Corn bulls hoping for succour from data overnight on US crop ratings – amid ideas that heat and dryness last week in parts of the Midwest had hurt condition – ended up being disappointed.
The US Department of Agriculture kept at 75% its estimate of the proportion of US corn seen as in “good” or “excellent” health, rather than unveiling a 2-point drop as the market had forecast.
And with plenty of comment remaining about the improved US Corn Belt weather outlook, sellers had the upper hand.
Not that corn bulls have no reasons for optimism.
Demand signals remain buoyant, with US corn exports last week, for instance, as measured by cargo inspections at 1.24m tonnes – below the 1.71m tonnes the week before but remaining higher year on year.
“The corn inspection number was the third best of the whole [2015-16] marketing year,” said Joe Lardy at broker CHS Hedging.
‘Crop stress will continue’
And the US weather outlook remains, while improved, less than ideal.
“Net drying in the far southwestern Corn Belt, Delta, portions of the south eastern states, and southern Plains over the next week to 10 days is expected,” said Terry Reilly at Futures International.
“Temperatures will remain [elevated] keeping evaporation rates high across the Midwest.
“Crop stress will continue across the south west and parts of the lower western Corn Belt over the next two weeks.”
At Commonwealth Bank of Australia, Tobin Gorey said that “while the additional rain this week, and perhaps some next week too, will stall the drying trend, forecasters warn that it is unlikely to reverse it”.
Still, with US corn currently in better condition than expected, the crop has some elbow room for deterioration without raising yield alarm bells.
And South America has chipped in on the side of corn bears too, with Ricardo Buryaile, Argentine agriculture minister, reportedly issuing a forecast of a 52.9m-tonne corn crop in 2016-17.
“We estimate the area planted with corn should increase 20%, and… this should represent some additional 10m-15m tonnes,” he is reported as saying, at an economic forum in Colombia.
Investors have cause to question Mr Buryaile’s maths, given that the USDA estimates Argentina’s 2015-16 output at 34.0m tonnes, but the overall, bearish message is pretty clear.
Corn futures for July stood down 0.7% at $4.18 ¼ a bushel as of 08:15 UK time (02:15 Chicago time), signally, falling below their 20-day moving average for the first time since May 12.
Corn vs soybeans
If Mr Buryaile was upbeat over Argentina’s corn prospects, he acknowledged the setback this represented to expectations for sowings of soybeans, the grain’s main rival in seedings programmes.
“Obviously, we are going to have less area with soybeans, which means that the 60m-tonne harvest [this season] could drop to 55m tonnes.”
Again, he was displaying a certain optimism over Argentina’s latest harvest, which the USDA has pegged at 57m tonnes.
Still, the expectation of reduced Argentine sowings has helped provide some succour to soybean bulls.
‘Larger soy acreage’
Not that investors were keen to boost prices too much in early deals, when Chicago’s July soybean futures contract stood up 0.2% at $11.45 ¾ a bushel.
The USDA soybean crop condition rating overnight was a bit of a non-event, in coming in at 73%, down 1 point week on week, but bang in line with market expectations.
But there is increasing focus on USDA data next week, on domestic sowings, which are expected to show that farmers planted far more of the oilseed than they originally intended.
“We think investors are probably starting to price in the potential for increased soybean sowings ahead of the USDA’s June 30 planting update,” CBA’s Tobin Gorey said.
At Chicago-based RJ O’Brien, Richard Feltes said that “we suspect the trade may fear a larger soy acreage in next Thursday’s crop report”, estimating that investors are “dialling in a 1.5m-acre gain versus the USDA’s March forecast of 82.2m acres”.
Spring wheat setbacks
Returning to the crop condition data overnight, the one surprise the briefing did contain was a drop in the spring wheat rating, with 76% of the US crop rated good or excellent – a strong reading, but one down 3 points week on week.
Investors had expected the figure to hold at 79%.
“Conditions in the northern Plains are generally viewed as favourable, though there are noted areas of saturated soils in the northern valley and areas of western North Dakota and eastern Montana that tend to lean a little to the dry side,” said Benson Quinn Commodities, based in Minneapolis.
North of the border in Canada, Manitoba crops appear to be suffering some setbacks too, with an official provincial crop reported overnight reporting that “assessments of crop damage are ongoing” after over the weekend “many areas saw thunderstorms with heavy rainfall, strong winds, and hail”.
“Wet conditions continue to impact crops as symptoms of excess moisture stress, including yellowing and slowed crop development, are evident in areas of Manitoba receiving higher amounts of rainfall.”
Spring vs winter
Nonetheless, Minneapolis-traded spring wheat futures for July eased 0.1% to $5.33 a bushel.
It was actually winter wheat futures which made the running in the complex, despite the USDA crop progress data showing farmers catching up strongly with harvesting, after a rain-delayed start.
They had completed 25% of their harvest as of Sunday, ahead of the 23% figure that investors had expected, if behind the average progress of 28%.
Still, there are some questions over progress ahead.
“US hard red winter wheat country will see scattered showers over the next week, causing light disruptions to harvest progress,” Futures International’s Terry Reilly said.
‘Standing water and excessive mud’
Furthermore, while yields are reported as “very good” in many areas, at 30-50 bushels per acre from Oklahoma north in Kansas, according to US Wheat Associates, wetness has claimed crops in others.
“Some fields in north Texas and south west Oklahoma may not be harvested because of standing water and excessive mud,” US Wheat Associates said, flagging some quality disappointing too from early hard red winter wheat samples.
“Initial test weights are lower than expected, below 59.0 pounds per bushel (77.6 kilogrammes per hectolitre),” the group said, suggesting setbacks from “the numerous rain storms that affected the crop after maturation.
“Protein from the first 46 samples averages just 10.7%.
“However, protein and test weight values are expected to increase as harvest progresses northward.”
Chicago soft red winter wheat for July gained 0.2% to $4.74 a bushel, while Kansas City hard red winter wheat stood up 0.2% at $4.52 a bushel.
‘Matter of concern’
Was this being fuelled by the unwinding of long corn-short wheat spreads?
That may well have been a factor, given the shredded wheat premium over corn, in an effort to gain the grain a better showing feed rations.
The Kansas City wheat premium to corn, July basis, touched $0.20 a bushel last week – down from an early April high above $1.30 a bushel.
Still, European wheat worries remain alive too, with Agritel saying that rain remains “a matter of concern” for EU crops.
The Paris-based group added that “continuous rain in France is delaying first winter barley harvest works that should have started a few days ago”.
Meanwhile, in New York, cotton for December dropped 1.7% to 64.88 cents a pound, hurt by improved ideas over India’s monsoon, besides by a 1-point improvement in the US crop rating to 54% seen as good or excellent.
CBA’s Tobin Gorey was less impressed by the US crop reading.
“Given that the US southern Plains is in for two weeks of hot weather, with little rain on the horizon, we expect those improvements may be quickly reversed”.
However, he noted that in India, “forecasters say monsoonal rains will finally start to spread north this week.
If Indian planting picks up as a result that would be a bearish influence on the market.”
Separately, Chinese customs data showed the country’s cotton imports tumbling 52% year on year last month, to 78,778 tonnes.
(Source – http://www.agrimoney.com/marketreport/am-markets-corn-extends-dip-on-surprise-us-crop-resilience–3650.html)