PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 09:55 GMT, Monday, 10th Jul 2017, by Mike Verdin
AM markets: grains sizzle on US heat. Corn at 1-year high

Sometimes grain markets tale a somewhat timid approach, as important data approach.

But not this time.

This week will see data releases including Conab's monthly report on Brazilian crop supply and demand, and the Malaysian Palm Oil Board briefing on domestic palm oil supplies.

Signally, Wednesday will bring the US Department of Agriculture's monthly Wasde report on world crop supply and demand.

Production downgrades?

Wasdes are high points anyway of the crop traders' calendar, but this time especially so given the tests drought is posing to crops in the likes of Australia and Brazil (for wheat), as well as, importantly, in the US itself.

Indeed, the Wasde is expected somewhat to cut the forecasts for US crops this year, to 14.126bn bushels for corn, a downgrade of 127m bushels.

For soybeans, the output estimate is expected at 4.243bn bushels, a cut of 16m bushels, and for wheat at 1.748bn bushels, a downgrade of 31m bushels.

The wheat figure includes a consensus estimate of 416m bushels for the first forecast for output of the drought-hit spring wheat crop, down more than 60m bushels year on year.

'Rebuilding heat'

It looked in early deals like traders were not banking on those being output overestimates, with futures making strong headway.

Indeed, ideas that the USDA might take a less generous line were only enhanced by the US weather, which showed weekend heat in the northern Plains spring wheat belt spreading into western parts of the Midwest.

Temperatures on Sunday came in at 95-105 Fahrenheit over South Dakota and Nebraska, according to WxRisk.com, although it added that thunderstorms brought moisture to some parts of the northern Plains too.

Still, Commodity Weather Group said that on the outlook "rebuilding heat in the norther western Plains, the Pacific North West, far south western Canadian Prairies is adding to stress for spring wheat".

'Heat adds to stress'

And early this week, the heat will spread to the Corn Belt, with temperatures in the mid-90s Fahrenheit for the south western area, and low 100s Fahrenheit for the far west.

This when corn is undergoing its heat-sensitive pollination process, with the heat not boding so well for yields.

Commodity Weather Group said: "Heat adds to stress in the driest areas, encompassing at least one-quarter" of US corn-growing area, including parts of the Dakotas, Nebraska, Iowa and Illinois.

"Intermittent shower chances and a lack of Midwest-focused heat limits concerns in the rest of corn-soybean [growing areas] for now."

Stocks impact

And what is the real impact of this?

Mike Zuzolo at Global Commodity Analytics, thinking especially of corn, said: "Even though we've seen a US national yield below 150 bushels an acre in five of the last 15 years, since I began my career in 1995 this is only the fourth year I can recall where a potential weather market can disrupt supply enough to shrink US ending stocks.

"Last year, for instance, we had double the amount of drought in the lower 48 states, including the Corn Belt.

"Yet rains alleviated and erased the potential drought in just the right time to keep yields elevated," and ensure a bumper US crop at a time when Brazil was short of supplies.

This year, "instead of South America having production disrupted, we have China, Europe, the former Soviet Union, and Australia are supporting the idea that global supply is falling faster than demand."

'Funds out of position'

And such comments are coming at a time when hedge funds are, awkwardly, net short in corn and soybean futures and options.

"The summer weather market is in charge and found the funds out of position in grains and oilseeds," said ag advisory group Water Street Solutions.

"The continued warm/dry forecast in the west should continue to provide market uncertainty support."

Corn futures for December, the best-traded contract indeed gained 2.0% to $4.12 a bushel - a one-year high of the contract.

"The contract could see $4.25 a bushel soon if traders add another $0.75 to Minneapolis wheat to the upside," said Terry Reilly at Futures International, Minneapolis spring wheat having been the grain market star of late, thanks to US northern Plains drought.

'Too light to improve moisture'

Spring wheat futures for September actually added a further $0.29 so far, hitting $7.95 a bushel, a gain of 3.8% on the day, although remaining well below last week's four-year high of $8.68 a bushel.

That helped winter wheat too, with Chicago's September contract adding 3.0% to $5.51 a bushel, feeling too some help from the move of the US harvest into latter stages, so easing harvest pressure on values, besides the setbacks to crops in some other countries.

MDA noted that in Australia, "expected rains this week will be too light to significantly improve moisture for wheat".

Agritel noted that in France, grain harvesting in most areas has "been stopped because of violent thunderstorms".

On the demand side, Egypt's Gasc bought a further 115,000 tonnes of wheat over the weekend, from Russia, taking total purchases for 2017-18 above 1.5m tonnes already, with less than two weeks of the season gone.

Soybean futures, meanwhile, gained 2.4% to $10.25 a bushel for August delivery, with the best-traded November lot up 2.3% at $10.39 a bushel, a seven-month high for the contract.

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