The thesis around late last week, that row crops have set their harvest low early this year, well, it hasn’t been proved wrong yet.
The idea was based on comparison of corn price graphs for 2009 and 2014 – the last two years where US corn yields saw “jumps” to “new big numbers”, of 164.7 bushels per acre and 171.0 bushels per acre respectively – but which show a similar shape to this year’s chart.
And there are two factors which have come to its aid.
The first is a wet turn in the US weather which, while it would be positive earlier in the growing season, is now viewed with a little bit of trepidation, given the need for harvest fieldwork, and the fact that crops are now ripe, and vulnerable to moisture.
“North America weather will remain active this week and into the weekend,” said Terry Reilly at Chicago broker Futures International, adding that “frequent weather systems will bring rain from the Canadian Prairies and northern US Plains into the heart of the Midwest and the central Plains”.
“Rainfall will range from 1.00-3.00 inches and local totals over 4.00 inches from south eastern South Dakota and eastern Nebraska to central and northern Wisconsin and upper Michigan,” with the potential for a similar ran band to strike from eastern Kansas to northern Indiana.
“With harvest nearing two to three weeks out” for key Corn Belt areas, and already started further south, “heavy rain events aren’t ideal”, Benson Quinn Commodities said.
‘Too much rain’
Indeed, at Country Futures, Darrell Holaday said that “this rain delays corn harvest that is just starting to surface in some areas.
“More importantly, there is some concern that the regions will get too much rain.”
It has to be said, of course, that this comes at a time when US corn and soybean crops are in fine condition, with the former rated at 73% “good” or “excellent” in a US Department of Agriculture report overnight.
That was down 1 point week on week, but a historically high reading, and above the 68% seen a year ago.
For soybeans, the rating held at 73% – 10 points above the year-ago figure.
‘Very strong across the board’
A second supportive factor for grain bulls is the retreat in the dollar, after a spell of soft US economic data cut the chances of an imminent interest rate rise.
The greenback is down 1.2% so far this month against a basket of currencies, making dollar-denominated exports such as many agricultural commodities more affordable – a message only underlined when it has coincided with some decent US export data.
On Tuesday, the USDA revealed US soybean exports last week, as measured by cargo inspections, of 1.23m tonnes – the highest figure in more than six months, and bringing a bravura close to 2015-16 (which closed at the end of August).
In fact, the “export inspection data was very strong across the board”, said Joe Lardy at CHS Hedging, noting that the wheat figure, at 639,315 tones, was the “second best of the 2016-17 marketing year”, which started for the grain in June.
The corn figure, for the record, was a healthy 1.47m tonnes.
Firm exports vs bumper yield
There was some disagreement over what the data mean.
Mr Lardy said that “inspections for soybeans were right on the USDA number” for2015-16, implying the USDA will not have to adjust its US export forecast for the season, of 1.88bn bushels.
But Benson Quinn Commodities, citing other data too, such as Census export statistics, said that the USDA should, in next week’s monthly Wasde crop report, “raise 2015-16 exports to near 1.940bn bushels”.
That in turn should “should lower US old crop soybean carryout to the neighbourhood of 200m bushels from August’s 255m bushels”, and go some way, through demand, to countering the talk of extra supplies from what is expected to be a huge harvest yield this year.
“Such a change nullifies a 50.1 bushels-per-acre yield somewhat,” the broker said, referring to the FCStone yield estimate unveiled late on Friday, and a figure well above the USDA’s current 48.9 bushels-per-acre estimate.
‘Already priced in’
And Chicago soybean futures indeed put in a strong showing in early deals, rising by 0.9% to $9.68 a bushel for November delivery, as of 09:20 UK time (03:20 Chicago time).
That regained the contract its 20-day moving average, and indeed just ahead of its 200-day line too, at 9.67 ½ a bushel.
Corn, lacking such ecstatic demand talk, could not manage headway, managed more modest headway of 0.1% to $3.28 ¾ a bushel for December delivery, comfortably above its contract low of $3.14 ¾ a bushel set last week.
“Some traders are projecting that the large US crop is already worked into the market,” Futures International’s Terry Reilly said.
Still, that depends on how large a crop will actually appear, of course, and Country Futures’ Darrell Holaday talked of some more cheery actual harvest yield talk than was around late last week.
“We have had only a ‘speck’ of harvest to talk about in the Midwest, but what I am aware of has been extremely strong,” he said, adding that “the early yield have been very high and higher than expected”.
While it is still “way too early to draw conclusions”, the yield reports “don’t indicate any problems with ideas of 175 bushels-per-acre US corn and well over 50 bushels-per-acre soybeans”.
Still, at Chicago broker RJ O’Brien, Richard Feltes was less sanguine saying that “stepped up corn yield reports” on Tuesday had proved “mixed, but on balance falling short of expectations, although it is much too early to discern a trend as yet”.
‘Deep in feed territory’
As for wheat, it edged 0.3% higher to $3.99 ½ a bushel in Chicago, for December delivery, still gaining support from the decent US export figure, which comes at a time when demand is also whetted by the grain’s unusually weak premium to corn.
“Lead-month soft red winter wheat is still deep in feed territory at only $0.55 a bushel premium to lead-month corn,” as of Tuesday’s mid-session prices, said Mike Zuzolo at Global Commodity Analytics.
“We need to see this gain at least $0.20 a bushel based upon my analysis, to push it back into the food category.”
Wheat typically earns a premium to corn, even in feed, thanks to its higher protein content.
In New York, meanwhile, futures in cotton proved less resilient than those in row crop peers, with the December contract down 0.5% at 68.90 cents a pound.
That said, the contract found support earlier at its 20-day moving average, at 68.54 cents a pound.
And investors hoping that the UDSA’s weekly crop progress overnight would show damage to cotton fields from Hurricane Hermine were disappointed, with the overall US crop “good” or “excellent” rating holding at 48%.
“Damaging weather over the three day weekend in the South East has caused concern around quality damage it may have done to the cotton crop,” said traders at Ecom.
“However, we will not know the extent of the damage, if any, until the next crop progress report.”
Crops harmed, or not?
Ecom added that next week’s data are “likely to be very different” to those released overnight.
However, at Commonwealth Bank of Australia, Tobin Gorey struck a more sanguine, saying that “while early reports suggest some individual areas have been hard hit, forecasters continue to expect that permanent crop losses are not likely to be large overall”.
The drop in New York prices came despite a further rise overnight in futures on China’s Zhengzhou exchange, where the best-traded January contract added 0.8% to 14,120 yuan a tonne.
(Source – http://www.agrimoney.com/marketreport/am-markets-wetness-worries-export-hopes-lift-corn-and-soy–3757.html)