Often, the prospect of a weekend, and two days without being
able to trade, prompts a bit of profit-taking, and a change of market
So it appeared this Friday, as grains staged a rebound,
after two sessions of heavy losses prompted by a double whammy of larger-than-expected
supply estimates from the US Department of Agriculture, and an improvement in
the US Corn Belt weather outlook, at an important time for the corn crop.
The declines have prompted hefty paper profits for funds which
sold an estimated 56,000 corn lots
over the two session, 42,500 soybean
contracts and 28,500 wheat lots.
'Much more comforting'
And there has certainly been cause for selling, with Benson
Quinn Commodities flagging the "hangover" from the US Department of Agriculture's
upbeat crop supply estimates on Wednesday, and "pop-up [Midwest] showers that continue to provide relief, though the
coverage usually isn't very good".
Then there is the "slightly more favourable shift in the
weather pattern once we get through the next 6 to 7 days of relatively dry and
At Commonwealth Bank of Australia, Tobin Gorey said that "weather
forecasters now have a much more comforting outlook for US corn at a sensitive
stage in crop development", with pollination in progress.
"Their outlook is a little wetter and substantially cooler
so the threat has dissipated."
Bullish sentiment to
Still, there is cause too to believe that investors have
removed enough premium from futures for now, with Benson Quinn Commodities
noting also that "markets having corrected overbought conditions, the recent
buyers are closer to getting completely out of their problem position and
markets are getting closer to finding demand".
The broker's more bullish take on the weather outlook is
that the "forecast has shown slight improvements, but it lacks an organised
rain event that offers good coverage of measurable totals".
In corn, "the trade wanted to trade closer to a 166
bushels-per-acre yield before the Wasde.
"Pretty soon they will want to again, probably if the
forecast heats up, or Monday's condition reports don't show improvement," a
reference to weekly US Department of Agriculture crop condition data released
on Mondays after the markets' close.
"The latest wrinkle in the forecast could be positive for
2017 crops, but corn's pollination will still likely stretch to August," making
hot weather "highly dangerous to all crops", said Jerry Gidel at Price Futures
Corn prices could rebound to $4.10 a bushel, and soybeans to
$10.35 a bushel, "if the [heat] ridge returns".
Indeed, there are plenty of ideas that although the USDA did
not in the latest Wasde cut its forecast for the US corn yield, such a move
looks likely in next month's report.
Mike Zuzolo at Global Commodity Analytics noted that "9% of
the Corn Belt is in drought versus 6% last year at this time and 1% in 2015-16.
"In addition, the corn is rated 65% good excellent - that's
down 11 points from last year, and 4 points lower than 2015-16—when we had a
168.4 bushels-per-acre yield".
Corn futures for December gained 0.8% to $3.86 a bushel.
futures, the epicentre of the grains rally, thanks to drought in the northern US
Plains, fared even better, rebounding 1.8% to $7.63 a bushel in Minneapolis for
Data overnight from ag officials in Saskatchewan, the top
Canadian spring wheat growing province, showed a further decline of 2 points to
68% over the past fortnight in the proportion of the crop in "good" or "excellent"
condition, although that still remains far better than average readings in the
Durum wheat actually fared worse, with 43% of the Saskatchewan
crop rated good or excellent, down 6 points over the fortnight.
"Crop conditions vary greatly across the province and have
deteriorated over the past few weeks due to hot temperatures and a lack of rain,"
the report said.
Spring vs winter
Furthermore, on some analysis, spring wheat futures warrant
ore premium over winter wheat.
"A closer look at the by-class balance sheet leads on to
believe inter-market relationships have a
good deal further to go," said Tregg Cronin at Halo Commodity Company.
Wednesday's Wasde showed US hard red spring wheat stocks as
a percentage of all-wheat stocks at the close of 2017-18 "at just 12.99% versus
the previous record low of 19.84% set last year.
In 2007-08, when grain prices soared, "that ratio was 22.2%,"
Mr Cronin added.
"These ratios of course could get tighter still if production
estimates slip further, or demand can't rationed at current price levels.
"There would appear to be plenty of ammunition left for
spring wheat [appreciation] whether on a flat price or inter-market basis."
Winter wheat futures indeed recovered less markedly, by 1.1%
to $5.17 ¼ a bushel in Chicago for September delivery.
'Dropped off sharply'
futures for November added 0.4% to $9.91 ½ a bushel, rebounding less markedly,
with some concerns remaining over a Chinese import figure for June of 7.69m
"Chinese soybean imports dropped off sharply from last month
by nearly 2m tonnes," said CHS Hedging.
The figure was "well below expectations and hints that weak
Chinese crush margins may have slowed the pace down".
Still, Terry Reilly at Futures International noted that the figure
was still "up 1.7% from 7.56m tonnes in June last year.
"Port congestion was an issue last month. Also many silos
were already filled and delays in customs were noted."
Furthermore, he highlighted the cut in China's VAT rate on soybean
imports to 11%, from 13%, as of the start of this month, a factor which may
have encouraged some buyers to delay purchases from June.
'Trying to find new
In New York, cotton
felt the love too, adding 0.4% to 66.60 cents a pound for December delivery, recovering
from a 10-month closing low.
And this despite some bearish comment around, with CBA's
Tobin Gorey saying that "we continue to think that some of the long cycle
momentum calculations will prompt momentum investors to sell.
"The market has no significant weather angst either so
fundamentalists are bearing bearish too," he added, noting a reported forecast
from Informa of cotton prices retreat to 55 cents a pound.
Ecom traders, assessing from the last session that "it seems
the market is trying to find new lows", added that "if we can close below 66.00
cents a pound, then we would be looking at new lows around 65.00 cents a pound
"The market has the momentum and isn't looking oversold yet
so specs will continue to initiate short positions until they can't take it