PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 09:35 GMT, Thursday, 12th Jan 2017, by Mike Verdin
AM markets: grain, soy futures flinch as slew of data looms

There was strong volatility in one agricultural commodity market in early deals.

Rubber futures for May settled up 3.8% at 20,065 yuan a tonne in Shanghai, on worries over heavy rains in parts of South East Asia, and in particular Thailand, the world's biggest grower and exporter of the tyre ingredient.

Chao Songarvut, deputy governor of the Rubber Authority of Thailand, estimated at about 10% the loss in the country's rubber output in 2016-17. (Thailand produced 4.46m tonnes of rubber in 2015, according to official data.)

And whether the volatility trend spreads to other ag markets is a big question for investors on Thursday.

Data later

For the day will bring a series of US Department of Agriculture reports with a history of sending prices swinging.

Forecasts for US winter wheat sowings, (year-ago figure)

Hard red: 24.954m acres, (26.586m acres)

Range of estimates: 22.60m-26.664m acres

Soft red: 6.662m acres, (6.020m acres)

Range of estimates: 4.80m-6.60m acres

White: 3.473m acres, (3.531m acres)

Range of estimates: 3.20m-4.30m acres

Total: 34.139m acres, (36.137m acres)

Range of estimates: 31.70m-36.381m acres

Sources: USDA, Reuters

Besides the monthly Wasde crop supply and demand briefing, itself a highpoint of the grain market calendar, Thursday will bring estimates of US winter wheat

sowings for the 2017 harvest.

Analysts expect this figure to show a drop of 2.0m acres year on year to 34.1m acres, the lowest since 1913, but with some ideas that the figure could be lower – substantially.

One estimate, from ED&F Man, sees the area at 31.7m acres, with broker INTL FC Stone forecasting a 32.7m-acre figure.

And if such a downbeat figure does emerge…

Before recent price falls, with wheat futures losing ground on rain relief for the US Plains, "I was thinking a bigger reduction in winter wheat acreage was priced in," said Benson Quinn Commodities. 

"I don't think that is the case anymore."

'Truly astounding'

Then there are the US grain stocks data, which have a particular knack for sparking volatility, offering a one-a-quarter insight into how much corn, soybeans, wheat etc there actually is in the US.

The data give a particular insight into feed demand – data on exports, crushing, milling, ethanol production etc give insights into other major parts of the consumption equation.

And there is a huge gap, for example, of 1.1bn bushels in expectations for corn stocks as of December 1.

That "is truly astounding if we consider that number in context of a 15bn-bushel crop", said Tregg Cronin at Halo Commodity Company, himself opting for a figure on the bearish side of the equation.

Demand maths

 "If we remove known demand from ethanol and exports, the consensus December 1 stocks average trade estimate… would imply feed/residual demand in the preceding quarter at 2.415bn bushels," assuming no changes in the estimate for the 2016 harvest, he said.

Forecasts for USDA Dec 1 US grain stocks estimates, (year-ago figure)

Corn: 12.30bn bushels, (11.238bn bushels)

Range of estimates: 11.60bn-12.70bn bushels

Soybeans: 2.935bn bushels, (2.715bn bushels)

Range of estimates: 2.745bn-3.119bn bushels

Wheat: 2.056bn bushels, (1.746bn bushels)

Range of estimates: 1.828bn-2.158bn bushels

Sources: USDA, Reuters

That would imply a near-11% rise year on year in feed and residual demand during the quarter, topping the record 2.39bn bushels reached in 2007.

Yet evidence from separate USDA reports shows that "while all hogs and pigs are up 3.7% from a year ago, cattle on-feed from September-November were essentially flat when averaged across the period.

"It would appear a negative surprise could be in the offing from lower than expected feed/residual demand."

'We need a fundamental shift'

This is not what grain bulls will be wanting from USDA data which do offer some potential for shifting prices out of their pit.

"In order to sustain and add to recent rallies, we need a fundamental shift in Thursday's data, otherwise more range-bound trade is likely," Mr Cronin said.

Such a shift would need to be large too, given the weight of stocks weighing on, for example, wheat futures. (World inventories are expected to end 2016-17 at a record high.)

Indeed, Richard Feltes noted that the wheat market has so far in 2017 "replicated the chart pattern in place since July – of orderly price advances followed by swift and sizeable downside corrections.

" Price behaviour of this nature does not characterise a developing bull market, but rather an oversupplied old crop market looking ahead to end-2017-18 US wheat stocks that may still exceed 1.0bn bushels, the second highest in 29 years."

This assessment factors in a 3.6m-acre drop in all-wheat planted area (ie not just winter wheat) for this year's harvest.

Plains rains

Mr Feltes added: "The take-home point here is that the front-end wheat market is unlikely to penetrate $4.55-a-bushel resistance unless a major northern hemisphere wheat production area is threatened, which is unlikely before late March at the earliest."

Forecasts for world 2016-17 carryout stocks data, January 12 Wasde, (current figure)

Corn: 221.94m tonnes, (222.25m tonnes)

Range of estimates: 218.0m-225.0m tonnes

Soybeans: 82.58m tonnes, (82.85m tonnes)

Range of estimates: 79.60m-84.20m tonnes

Wheat: 252.01m tonnes, (252.14m tonnes)

Range of estimates: 250.23m-254.0m tonnes

Sources: USDA, Reuters

In fact, concerns for the US have been in retreat with rains hitting the dryness-beset southern Plains.

According to Terry Reilly at Futures International, "85% of the US Great Plains will see precipitation over the next few days" in the form of rain, sleet or snow.

"Moisture totals will vary from 1.00-3.00 inches."

Not cold enough for bulls

Nor is cold weather in Europe and the former Soviet Union striking much of a chord with investors yet.

Agritel, for instance, said that "Ukrainian operators are not especially worried by the possible consequences of the recent cold snap".

Ground temperatures at tillering level had, for crops without snow cover, come in at between -6 and -8 degrees Celsius, which is above "critical levels".

"Producers are anticipating losses of about 5% of sown area, in line with average winter losses," Agritel said.

US to import EU wheat?

And, in another negative for the wheat market, the early-year price advances left US supplies out of the money on export markets.

Indeed, Joe Lardy at CHS Hedging flagged talk of "European Union feed wheat pencilling in to the US as domestic values here are just too expensive to be overly competitive right now".

Chicago soft red winter wheat for March fell by 0.4% to $4.17 a bushel as of 09:20 UK time (03:20 Chicago time), slipping further below its 100-day moving average, which it fell through in last session, and below its 10-day moving average too.

'Strong export pull'

The one wheat market faring relatively well is Minneapolis spring wheat, a particularly high protein variety, which is benefiting from the relative shortage of quality wheat supplies, and has seen its premium to Chicago wheat return back above $1.40 a bushel, close to a contract high.

Forecasts for US 2016-17 carryout stocks data, January 12 Wasde, (current figure)

Corn: 2.385bn bushels, (2.403bn bushels)

Range of estimates: 2.206bn-2.80bn bushels

Soybeans: 468m bushels, (480m bushels)

Range of estimates: 407m-510m bushels

Wheat: 1.148bn bushels, (1.143bn bushels)

Range of estimates: 1.113bn-1.340bn bushels

Sources: USDA, Reuters

"The strong export pull is finally having an effect on the domestic market as everyone from traditional importers of spring wheat to one-off destinations such as Egypt and Venezuela head to the US for hard red spring wheat," said Halo Commodity Company's Tregg Cronin.

"Add in more rumoured demand to China, and the fact Canadian logistics and port supplies of spec-meeting wheat are woefully inadequate, and you have the current structure of the spring wheat market."

Minneapolis wheat for March edged 0.1% higher to $5.62 a bushel.

'A lot of corn to sell'

Corn, however, sided with winter what, dropping 0.3% to $3.56 ¼ a bushel, amid observations of large supplies, whatever the USDA data later show.

"Even with the modest reduction in the 2016-17 ending stocks estimate, the US farmer still has a lot of corn to sell," said Benson Quinn Commodities.

There are continued worries too over the impact of China's extra taxes on imports of US distillers grains (DDGs), which may now back up in the US and compete with corn (and soymeal) for feed demand.

"This should effectively kill all US DDG exports to China," CHS Hedging's Joe Lardy said.

Soy falls

For soybeans, the Chinese move will likely have more of a mixed impact, in potentially boosting import demand for the oilseed (to boost domestic supplies of soymeal as an alternative to DDGs), but meaning US crushers face more competition at home when it comes to selling soymeal.

Certainly, soymeal itself for March was 0.2% lower at $314.20 a short ton in Chicago, testing its 100-day moving average.

Still, soybeans themselves fared even worse, dropping 0.3% to $10.08 ¾ a bushel, undermined by a weak performance by soyoil, which lost 0.5% to 35.83 cents a pound for March delivery, after earlier failing in an effort to drive above their 50-day moving average.

Soyoil was depressed by a 0.7% drop to 3,111 ringgit a tonne in Kuala Lumpur prices of rival vegetable oil palm oil, which reversed after gains in the last session attributed to worries over the impact on South East Asian production of the floods highlighted in Thailand.

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