The bears who returned to prominence in the last session, on
more-generous-than-expected supply data issued by the US Department of
Agriculture, remained in control on Thursday.
Prices of all three major Chicago contracts – corn, soybeans and wheat – stood
lower in early deals.
That said, futures stood above opening-session lows, particularly
for wheat, with Minneapolis spring wheat futures for September down just 0.2%
at $7.81 ½ a bushel as of 10:00 UK time (04:00 Chicago time), above an intraday
nadir (so far) of $7.70 ¼ a bushel.
Battle vs war
The reluctance to press home further the outcomes of
Wednesday's USDA Wasde report – which estimated world stocks of all three crops
above market expectations, with US inventory figures above forecasts for corn
and wheat too – was perhaps in part a reflection that it is still early in the
Futures tend to show less volatility in early trading hours
than later, when the big US trading volumes come onstream.
But there was also an idea that while bears may have won the
battle, in terms of getting favourable outcomes from the Wasde, they have not
yet won the war, with plenty of time yet to go before most northern hemisphere
crops are in the bar, and we see how close the forecasts end up being to
Take the USDA's decision to stick with a 170.7
bushels-per-acre corn yield, rather than downgrading it 1.1 bushels per acre,
as the trade on average had expected.
"Analysts were looking for a downward revision in the 170.7
bushels-per-acre US yield due to unfavourable weather," said Terry Reilly at
Futures International, with heat and dryness besetting crops in parts of the
western Corn Belt and northern Plains.
Still, this does not mean that the yield figure will not be
downgraded further ahead.
As some observers pointed out ahead of the Wasde, the USDA
is reluctant to lower yield estimates so early in the growing season, with the key
pollination period still in its early stages.
'Just isn't very
"Given the subpar corn ratings, I could understand wanting
to trade lower yields," said Benson Quinn Commodities.
"However, seeing production shifts in July just isn't very
common for the row crop markets."
Mr Reilly said: "In reality the US corn good or excellent
condition ratings this past month were not as low as other unfavourable years,
such as 2012."
However, "we look for a sub-170.7 bushels-per-acre yield
when USDA issues its first survey on the US crop", with the August Wasde, he
'Still looms large'
Of course, such ideas depend on how the weather turns out
too – with Tuesday-night rains in Illinois and Iowa in fact a contributory
factor to the price losses of the last session.
"US Corn Belt weather still looms large for the market,"
said Tobin Gorey at Commonwealth Bank of Australia.
"Look for consolidation and funds to rethink what's next
with each new weather model prior to the weekend," said Benson Quinn Commodities.
Corn Belt forecasts "continue to hold steady, hot and dry in
the west with cooler wetter conditions in the east".
Rabobank said that the Midwest outlook "for the rest of the month
is not very beneficial – calling for hot and mainly dry weather, while night
temperatures are expected to stay unfavourably high".
Against this backdrop, corn futures for December fell by
0.9% to $3.95 ½ a bushel, consolidating a sub-$4.00-a-bushel price, but staying
ahead of most major moving averages, bar the 10-day.
Soybean futures for November stood down 1.6% at $10.08 ¾ a
bushel, reversing a bit of their resilience of the last session, when
lower-than-expected US inventory estimates offered some resistance to downward
One worry for investors is that the USDA may yet cut its
expectations for soyoil use for 2017-18,
given the relatively low mandate levels for biodiesel use next year, as
unveiled last week. (Biodiesel is made from vegetable oils.)
Futures International's Terry Reilly said that while "we
applaud USDA for lowering US soyoil for biodiesel use in 2016-17 given the shortfall
in use expectations during the October-through-May period", holding the figure
for 2017-18 looked less supportable.
"USDA failed to lower new-crop soybean oil for biodiesel,
and left it at 6.45bn, despite the EPA's recommendation for a small reduction
in advanced biofuel blending rates for 2018."
As for wheat,
there are broad expectations that the market has not seen the lowest USDA
estimate yet for the drought-tested domestic spring wheat crop.
"The spring wheat [stocks estimate] was projected to fall to
a 15-year low, and we expect it to be revised lower in the August update," Mr
Benson Quinn Commodities, for instance, said that on the
production side the USDA's South Dakota yield estimate of 34 bushels per acre "is
very likely too high"
While the broker "can't argue with Montana at 26 bushels per
acre, there will be more abandonment than the 5% they are using today. That
could get to 10% pretty easily".
"USDA could cut 35m-50m bushels off this production number."
For winter wheat,
however, the bullish case was less vocal, although Rabobank did take issue with
the 3.0m-tonne upgrade to a near-record 72.0m tonnes in the Wasde estimate for
the Russian all-wheat crop, terming it "optimistic".
"We remain cautious that this might not materialise," the
bank said, also highlighting weakened expectations for crops in the likes of
the EU and Ukraine, and saying that it expected "further cuts in the USDA's global
wheat production number later this year".
Still, on a more bearish note, Benson Quinn Commodities
flagged that the fund short-covering wave in winter wheat futures and options
had created scope for fresh selling, should speculators be so minded.
"The technical structure is negative, and the funds have
more room than they want to sell the winter wheat classes after having covered
shorts in Chicago and building of length in Kansas City."
Chicago soft red winter wheat, the world benchmark, stood
down 1.8% at $5.27 ½ a bushel for September delivery.
'Begun turning more
better, adding 0.5% to 67.59 cents a pound in New York for December delivery, despite
a Wasde report for the fibre deemed "slightly bearish" by Rabobank, in cutting
the US stocks estimate for the close of 2017-18 by less than investors had
Traders at Ecom were also somewhat cautious on price
prospects, saying that "technically, the market has begun turning more bearish
on the longer term charts.
"The market has been in a range trading theme for the last
few weeks, but the over the last few days we have seen the 200-day exponential
moving average (EMA) cross above the 50-day and 60-day EMA.
"The charts are looking more bearish each day and if we can
get down through 66.50 and 66.15 then we may be looking for 65.00 cents a pound