Three grain trader adages to bear in mind, as the market mops
up after the latest data slew.
The first being, as Benson Quinn Commodities said, that "money
flow tends to come in three-day moves".
The broker was speaking with reference to soybean futures, the picture for which
has become more bullish since the US Department of Agriculture on Thursday, in
its monthly Wasde crop report, made an unexpected downgrade to its forecast for
the domestic yield in the oilseed this year.
The thinking is that in price terms changes in sentiment
take more than one session to work through, implying gains on Friday too.
'First in five years'
Of course, the USDA's US soybean yield downgrade on Friday
was hardly huge, of 0.4 bushels per acre to 49.9 bushels per acre.
Wasde US soy forecasts 2017-18, change on previous, and (on market forecast)
Harvested area: 89.471m acres, +740,000 acres, (+454,000 acres)
Yield: 49.5 bushels per acre, -0.4 bushels per acre, (-0.5 bushels per acre)
Production: 4.431bn bushels, unchanged, (-16m bushels)
Year-end stocks: 430m bushels, -45m bushels, (-17m bushels)
World year-end stocks: 96.05m tonnes, -1.48m tonnes, (-430,000 tonnes)
Source: USDA, Reuters, Agrimoney.com
But that is where the second market adage comes in, that "small
crops get smaller".
That is, there is a certain momentum in crop production revisions,
and one downgrade will herald another.
Thursday's soy yield downgrade, "the first in five years"
for an October Wasde report, "will spawn talk of further cuts from October to
November", said Richard Feltes at RJ O'Brien.
"History suggests potential for another 0.5 bushels-per-acre
cut, equivalent to 45m bushels."
'Risk is heightened'
In turn that "would take end-2017-18 US soy stocks below the
400m-bushel mark", Mr Feltes said, a figure which while still large, would bring
a case for higher prices.
"Shrinking US soy stocks, via either a lower yield or fear
of higher 2017-18 demand, will up the importance of favourable South American
And decent weather is hardly a certainty, especially in
Brazil, given the rising chance of a La Nina weather pattern, which as Rabobank
noted "typically brings drier conditions for South America.
"This risk is heightened for crops in Brazil, which has
already experienced a dry start to the planting season."
'Becomes a problem if
The third market adage to consider is related to the second,
but the opposite.
Wasde US corn forecasts 2017-18, change on previous, and (on market forecast)
Harvested area: 83.119m acres, -377,000 acres, (-412,000 acres)
Yield: 171.8 bushels per acre, +1.9 bushels per acre, (+1.7 bushels per acre)
Production: 14.280bn bushels, +96m bushels, (+76m bushels)
Year-end stocks: 2.340bn bushels, +5m bushels, (+51m bushels)
World year-end stocks: 200.96m tonnes, -1.51m tonnes, (-950,000 tonnes)
Sources: USDA, Reuters, Agrimoney.com
That is, that "big crops get bigger" a potential factor
watchers, given that the USDA
lifted its yield estimate for the US harvest of the grain, and by more than
investors had expected.
"The yield increase becomes a problem if it is signalling
another yield increase in the future," Benson Quinn Commodities said.
In early deals on Friday, Chicago corn was nonetheless keeping
up with soybeans, adding 0.2% to $3.49 ¾ a bushel for December delivery as of
08:50 UK time (02:50 Chicago time), knocking on the door of the psychologically
important $3.50-a-bushel market, and continuing its recovery from a contract
low set in the last session.
(And this despite downbeat US ethanol production data on
Thursday, shown tumbling 43,000 barrels a day last week to 967,000 barrels a
Soybean futures for November gained 0.2% to $9.94 a bushel, building
on a two-month-high close to the last session.
'Should limit the downside'
Chicago soft red wheat
futures added 0.1% to $4.30 ¾ a bushel for December, although like corn finding
support largely in ideas that prices have gone low enough, rather than like
soybeans lead by a bullish factor.
Wasde wheat stocks estimates, end 2017-18, change on previous, and (on market forecast)
US: 960m bushels, +27m bushels, (+14m bushels)
World: 268.13m tonnes, +4.99m tonnes, (+5.33m tonnes)
Sources: USDA, Reuters, Agrimoney.com
"Ongoing pressure on US wheat futures has brought US hard
red winter wheat into a competitive position on the global cash market, with 11%
protein hard red winter wheat now offered marginally below Russian," said
"With additional US export sales likely, and as constraints
in Russian logistics tighten, this should limit the near-term downside on
Chicago and Kansas City wheat [prices]."
In fact, Kansas City hard red winter wheat for December
gained in line, up 0.1% at $4.26 ½ a bushel.
World production up
Meanwhile, in New York, cotton
for December outperformed in adding 0.3%, to hit 68.05 cents a pound for
December delivery, despite some bearish analysis of revisions in the Wasde.
"Even though production estimates dropped in the US, the
world production is still estimated to be up overall" in 2017-18, traders at
While speculators "were expecting a drop in US and world production
which would have been bullish, now they will be looking for reasons to hold
onto their longs positions".
In fact, China might provide one, with Tobin Gorey at
Commonwealth Bank of Australia seizing on USDA comments on Chinese demand which
were highlighted by Agrimoney.com on Thursday.
"The USDA did not change their estimate of how much cotton
China will import this season but they did describe China's import policy as
a 'major wildcard'," Mr Gorey said.
"The market has had the prospect of China increasing imports
in mind for quite some time. And indeed prices might well have already been
substantially lower were it not for this prospect.
"The USDA simply raising the issue will serve to make the
prospect more vivid."
Flooding this week in the North China Plain will only
heighten the market's China focus.
"Some cotton has been lost but quality downgrades might be
just as important," Mr Gorey said.
Movement in cotton and grain markets later may depend on
weekly US export sales data due later, and expected at 300,000-500,000 tonnes
for wheat, at best matching the 492,265 tonnes sold the week before.
For corn, US export sales last week are expected at
800,000-1.1m tonnes, at least matching the 814,054 tonnes so0d the week before.
For soybeans, the figure is expected at 900,000-1.2m tonnes,
compared with 1.02m tonnes last time.