The surprising result of the last session – the extent of
the grain price recovery from a collapse prompted by much-watched grain
estimates – posed a question.
Could the revival continue?
Sure, the US Department of Agriculture, in Tuesday's
much-watched monthly Wasde report on world crop supply and demand, raised its
estimate for world inventories of corn,
soybeans and wheat by more than investors had expected.
But figures for the US itself were less overtly bearish.
And there is a feeling, whatever, that with grain prices
already weak, and funds already having built up a substantial short position,
it would take something special to open a new chapter of price falls.
Especially at this time of year, when investors are often
injecting risk premium back into prices to reflect the potential for weather to
derail the important northern hemisphere spring sowing season.
Indeed, the "impressive recovery" in grain futures in the
last session from intraday lows "suggests ag markets are focused more on
sub-par early planting weather than ongoing uptrend in old crop stocks", said Richard
Feltes at broker RJ O'Brien.
Darrell Holaday at Kansas-based Country Futures said: "The
most supportive fundamental in the entire grain and oilseed complex is
contained in the weather models in that they continue to point to a wet 10 -14 days in the Plains and
This after USDA data late on Monday which showed US farmers
behind on corn sowings, compared with market expectations, and on spring wheat lagging both market hopes and
And, certainly, Minneapolis-traded spring wheat (as grown
largely in the northern US and in Canada) maintained its uptrend on Wednesday, touching
$5.37 ¼ a bushel at one point for May delivery.
At that point it was up 4.3% from the last session's intraday
low (which was a six-month low for the May contract), and back above its 200-day
Benson Quinn Commodities flagged in part the technical factors
behind the recovery, saying that in the last session, "an oversold Minneapolis market
responded well after a fresh low for the move didn't trigger additional
"Ultimately, the key to Tuesday's price action was an
exhausted seller in Minneapolis.
Meanwhile, "the outside day higher" in the contract, ie
trading beyond the range of the previous session but closing higher, "hints at
the possibility of a better correction".
'Big drop in US
winter wheat is coming'
However, the Minneapolis-based broker noted support from
fundamental factors too.
"Conditions in the northern US Plains and portions of
western Canada are expected to be a little damp and a little cool," Benson Quinn
"The early push to plant has been slow as conditions just
haven't reached where they need to be."
While spring wheat futures eased back to $5.31 ¼ a bushel as
of 09:15 UK time (03:15 Chicago time), a 0.7% gain on the day, they remained
ahead of Chicago soft red winter wheat futures for May, the world benchmark,
which nudged 0.2% higher to $4.34 a bushel.
At that level, the Chicago contract was close to returning
back above its 100-day moving average.
At Commonwealth Bank of Australia, Tobin Gorey noted that
while world wheat supplies "are obviously still very heavy… the market is aware
that a big drop in US winter wheat production is coming" for 2017-18.
'Degree of weather
Fellow grain corn
was a touch higher too, adding 0.1% to $3.67 a bushel for May delivery, with
the Midwest rains a setback for sowings – although it should be added that it
is early days yet for the US planting season.
"The real key is how much is planted in the first 10 days of
May," Country Futures' Darrell Holaday said.
Benson Quinn Commodities cooled expectations for any
immediate strong corn rally, saying that "if the weather forecast shift to more
precipitation towards the end of April, the corn market may have to respond".
Still, CBA's Tobin Gorey said that "the market has some
nascent worries about sluggish corn planting in the US Midwest, with frequent
rain forecast for the next 10 days or so.
Furthermore, Brazil's safrinha corn crop, planted in the
main in February, "does retain a degree of weather risk, which is perhaps why
the day's price lows did not stick" in the last session.
better, even though US corn sowing delays could raise seedings instead of the
oilseed, which has a slightly later planting window.
Furthermore, there is some good news for Argentine
production prospects in forecasts for drier weather, after rains which have
fuelled worries over damage to crop output and quality hopes.
"A drier weather pattern expected to develop for Argentina
next week, which should allow harvest to resume," said Ami Heesch at CHS
Still, technical factors have proved supportive for prices,
after the May contract explored a one-year low in the last session only to
sharply recover, questioning the appetite for further price falls, for now at
The May contract stood up 0.6% at $9.45 ¼ a bushel, returning
above its 10-day moving average for the first time in nearly three weeks.
'Market was not so
In New York, cotton
futures for July staged a more modest recovery, of 0.02 cents to 76.45 cents a
pound, after 0.5% losses in the last session attributed to a 430,000-bale
increase to 90.91m bales in the USDA estimate for world stocks of the fibre at the
close of 2016-17.
Although the forecast for US cotton stocks was cut by 800,000
bales to 3.70m bales, thanks to raised export hopes, this came at the expense
of Indian shipments, the estimate for which was cut by 500,000 bales, with a
corresponding impact on the carryout inventory number.
Inventory estimates for the likes of Brazil, China,
Indonesia and Turkey were nudged higher too.
"The market was not so keen on the USDA's lift to its global
cotton production estimates," CBA's Tobin Gorey said.
"Higher output from China and Brazil more than offset the
reduced forecasts for Australia's cotton crop, meaning the global 2016 carry
out is now higher."