PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 10:05 GMT, Wednesday, 12th Jul 2017, by Mike Verdin
AM markets: grains ease amid doubts over US crop downgrades

The grains rally, which slowed in the last session, ran out of steam completely - as well it might, with much-watched, and potentially market-moving, data out later.

Run-ups to Wasde world crop supply and demand briefings from the US Department of Agriculture, key events in the grain traders' calendar, often provoke a more cautious mood among investors, and tempt a bit of profit-taking.

So it proved in early deals on Wednesday, amid some ideas too that futures may have priced in current weather risks for crops in the US, and indeed elsewhere.

"How much risk premium needs to be priced in at these levels?" said Benson Quinn Commodities.

"You can argue whether or not these markets need more weather premium," the broker said, although adding that the fact that Corn Belt forecasts "haven't shown much of a shift" from warm weather ahead "has limited the appetite on the sell side".

'Disastrous forecasts'

Indeed, as Tobin Gorey at Commonwealth Bank of Australia said, "forecasters mostly expect hotter and drier weather next week in western parts of the Corn Belt that are already worryingly dry," in a month that is key corn production prospects in particular, bringing the sensitive pollination period.

Market estimates, corn stocks data in Wasde, (current USDA figure)

US stocks, close of 2016-17: 2.321bn bushels, (2.295bn bushels)

Range of estimates: 2.235bn-2.375bn bushels

US stocks, close of 2017-18: 2.181bn bushels, (2.110bn bushels)

Range of estimates: 1.921bn-2.398bn bushels

World stocks, close of 2016-17: 225.72m tonnes, (224.59m tonnes)

Range of estimates: 223.0m-228.0m tonnes

World stocks, close of 2017-18: 195.33m tonnes, (194.33m tonnes)

Range of estimates: 190.0m-198.77m tonnes

Sources: USDA, Reuters

Some forecasts "are disastrous", Mr Gorey said, noting that weather models' "worst scenarios involve a big and sustained high pressure ridge in the Western Corn belt.

"The market is nervous."

'We don't look for any change'

But not nervous enough in early deals to push up further corn futures already trading close to one-year highs, and soybean futures which have, for the best-traded November lot, managed 12 successive positive closes the longest run in 37 years, according to Bloomberg.

And buying was also curtailed by the potential for crop downgrades in Wasde crop estimates to fall short of some of the more drastic figures being touted by analysts, so not being so bullush in price terms.

Benson Quinn Commodities doubted that the USDA would "move their soybean yield too far" from the figure of 48.0 bushels per acre that officials have been using given that August is a more critical time for the oilseed.

Terry Reilly at Futures International said: "We don't look for any change in the US soybean yield" in the Wasde.

USDA vs trade

For corn "the last time they reduced corn yields in July was 2012," the big drought year, Benson Quinn Commodities said.

Market estimates, soybean  stocks data in Wasde, (current USDA figure)

US stocks, close of 2016-17: 430m bushels, (450m bushels)

Range of estimates: 400m-465m bushels

US stocks, close of 2017-18: 473m bushels, (495m bushels)

Range of estimates: 374m-513m bushels

World stocks, close of 2016-17: 93.12m tonnes, (93.21m tonnes)

Range of estimates: 92.3m-94.0m tonnes

World stocks, close of 2017-18: 92.14m tonnes, (92.22m tonnes)

Range of estimates: 90.3m-93.0m tonnes

Sources: USDA, Reuters

"USDA reducing their yield by even a couple bushels would be atypical," from the current 170.7 bushels per acre being used.

"Meanwhile, some in the trade are at 165 bushels per acre or lower."

Tregg Cronin at Halo Commodity Company said: "The USDA is unlikely to make substantial changes to their national corn and soybean yield forecasts on Wednesday's Wasde report as most of the crop will not have been through pollination or pod-set."

Best-traded corn futures for December fell by 0.8% to $4.10 a bushel as of 10:00 UK time (04:00 Chicago time), with the September lot down 0.9% at $3.98 a bushel, falling back below the psychologically-important $4.00-a-bushel mark.

'Anybody's guess'

As for spring wheat, for which drought in the northern Plains has made it the epicentre of market worries, September futures eased by 0.4% to $7.93 a bushel in Minneapolis.

The Wasde is much-anticipated here too in bringing the first breakdown by variety of the overall US wheat production estimate.

 "It's anybody's guess what the USDA could do in spring wheat," said Benson Quinn Commodities, with a consensus trade guess of a 416m-bushel harvest figure disguising a wide range of estimates, from 305m-464m bushels.

Early harvest results

In fact, there is already some talk of spring wheat harvest results, with an early start favoured by early maturity brought on by crop stress.

Market estimates, wheat stocks data in Wasde, (current USDA figure)

US stocks, close of 2017-18: 876m bushels, (924m bushels)

Range of estimates: 757m-957m bushels

World stocks, close of 2016-17: 255.35m tonnes, (256.43m tonnes)

Range of estimates: 249.0m-257.0m tonnes

World stocks, close of 2017-18: 257.36m tonnes, (261.19m tonnes)

Range of estimates: 250.0m-262.0m tonnes

Sources: USDA, Reuters

"We heard a report of a South Dakota farmer cutting spring wheat with yields of 18-20 bushels per acre, 62 test weight, and 18-19% protein," said Derek Hullett at CHS Hedging.

The first two figures are poor, but the last unusually high, with stressed crops often showing elevated protein levels.

Besides the yield question, there is the other key dynamic too of loss of area to drought.

Benson Quinn noted that while "10% abandonment is typically quite a bit in spring wheat country, in 2002, a drought year, abandonment was closer to 85%".

'Sod's Law in action'

With spring wheat lower, winter wheat futures fell too, by 0.7% to $6.72 a bushel in Chicago for September delivery.

Forecasts for US corn, soy harvests 2017 and (existing figure)

Corn output: 14.126bn bushels, (14.065bn bushels)

Range of estimates: 13.841bn-14.253bn bushels

Ave yield: 169.6 bushels per acre, (170.7 bpa)

Range of estimates: 166.8-170.7bpa

Soybean output: 4.243bn bushels, (4.255bn bushels)

Range of estimates: 4.164bn-4.26bn bushels

Ave yield: 479.6 bushels per acre, (48.0 bpa)

Range of estimates: 47.0-49.0bpa

CHS Hedging noted that "based on early Russian wheat yields, this year's crop will likely come in at 68m-70m tonnes", an elevated level, if down from last year's 73m-tonne level.

Still, worries remain over Australia's harvest.

"Weather forecasters have little good news on rainfall," CBA's Tobin Gorey said.

"A smattering of rain will fall in some winter crop regions though, Sod's Law in action, the regions that need it most are likely to see little rain."

In Sydney, east coast wheat futures for January closed unchanged at Aus$317.00 a tonne, matching a contract closing high.

Palm up

Elsewhere, Kuala Lumpur palm oil edged 0.1% higher to 2,585 ringgit a tonne, offered support by strength in mineral oil markets, with Brent crude up 1.8% at $48.39 a barrel.

Furthermore, Affin Hwang Investment Bank soothed nerves over France's moves to curb imports of palm oil, with the bank pegged Malaysia's shipments of the commodity to France at only 497 tonnes in the first half of this year.

Still, the bank did flag the worry of other European Union countries adopting the ban, nortably the Netherlands, Italy, Spain and Sweden, which combined accounted for about 87% of total Malaysian exports to the bloc in the first half of this year.

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