PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 09:11 GMT, Tuesday, 11th Jul 2017, by Mike Verdin
AM markets: corn, soy struggle despite US crop deterioration

Corn and soybean futures got bruised in a bit of a data collision.

There was every reason to think that prices of both crops would make a strong start to trading on Tuesday, after the US Department of Agriculture overnight showed that both crops were suffering more from adverse weather than had been expected.

In a weekly report, the USDA cut by 2 points to 62% the proportion of the domestic soybean crop rated in "good" or "excellent" condition, more than the 1-point downgrade that investors had expected.

It is also well below the average of 68% for the previous three years, for this week (although more than 20 points above the comparative reading for the disaster year of 2012).

'Lowest in nine years'

For corn, the proportion of the US crop rated good or excellent was cut by 3 points to 65% - compared with market expectations of only a 1-point drop.

"Taking away the disaster year of 2012, this is the lowest condition rating for this week in nine years," said Joe Lardy at CHS Hedging.

The three-year average rating for this time of year is 73%.

Of particular note to investors, conditions declined in Iowa (-1 point) and Illinois (-2 points) – two of the three so-called "I states" which produce a large proportion of both US corn and soybean crops – while in the third, Indiana, although the rating rose by 1 point, it was to a lowly 48%.

For soybeans, the rating dropped in all three I states – by 1 point in Indiana, 4 points in Illinois and 5 points in Iowa.

'Creeping heat'

And "the seasonal trend is for further declines into harvest", Mr Lardy said – a concept only gaining credibility with the prospect of heat ahead for parts of the US Corn Belt.

At Commonwealth Bank of Australia, Tobin Gorey said that "the hot, dry pattern that has harmed spring wheat crops" in the northern US Plains and parts of Canada's Prairies "continues to creep further east and south where it can have a material impact on corn yields.

As far as markets go, "the price reaction has every chance of being larger still. 

"Some fundamental investors still probably need to clear short positions. And at least some momentum investors will be getting the signal to buy."

Key data ahead

There were plenty of other investors too forecasting a rise in futures in early deals.

And maybe price headway would have made - were it not for the prospect on Wednesday of further USDA data, with the monthly Wasde report on world crop supply and demand, a key event of the grain traders' calendar.

Sure, this is expected to show cuts to estimates for both corn and soybean yields, by 1.1 bushels per acre to 169.6 bushels per acre for the grain, and by 0.1 bushels per acre to 47.9 bushels per acre for the oilseed, according to a Reuters poll.

However, those downgrades are not nearly as large as some in the trade are talking about.

Corn yield forecasts

Benson Quinn Commodities said that "private analysts have been reducing their corn yields based on the current forecast. Recent estimates range from 167 ish to sub-165 bushels per acre".

"Some pundits saying national average yields could be near 160 bushels per acre if weather pattern remains in the 10-14 day slot.

"How much of that is priced in here at $4.15 a bushel?" the broker asked, adding that "right now we are not making more" in production terms, with crops deteriorating.

For soybeans, yield estimates are not so dismal yet, given that August is a more important month for the oilseed (bringing pod-setting), while the current weather is key for corn, in its heat-sensitive pollination phase.

Even so, Chicago-based Futures International, forinstance, trimmed to 47.5 bushels per acre, from 47.9 bushels, its US soy yield forecast, following the overnight USDA condition data.

Still, soybean futures for November, the best-traded lot, eased by 0.3% to $10.35 ¾ a bushel as of 09:05 UK time (03:05 Chicago time), with the August contract down 0.3% at $10.21 ¾ a bushel.

Corn futures for December, the best-traded contract, eased by 0.1% to $4.14 ¾ a bushel.

'Broader global worries'

Wheat futures fared a little better, helped by further deterioration in the US spring wheat crop, now rated 35% good or excellent, down a further 2 points week on week (in line with market expectations) and the worst reading for the time of year on data going back to 1995.

It is the worst reading for any week since 2006, when the good or excellent figure deteriorated in late July-August to 32%.

Furthermore, there remain worries about crops outside the US too.

"The broader global crop outlook is perhaps helping prices - the market has worries about crops in large areas of Australia and Europe," said CBA's Tobin Gorey.

'When they lose one…'

Indeed, Benson Quinn Commodities flagged the talk that Agrimoney.com reported last week of Australia's wheat crop potentially falling below 20m tonnes for the first time in a decade (and down from more than 35m tonnes last year).

"As analysts are scaling back ideas on that crop due to an extended period of dry conditions," the broker said.

"Some think it could end up sub-20m tonnes. From past experience, when they lose one, they really lose one."

That said, Australian farmers "haven't lost this one yet", although "they do need the weather to change".

'Isn't terrible'

As for EU prospects, the broker said that "the heavy rains slated for northern France has the trade on edge in terms of quality", with rains on ripe grains encouraging sprouting.

Agritel said that the French harvest has "stopped because of rainfalls and should resume end of the week with the return of lenient weather".

Still, French officials on Monday, in their first crop forecast, pegged the domestic soft wheat harvest at 36.2m tonnes.

"Their crop had better potential at one point, but this isn't terrible," Benson Quinn Commodities.

It is lower than, eg said "isn't terrible".

Indeed, it is a little above a 35.9m-tonne estimate from the International Grains Council two weeks ago.

Minneapolis-traded spring wheat for September gained 1.9% to $8.12 ½ a bushel, while Chicago soft red winter wheat for September added 1.0% to $5.55 ½ a bushel.

Cotton improvement

Cotton followed its fellow row crops lower, dropping 0.2% to 67.16 cents a pound for December delivery.

This was perhaps less of a surprise after the USDA overnight pegged the US crop at 61% good or excellent – up 7 points week on week, a huge improvement in condition from a historical perspective.

The boost reflected a 10-point surge to 51% in the rating for Texas, the top cotton-growing state.

This after much-needed rains in the state.

Still, as traders at Ecom noted, demand for US cotton "has been keeping up", a more positive story for prices.

"Cotton technicals are showing there may be some support around the 67.00, 66.50 and 66.00 cents a pound area," the trading house added.

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