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.
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
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'
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
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
"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".
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.
its fellow row crops lower, dropping 0.2% to 67.16 cents a pound for December
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.