PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 08:58 GMT, Friday, 13th Oct 2017, by Mike Verdin
AM markets: 3 grain market adages to mull in Wasde aftermath

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 growing weather."

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 for corn

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 day.)

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 Rabobank.

"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 Ecom said.

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".

'Major wildcard'

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.

Data later

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.

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