Often, the approach of the weekend brings a change in direction on grain markets, as investors book profits ahead of two days without being able to trade.
That looked something like the market situation on Friday, when grain futures took a step backwards, having come quite a way from last week’s multi-year lows.
There was an extra reason for traders to take stock too, with Monday to bring the latest monthly Wasde crop report, the US Department of Agriculture’s flagship briefing, giving updated supply and demand estimates – crucially for the US corn and soybean yields, whose fate has been the market’s key focus of late.
September vs October
OK, the September Wasde report “has far less credibility than the October report, which can include acreage updates”, said Richard Feltes at Chicago broker RJ O’Brien, hinting at the talk around the market that sowings, particularly of soybeans, will prove higher than has been thought, given low claims for prevent plant insurance.
Furthermore, the October Wasde incorporates “a portion of the [USDA’s] sample plot data in forging more accurate yield estimates”.
Still, it would be unwise to underestimate the importance of Monday’s briefing.
“The direction of yield changes on the September Wasde will be very important for the trade moving forward,” said Tregg Cronin at broker Halo Commodity Company.
‘Market has been sceptical’
And what brokers expect is an upgrade in the USDA’s soybean yield estimate, by 0.3 bushels per acre to 49.2 bushels per acre, and a cut in the corn yield figure to 173.4 bushels per acre from the current estimate of 175.1 bushels per acre, a Reuters poll shows.
Not that futures were moving on Friday in the direction that might be expected from the above, with corn futures for December down by 0.4% to $3.37 a bushel as of 09:00 UK time (03:00 Chicago time), although still above their 40-day moving average.
Still, it has to be remembered that, even after this slip, the contract remains more than 7% above a contract low set last week, amid doubts over whether the US harvest will prove quite as bountiful as had been expected.
“The market has been sceptical of those [175.1 bushels-per-acre] yield numbers since they were first announced though and, in our view, has now priced in” much of the potential for a downgrade, said Tobin Gorery at Commonwealth Bank of Australia.
He also flagged the time of year, and that corn, and soybean, futures have a habit of suffering from the ramp up of the US harvest, and the boost to supplies and the rise in selling that this brings.
“We expect that the impending US harvest will start to put some seasonal pressure back into pricing,” Mr Gorey said.
Not, it has to be said, that soybean futures were following that script, or the one presented by the potential for an upgrade to the USDA’s estimate for the domestic yield.
Chicago’s November soybean contract was flat at $9.76 ¾ a bushel, holding above its 200-day moving average, regained on Wednesday, and targeting what would be a sixth session without loss.
Chinese soy imports
What has been supporting prices of the oilseed, against improving ideas for US production, is evidence of strong demand, the latest from China, on Thursday, showing that it imported 7.67m tonnes of soybeans last month.
“This marks the fifth straight month of imports over 7m tonnes,” said Joe Lardy at CHS Hedging, adding that imports for the October-to-August period, the first 11 months of the Chinese 2015-16 soybean marketing year, had hit 76.0m tonnes.
“The USDA is expecting China to import 83m tonnes [in 2015-16], so they have 7m tonnes left to go,” Mr Lardy said.
“If China keeps on the current pace they should come in right at or slightly above expectations,” although Shanghai-based analysis group JCI does foresee a figure for September of only 6m tonnes, meaning the USDA target would be missed.
Still, crucial to where soybean futures end the day will be what emerges from weekly export data unveiled by the US Department of Agriculture, expected to show US export sales of the oilseed at 1.10-1.50m tonnes last week, for the 2016-17 season newly started in the US.
For corn, export sales are seen coming in at 800,000-1.0m tonnes for the new season, while for wheat, the figure is expected at 300,000-500,000 tonnes.
Wheat demand is a particular topic of debate at the moment, on global perspective, given the decision by Egypt, the top importer, to reimpose a zero tolerance rule on contamination of cargos with ergot, a fungus which can cause hallucinations in big enough concentrations.
Egypt, by the way, is forecast by the USDA importing some 12m tonnes of wheat over 2016-17.
“With around 1m tonnes of wheat imports needed every month, the longer this saga continues, the more pressure it puts on trade,” said Halo’s Tregg Cronin.
‘Very good exports’
Egypt’s decision is, in the first instance, a problem in particular for Black Sea and European Union exporters, given their geographical proximity.
“Egypt is a bigger customer for them,” CBA’s Tobin Gorey said.
Benson Quinn Commodities said that “Russian/EU wheat values tend to be in retreat mode as Egypt doesn’t appear to be a worthy trading partner at this point”.
That said, EU wheat exports this week, as measured by licences, at 521,000 tonnes, were viewed as decent by some commentators, given the poor result from France, the bloc’s top wheat producer (and exporter).
“Another week of very good EU export licences indicate there is no shortage of wheat to be exported from that origin,” Benson Quinn Commodities said.
US wheat export dynamics
In fact, taking a step back, the news on US wheat exports is largely encouraging too, with export sales for the June-to-August period, the first quarter of the US wheat marketing year, up 18% at 11.8m tonnes.
“Soft red winter and durum sales are dragging total sales, but… seven of the top 10 US export markets from 2015-16 are higher” this season, said US Wheat Associates, which promotes US wheat exports.
Higher protein, hard red winter wheat exports so far, at more than 4.8m tonnes, are “up 69% from the prior year and 13% ahead of the five-year average due to more competitive prices and good quality”.
Indeed, while Chicago soft red winter wheat felt reasonable pressure from weaker corn (which it is increasingly competing against in feed markets this season, given ample world wheat supplies) and a round of profit-taking, falling 0.7% to $4.03 ¼ a bushel for December, hard wheat futures proved a bit more resilient.
Kansas City’s December hard red winter wheat for December fell by 0.4 to $4.16 ½ a bushel, while Minneapolis spring wheat for December was flat at $4.95 a bushel.
To see gains in the ag complex meant travelling further afield, for instance to Kuala Lumpur, where palm oil gained 1.4% to 2,646 ringgit a tonne, returning close to three-month highs.
Official data on Tuesday are expected to show Malaysian stockpiles of the vegetable oil falling to 1.6m tonnes last month, the lowest since 2011.
While output is seen growing 9.7% month on month, reflecting seasonal growth, a recovery in Chinese demand is seen has having helped exports surge 21% to 1.38m tonnes.