PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 09:29 GMT, Thursday, 24th Aug 2017, by Mike Verdin
AM markets: grain futures start firm. But will gains stick?

Ag markets have at least four data releases with potential to move markets on Thursday.

Which may have stemmed the appetite for selling, allowing prices some early headway.

One is the International Grains Council's monthly take on world grain, soy and rapeseed supply and demand, which will give, for instance, more insight into the dynamics in the wheat market stemming from disappointing Australian and Canadian harvest prospects – but a huge Russian crop.

On the production side, Thursday is also the last day of the Farm Journal Midwest crop tour, which in a day three release overnight did flag some damage to crops in the top two US corn-producing states, Iowa and Illinois, from dryness.

Tour results

The Illinois corn yield was pegged at 180.72 bushels per acre, below the 193.50 bushels per acre estimated last year by the tour for the state, and the five-year average of 187.37 bushels per acre.

Signally, the figure was also below the 188 bushels per acre at which the US Department of Agriculture has the Illinois yield.

For north western (district 1) Iowa, the corn yield was put at 178.67 bushels per acre, compared with a figure of 186.82 bushels per acre last year, and a three-year average of 184.16 bushels per acre.

For centre west (district 4) Iowa, the yield estimate of 179.36 bushels per acre was below a figure of 182.65 bushels per acre, and a three-year average of 182.53 bushels per acre.

For the south west (district 7), the crop fared a little better, with the yield estimate of 185.65 bushels per acre above the average of 179.68 bushels per acre, if below last year's figure of 191.87 bushels per acre.

The USDA has the all-Iowa yield in line with the Illinois one, at 188 bushels per acre.

"Problems include poor stands form a late wet spring, and poor pollination from too much dry heat in July," said Benson Quinn Commodities.

Ethanol import levy

Back to the day's data, and sticking with output, Brazil's Conab is expected to release fresh estimates on Brazilian cane and sugar output, which will be closely watched given the country's stronger-than-expected sugar production so far in 2017-18, but with current prices incentivising a switch to making ethanol instead.

The data may actually be overshadowed somewhat by an overnight move by Brazil to unveil a 20% take on ethanol imports, above a tax-free quotas of 600m litres per year.

(Brazil's ethanol imports reached 1.29bn litres in the first half of this year.)

In theory, this should encourage greater use of domestic ethanol, so boosting prices of the biofuel, and lifting values of sugar too, if the sweetener is to retail its allocation of cane.

That said, Brazilian ethanol prices are capped somewhat by prices of gasoline, which many cars have the alternative to burn instead.

Export sales data

Staying with the demand side, and shifting back to grains, the day will also bring USDA figures for last week on US crop export sales, expected to come in at 300,000-600,000 tonnes for wheat for 2017-18.

For corn, sales are expected at 400,000-700,000 tonnes for 2017-18, plus 50,000-250,000 tonnes for 2016-17 (which ends next week for the crop, and for soybeans).

For soybeans, the figure for next season is expected at 400,000-600,000 tonnes, with 250,000-250,000 tonnes for 2016-17.

'Supplies bearish, demand not'

Indeed, for soybeans, "demand is good and with lack of producer selling cash basis continues to firm for spot bushels", said Benson Quinn Commodities.

"Look for soybeans to continue sideways trade with supplies bearish while demand offers underlying support on weakness."

The November contract in fact stood up 0.4% at $9.41 ½ a bushel as of 09:20 UK time (03:20 Chicago time), continuing to gain some support from soyoil, which added 0.3% to 35.18 cents a pound for December delivery, extending its headway on a US ruling which has essentially closed off imports of Argentine and Indonesian biodiesel.

Tobin Gorey at Commonwealth Bank of Australia said that the decision means the US industry "naturally scrambling to find alternative sources of biodiesel", which is made from vegetable oils, largely soyoil in the US and Argentina, but palm oil in Indonesia (the world's top palm producer).

Palm oil vs soyoil

In fact, the initial reaction on the Kuala Lumpur palm oil market to the US decision was to send futures a little lower.

However, on Thursday, the vegetable oil revived, adding 1.2% to 2,770 ringgit a tonne, coming close to touching it 200-day moving average on a continuous chart for the first time in five months.

Sure, there is a bearish case for palm oil, as producer Anglo-Eastern Plantations noted, with the seasonal high in South East Asian output approaching.

"The upside of the crude palm oil price is limited as the industry heads into its peak production cycle in the third quarter of 2017," the group said.

"A higher crude palm oil production for the second half of the year amid strong competition from bumper soybean production will likely hurt and depress the crude palm oil price for the remainder of the year."

That said, the relative strength of palm oil and soyoil is important too, with the two interchangeable for many uses.

"The demand of crude palm oil from price-sensitive markets may pick-up as the crude palm oil price discount to soyoil has widened," the group said.

'Demand has been surfacing…'

Back in Chicago, corn futures for December nudged 0.1% higher to $3.56 ¼ a bushel, although only after setting a fresh contract low of $3.55 ¼ a bushel earlier.

"US corn is now very competitive so we expect the market to find some buying eventually," CBA's Tobin Gorey said, although whether the demand turns up in the export sales data later…

For wheat, Benson Quinn Commodities flagged too the importance to the market of demand signals, given the record Russian harvest.

"Global demand for wheat has been surfacing but with Russian offers cheapest, demand for US wheat still remains traditional and unimpressive," the broker said.

"Weekly export sales will be closely watched. Shipments have been above last year's pace but sales to date are down from last year's pace."

Chicago wheat futures for December gained 0.5% to $4.32 ¼ a bushel, with Thursday for now proving the first session in seven in which the lot has not set a contract low.

Hurricane watch

In New York, cotton futures for December eased, but by a modest 0.1% to 68.82 cents a pound.

Weekly US export sales data later will be closely watched here too.

But so will the latest forecasts for Tropical Depression Harvey, which poses a big threat to the US cotton belt – but just how much differs with changing outlooks.

"Harvey is on a path that sees it move slowly up the Texas coastline," CBA's Tobin Gorey said, noting that straddling the Gulf coast, it is poised to "pick up huge amounts of water and dump it on the land.

"The region has enough unharvested cotton in it to make a material difference to US production."

That said, "Harvey continues to evolve, and so does its forecast path. 

"The potential scale of crop losses shrinks if flooding rains do not reach… major cotton regions."

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