex, palm oil put in a strong performance, rising by 1.9% to 2,259 ringgit a tonne after data from the Malaysia Palm Oil Board showed Malaysian stocks of the vegetable oil growing less significantly last month than investors had expected.
Inventories reached 2.63m tonnes, a gain of 5.5% month on month, but some 270,000 tonnes below the figure that investors had expected.
Production, at 1.96m tonnes, fell short of expectations, while exports, at 1.68m tonnes, beat forecasts.
Palm oil futures too rose on the Dalian, by 1.8% to 4,568 yuan a tonne for January delivery.
Meanwhile in Chicago, soyoil for December gained 1.5% to 28.76 cents a pound.
‘Dryness remains widespread’
It was wheat which fared worst among Chicago’s big three contracts, easing 0.2% to $5.08 ½ a bushel for December delivery, after a Wasde report which proved more generous than expected on inventory forecasts for both the US and the world – albeit with some reservations about the data.
The USDA, for instance, raised its forecast for the Australian crop by 1.0m tonnes to 27.0m tonnes when the market consensus looks to be at 25m tonnes at best, and with warm weather still dogging the crop.
“Dryness remains widespread, stressing late wheat growth, but favouring maturation,” was MDA’s outlook.
In Australia, GrainCorp, in its first weekly report on crop receivals (which were a modest 42,700 tonnes so early in the harvest) said that “recent hot weather has ripened crops quickly” in Queensland.
But in Victoria, “good finishing rains would be welcome”.
‘Another poorly-established crop’
The forecast remains pretty dry for the former Soviet Union too.
“Isolated shower activity will provide minor relief this week,” MDA said, adding that “very cold weather will slow crop growth”, although the weather service did flag expectations next week of wetter weather for the Southern Region.
Still, “descending temperatures around the Black Sea may though mean we have (another) poorly-established winter crop in the Black Sea region,” said Tobin Gorey at Commonwealth Bank of Australia.
But the region got away with similar conditions last year. And there are limits as to the amount of risk premium investors will inject into prices for now.
On the demand side, Saudi Arabia bought 750,000 tonnes of hard wheat for $214.96-226.16 a tonne, on a cost and freight basis.
(Source – http://www.agrimoney.com/marketreport/am-markets-palm-oil-prices-rebound.-corn-recovers-its-poise–3333.html)