Month beginnings are often associated in grain markets with buying, being seen as bringing fresh money in.
But that was certainly not the case with soybean futures in early August deals, after the US Department of Agriculture overnight, in a weekly crop progress report, revealed an improvement in the condition of the domestic crop, now rated 59% “good” or “excellent”.
That was up 2 points week on week, and 2 points ahead of market expectations too.
The increased condition rating reflected in particular an increased figure for Illinois, often the top soy-producing state, where the good or excellent figure jumped 7 points week on week to 66%.
(For Iowa, which also takes the US soy output title in some years, the rating eased by 2 points to 60%.)
And it signalled some uplift yield expectations.
Terry Reilly at Futures International said that “we adjusted our US soybean yield higher by a tenth of a bushel to 47.1 bushels per acre, and increased production by 9m to 4.170bn bushels”.
That is still, nonetheless, 90m bushels below the official USDA figure, which is up for revision next week, with the broker also using a lower harvested area estimate than the official one.
Rain in the forecast
And this when the US weather outlook, for now, looks benign, signalling the potential for further crop condition improvement, and in a key month for soybeans, with pod-setting ramping up.
“The US northern Plains and Midwest will see rain Tuesday and Wednesday,” precipitation which “shifts south and east Thursday and Friday,” Mr Reilly said.
“Total rainfall by Friday will be greatest from eastern Dakotas to Michigan with mostly 1.0-2.0 inches, local over 3.0 inches.”
That said, “this Saturday and Sunday will trend much drier in the US Midwest, Delta and south eastern states,” although temperatures are not expected to get too high.
The impact on futures was to send November soybean futures down 1.1% to $9.96 ¼ a bushel as of 09:15 UK time (03:15 Chicago time), although the contract still nearly $0.10 a bushel above its 200-day moving average, which provided support for the lot last month.
Soyoil remained relatively firm, shedding 0.5% to 34.96 cents a pound, supported by continued hopes for extra output of biodiesel (made from vegetable oils) stemming from Friday’s court ruling against the US Environmental Protection Agency.
“Continued wrangling over the legal limitations of the EPA vs the Refined Fuel Standard will keep bean oil bouncing,” Benson Quinn Commodities said.
Furthermore, the US also reported better-than-expected domestic output of biodiesel in May, at 136m gallons, up 9m gallons on April, and using 1.05bn pounds of feedstocks, of which 546m pounds was soyoil.
“This report is slightly friendly” for soyoil futures, Futures International’s Terry Reilly said.
Corn yield forecasts
For corn, the USDA crop progress data were not so negative – in fact showing a 1 point drop to 61% in the proportion of the US crop rated in “good” or “excellent” condition.
Bar the drought year of 2012, that is the lowest figure for this time of year in a decade, and compares with a three-year average of 73%.
Still, futures felt pressure from the benign turn in the US weather outlook, and ideas of strong carryover inventories, easing 0.5% to $3.83 a bushel for December delivery, and by 0.4% to $3.69 ¼ a bushel for the spot September contract.
Benson Quinn Commodities pegged trade estimates on the US yield number at 160-165 bushels per acre, well below the USDA’s forecast of 170.7 bushels per acre.
But the broker added that “bears would say even that a 160 number, with the current state of global stocks and global competition for business, prices needn’t rise above the $3.75-a-bushel mark” on a spot basis.
‘Isn’t very good timing’
Wheat fared better, supported by a further decline, of 2 points to 31%, in the proportion of US spring wheat rated in good or excellent health.
That maintained this year’s crop record of being the worst, in ratings terms, for the time of year on data going back to 1995.
And in fact 31% is the lowest figure full stop out of all ratings at any time of year since 1995, undercutting 32% readings recorded in 2006.
And for spring wheat the turn wetter in US weather is not so beneficial – given that harvest has now started, with 9% of the crop in the barn so far, in line with the average pace.
“The much wetter weather for spring wheat areas isn’t very good timing for what I would expect to be a significant ramping up of harvest progress,” said Benson Quinn Commodities.
‘Higher prices likely’
Spring wheat futures for September added 0.9% to $7.37 ½ a bushel in Minneapolis.
That helped Chicago soft red winter wheat for September gain 0.2% to $4.75 ½ a bushel despite the negative pull from rival grain corn.
The gain, while small, kept the contract clear of its 100-day and 200-day moving averages, at a little under $4.68 a bushel.
Tobin Gorey at Commonwealth Bank of Australia, noting that pressure from the US winter wheat harvest is now over, said that “a slightly higher range for US dollar wheat prices is the most likely outcome.
“But that will need to be verified in export data.”
In New York, cotton futures for December gained ground too, adding 0.4% to 69.14 cents a pound.
“Weather forecasters expect benign, and sometimes even helpful, weather for US cotton crops,” Mr Gorey said.
“That weather outlook will generate producer and trade selling.”
However, crop condition data were more helpful for prices. While showing a 1 point rise to 56% in the proportion of US cotton rated in good or excellent health, that reflected largely reflected an 8-point jump in the figure for Alabama – after an even larger drop the week before, and showing suspicious volatility.
The rating for Texas, the top growing state, eased by a further 1 point to 44%.