Will Wednesday bring the unexpected?
OK, there are always some unusual dynamics going on for ag markets, one at the moment being the collapse in internal barge freight rates, despite the huge ongoing corn and soybean harvests, which will boost the needs for transport.
“Transportation markets are the talk in the US right now with barge freight imploding, dropping 200% [of tariff] last week alone to trade around 350% [of tariff] on the Illinois River,” said Tregg Cronin at Halo Commodity Company.
A further drop of some 50-75 points and most operators “would be a tie-off levels”, he said, noting talk that these are the lowest spot levels for barge freight for October in at least a decade.
This is certainly no harm to prospects for US crop shipments – at a time of pressure from a rising dollar, which makes dollar-denominated exports that much less affordable.
Mr Cronin said that “the US remains very competitive on corn exports out of the centre Gulf [ports] through year end, although Ukrainian corn offers have slowly inched down to parity with the Pacific North West for spot slots.
For soybeans, there are “very few South American offers until February, leaving the US to mop up through January”.
‘Biggest since November’
And decent export data have been features of corn and soybean markets, most lately on Monday when the US Department of Agriculture said that the US last week shipped 1.13m tonnes (as measured by cargo inspections) of the grain and 1.80m tonnes of the oilseed.
For soybeans, the figure “was well above expectations of 1.0m-1.2m tonnes” and was “the biggest inspection number of the marketing year, but also the biggest going back to November 2015”, said Joe Lardy at CHS Hedging.
Meanwhile, for corn, there was the boost through the separate announcement by the USDA of the export sale of 161,544 tonnes of the grain to an “unknown” import destination.
Still, what investors will be more concerned about on Wednesday is on the matter of output, rather than demand, with the release at 17:00 UK time (11:00 Chicago time) of the USDA’s monthly Wasde crop production supply and demand report.
This will be scoured in particular for matters affecting US corn and soybean output – namely the yield figure, which is expected to be raised for the oilseed and trimmed for the grain, and area estimate, which is forecast to be increased for both crops.
“Yield reports remain very good for soybeans,” said broker Benson Quinn Commodities, adding that “the corn yields are very good, but do show more variability”.
For soybeans, while investors expect the USDA to lift its yield estimate by 0.9 bushels per acre to 51.5 bushels per acre, Benson Quinn suggested that the “market is trading a number closer to 52.0 as yield reports continue to impress”.
“A number less than average trade should be friendly the soybean market while a number north of 52.0 bushels per acre will be bearish.”
‘Made a big move’
Investors appeared to be expecting an upbeat number as, in early deals on Wednesday, they made their last bets ahead of the Wasde.
Soybean futures for November eased by 0.4% to $9.50 ¾ a bushel as of 08:45 UK time, little helped by a touch further firming in the dollar, which on Tuesday reported its highest close in seven months.
CHS Hedging’s Joe Lardy also noted that the Chinese yuan “has also made a big move the last couple of days,” hitting a six-year low against the dollar.
With the country being the top importer of soybeans, as well as many other commodities, that could bode ill for China’s purchases ahead.
Meanwhile, separate USDA data out overnight on crop progress showed harvest, at 44% complete, lagging the average pace by only 3 points, despite wet weather, and with the crop remaining at an astonishing 74% rated “good” or “excellent”.
Corn futures for December did manage some headway, but only the minimum of 0.25 cents a bushel, lifting the contract to $3.45 ¾ a bushel.
The market also later faces weekly US ethanol production data (although this will be a far smaller test than the Wasde).
Terry Reilly at Chicago broker Futures International said the data are expected to show output last week of ethanol, which in the US is largely made from corn, “unchanged-to-5,000 barrels per day lower” than the 980,000 barrels per day reported for last week.
US ethanol stocks are expected to come in “unchanged to 200,000 barrels higher than 20.177m barrels a week before”.
The USDA crop progress data overnight showed US corn harvest progress, like in soybeans, running only 3 points behind the average pace, at 35%, with the crop rating sticking at an elevated 73% seen as in good or excellent health – potentially undermining ideas of a yield downgrade in the Wasde.
‘Ongoing concerns over dryness’
Wheat futures, meanwhile, fell by 0.7% to $4.04 ½ a bushel in Chicago for December delivery, with the stronger dollar undermining a US export performance which is already not so strong for grain.
Indeed, US exports last week, at 433,000 tonnes, were viewed as “weak” by CHS Hedging.
That said, on the plus side for prices, worries do remain live about dryness undermining crop being sown for the 2017 harvest.
“There are ongoing concerns over dry conditions across the US west central winter wheat areas,” said Halo Commodity’s Tregg Cronin, although the USDA showed domestic sowings progress at 59% complete, only 1 point behind the average pace.
“Dry conditions are also a problem in Ukraine,” he said, noting comments from an agro-meteorology official that 500,000 hectares of sowings could be lost to drought, while in Australia “wet weather is raising quality issues
‘Significant loss of crop’
In New York, cotton futures eased too, albeit by a modest 0.03 cents to 67.11 cents a pound, again getting no help from the USDA crop progress report overnight.
This showed harvesting, at 22% complete, 2 points ahead of schedule, while crop condition was down only 1 point at 48%.
That said, whether data next week will turn up more in the way of damage from Hurricane Matthew, which doused east coast cotton-growing states.
“There is speculation yield loss may be as high as 20% in some areas,” traders at Ecom said.
South Carolina ag officials, for instance, said that “adverse weather conditions experienced… in the last several days may not be fully reflected [in crop condition data- -because of reporting difficulties”.
In a separate statement, they said that “early estimates indicate a significant loss of the cotton crop and moderate loss of soybeans”.
As for the Wasde, traders expect it to make minimal changes to the US cotton balance sheet, with forecasts it will show a 90,000-bale upgrade to 16.23m bales in the harvest estimate, (excluding Hurricane Matthew losses) according to a Bloomberg survey.
The estimate for 2016-17 exports is seen being upgraded by 110,000 bales to 11.61m bales, with the carryout inventory figure viewed as being downgraded by 30,000 bales to 4.90m bales.
(Source – http://www.agrimoney.com/marketreport/am-markets-firm-dollar-overhangs-ags-as-key-crop-data-loom–3803.html)