Thursday will bring markets a slew of data – but not quite as big a slew as investors had expected.
Sure, the day is on course to bring the US Department of Agriculture’s first, real, estimates on this year’s domestic crops, at its annual Outlook Forum.
For grain investors, “this should be a biggest tradable input for a while,” said Joe Lardy at CHS Hedging.
(Markets take less notice of the USDA’s so-called “baseline” data released in November, as part of a long-term forecasting exercise.)
But the day has fallen short in data from China, where many of the export statistics expected have been delayed until Friday, making their release, like the USDA forum, a two-day event.
Corn imports rise, with prices
What we do know is that China’s corn imports made a far stronger start to this year than last, buying in some 160,000 tonnes last month compared with 7,986 tonnes in January 2016.
Buy-ins were also stronger than the 142,431 tonnes recorded in December, dynamics which tally with the rise in domestic prices (on China’s Dalian exchange) from autumn lows, amid expectations of a drop in sowings this year, and apparent success in finding extra local demand (eg in making ethanol) for the country’s huge stocks.
Dalian corn futures for May eased 1 yuan to 1,589 yuan a tonne on Thursday, but remain up more than 14% from a September low.
China’s barley imports were dragged higher last month too, rising by 84% year on year to 670,000 tonnes, ahead too of the December figure of 404,415 tonnes.
And the data for sorghum may not be considered as so dismal, compared with the ideas going round a few months ago that China’s focus on drawing down its corn stocks would send imports of feed grains tumbling.
Sorghum imports for last month, at 570,000 tonnes, were down 38% year on year, but well ahead of December’s figure of 200,000 tonnes.
Among soft commodities, sugar imports last year reached 410,000 tonnes – a rise of 42% year on year.
It was also nearly double the figure of 215,512 for December, which rounded off 2016 when imports dropped 37% to 3.06m tonnes overall, the lowest level in five years.
Soybeans vs corn
Still, it is the USDA data which will dominate grain market attention, and in particular the sowings data, first up.
The estimates come at a time of keen debate as to exactly how much corn US farmers will plant this spring, compared with soybeans, the grain’s keenest (but not only) rival in sowings schemes.
“The market is already trading bigger soybean acres and lower corn and wheat,” said Benson Quinn Commodities.
But by how much?
“Some traders believe soybean plantings will end up larger than corn,” said Terry Reilly at broker Futures International, an outcome which would be unusual, and indeed has not happened since 2001.
Mexico trade war fears
Mr Reilly added that while it did not believe soybean sowings would top corn plantings, such a dynamic was “a possibility”, given concerns that the US President Donald Trump will kick off a trade battle with Mexico – a huge corn importer.
“We do admit some US producers are worried a trade war with Mexico is brewing, and may decide to plant soybeans instead of corn.”
Besides accounting for some 10% of global corn imports, “Mexico is the US’s top customer for corn exports, spending about $550m on US corn last year.
“The US producer cannot afford lower prices.”
‘Big price impact’
Still, the extent of market uncertainty over what farmers will plant can be gauged by the array of market forecasts for what the USDA data will produce.
“The range on estimates corn acres is just over 2.5m, but the range on soybean acreage is 6m wide!” CHS Hedging’s Joe Lardy said.
“A big curveball will have a big price impact on the market.”
With the potential for price volatility ahead it was perhaps not so surprising that soybean and corn futures succumbed to a little profit-taking in early deals, with best-traded May soybeans down 0.4% to $10.29 ¾ a bushel as of 09:45 UK time (03:45 Chicago time).
March corn (still the best-traded contract) fell by 0.4% to $3.69 ½ a bushel.
‘Max pain level’
For soybeans in particular, the chances of volatility appear enhanced by the May contract sitting right on its 100-day moving average, a move below which could inspire a fresh round of selling.
Investors also have an eye on March options expiry on Friday, which can see futures prices receive gravitational pull towards price points with a large options interest.
“For corn, the largest put open interest would be at the $3.60-a-bushel strike,” with the biggest put interest at $4.60 a bushel, said Tregg Cronin at Halo Commodity Company.
“This makes the max pain level easy to discern as March futures settling at $3.60 a bushel on Friday would make the maximum amount of options expire worthless.
“This could act as an anchor [to prices] the rest of the week.”
‘Could keep prices in check’
For soybeans, “there are a huge amount of puts open at the $10.20 strike”, although “there aren’t really any meaningful strikes with a lot of calls open”.
For Chicago wheat, meanwhile “the largest calls are open at $4.30 a bushel, while the largest put open interest is at the $4.00 level,” Mr Cronin said.
“The largest put open interest within striking distance would be the $4.30 mark as well.”
Whatever, for Chicago contracts in general “it is important to note the bulk of the options within reach are below the market which could keep prices in check,” he said.
‘Colder weather to return’
In fact, Chicago soft red winter wheat futures for March fell by 0.5% to $4.38 ¾ a bushel in early deals, with the better-traded May lot down 0.5% at $4.53 ¾ a bushel, although that meant giving up only some of their gains of the last session.
Besides the USDA sowings data – important for spring crop, but with winter wheat seedings already surveyed (and their lowest for more than a century – traders are also monitoring a cold weather front heading following a warm spell seen as encouraging many winter crops to make dormancy, and become thus more vulnerable to frost.
“Colder weather is slated to return next week,” said Madeleine Donlan at Commonwealth Bank of Australia.
‘Relatively fragile state’
She added: “Forecasters say most of US wheat crop probably hasn’t developed far enough yet to be seriously damaged by frosts.
“Nevertheless, we suspect poor establishment in Western Kansas and adjacent areas means that some crops are already in a relatively fragile state so the market may worry all the same.”
As an extra comfort for wheat bulls, the rouble was back on a strengthening trend, adding 0.2% to 57.89 roubles to $1, making Russia’s huge wheat supplies that much less competitive on world markets.
The dollar itself was flat, although at 101.4 against a basket of currencies, still amongst its highest levels of the past 14 years, weighing on the affordability of dollar-denominated assets too.
‘Continues to stress crops’
Among ringgit-denominated assets, Kuala Lumpur palm oil futures suffered a fresh bout of selling on worries over rising Malaysian output, as the impact of El Nino-caused dryness wears off.
Futures for May slumped 2.1% to 2,750 ringgit a tonne, returning close to their 200-day moving average on a continuous chart, below which they have not closed for six months.
Meanwhile, back in the US, New York cotton futures for May added 0.3% to 75.73 cents a pound, facing too trial by USDA sowings estimates, but with Australian dryness a factor too.
“Dry and warm weather continues to stress cotton crops in eastern Australia,” CBA’s Ms Donlan said.
“Forecasters say that trend is not likely to change much in the next couple of week either.”
(Source – http://www.agrimoney.com/marketreport/am-markets-ags-brace-for-top-tradable-input-for-a-while–3986.html)