Is the US corn and soybean crop, after sailing over all other hurdles so far this year, going to trip up at the last one?
The spring sowing period went so smoothly, as underlined by low levels of so-called “prevent plant” insurance claims, that investors are expecting the US Department of Agriculture to upgrade its forecasts for, already large, seeded area of the crops.
And the summer growing season, well, the historically strong crop condition ratings from the USDA bear witness to how favourable it was. (Although whether corn crops really have such productive potential is a bit of a bone of contention – see below.)
But with the finish in sight, the harvest is proving less benign, in terms of wet weather which, while helpful for growing plants, is not such a boon for ready-to-harvest crops.
‘Market on edge’
“The market is becoming increasingly worried about wet US weather and the harvest delays that might ensue,” said Tobin Gorey at Commonwealth Bank of Australia.
“A wet US crop outlook has the market on edge.”
The initial problem is the delay to fieldwork, harvesting and so new-crop supplies of grain – an issue in particular for soybeans, with US stocks of the oilseed not as strong as had been thought, with the USDA last week slashing its estimate for domestic inventories below 200m bushels.
“Additional moisture will create more delays in harvest and vessels are lined up at the Gulf and Pacific North West awaiting new crop beans,” said Benson Quinn Commodities
‘Traders are nervous’
However, there is the trouble too that persistent wetness promotes quality loss and disease too on ripe crops.
“Wet weather has been a consistent presence across most of the country,” said Joe Lardy at US broker CHS Hedging.
“Reports of diplodia in corn have been popping up with a bit more frequency,” referring to corn stalk rot, a fungal disease encouraged by damp conditions.
Indeed, on disease, it is corn, which is generally further through its development process, on which concerns are most concentrated.
“Traders are nervous the unwanted moisture will increase disease/quality problems,” said Terry Reilly at Futures International, noting the worries over “too much rain” over parts of the Corn Belt.
“Shelton, Nebraska saw over 6 inches of rain Thursday into Friday.”
‘Not as good as expected’
And this at a time when doubts were already emerging that the corn harvest would prove quite as huge as forecast by the USDA, and suggested by the proportion of crop rated by official scouts as in “good” or “excellent” condition.
“Big expectations are being maintained for the incoming soy yield but mixed results starting to pop up on the corn side – from exceptional to disappointing due to disease and grain fill weather,” said ag advisory group Water Street Solutions.
“The market this coming week will be listening closely for yield data as the weather opens up.”
Benson Quinn Commodities flagged “continued chatter of smaller kernel depth”, adding that yield results, while “decent” appeared to be coming in “not as good as expected”.
‘Disease risks elevated’
Of course it is still early days in harvest terms, with harvest just 5% complete as of Sunday September 11 (updated data will be released later on Monday).
But, while making it difficult to take too much notice of harvest reports so far, the early stage of the harvest is precisely the reason that the wet US weather is being watched so closely, in that little crop is safely in the barn so far.
And further wet weather is on its way.
According to Commodity Weather Group, the Midwest, having seen 4 inches of rain in some places in the early weekend (largely around south Missouri/ north Arkansas, Illinois and Indiana) will see “rains return” in north west areas on Wednesday and Friday “keeping disease risks elevated”.
This week overall, 0.5-2.0 inches of rain are forecast, with 40% coverage, while some areas will see 5 inches.
And heading into the weekend and next week, the forecast is that “tropical moisture enhances rain across the Midwest… keeping early harvest progress slow”.
‘Injection of some risk premium’
And this when hedge funds have built up a large net short position in US-traded grains, ie have been betting on lower prices, and are liable to close the holdings – putting yet more upward pressure on prices – if harvest conditions remain tricky.
Water Street Solutions said: “The large net short fund position, coupled with end-user demand and reluctant farmer selling, puts the market into a position that any disappointment relative to the huge crop expectations could set the market for a short-covering rally well before the typical ’30-50% harvest progress mark’.”
(Typically, harvest brings a seasonal price low, thanks the ramp up in supplies it brings, and the ability to remove the last vestiges of risk premium from prices.
In fact, CHS Hedging’s Joe Lardy noted “an injection of some risk premium due to wet forecasts”.)
Chicago corn futures for December rose 0.7% to $3.39 ½ a bushel as of 09:40 UK time (03:40 Chicago time), rising back above their 50-day moving average, which they have not closed above in three months.
Soybean futures for November, boosted by ideas of decent demand too, fared even better, gaining 1.3% to $9.78 ¼ a bushel, trading back above its 40-day moving average, which it has not closed above in two months.
The gains fed through into wheat too, prices of which have been depressed by ideas of ample world supplies – of feed quality wheat, anyway – leaving the market vulnerable to movements in the value of corn, of which feed is the major use.
Chicago soft red winter wheat for December gained 1.1% to $4.07 ¾ a bushel.
In what may be a sign of hedge funds reversing some of their near-record net short position in Chicago, the contract outperformed Kansas City hard red winter wheat, which for December added 0.7% to $4.20 ¼ a bushel, and in which managed money has a more modest net short to cover.
In New York, cotton fared even better, gaining 2.3% to 68.84 cents a pound for December delivery, bouncing back over its 10-day and 20-day moving averages.
It was a big help that January futures soared 3.0% to 14,540 yuan a tonne overnight on the Zhengzhou exchange in China, a country which is a huge player in the world cotton market.
Furthermore, the US wetness is an issue for the country’s cotton crops, which are heading into harvest in modest condition anyway, unlike corn and soybeans.
“Rain and showers are throughout weekly forecasts for much of the [Cotton] Belt again this week,” said Louis Rose at the Rose Report earlier on Monday.
“At the time of this writing, showers are moving across the northern Mississippi River Delta,” at a time when there was already talk of crop damage from wetness.
(Source – http://www.agrimoney.com/marketreport/am-markets-grains-cotton-rise-as-us-rains-erode-crop-hopes–3773.html)