Have investors been too quick to remove risk premium from
grain and oilseed prices?
The likes of ABN Amro and Australia & New Zealand Bank
have offered some reassurance to bulls.
And Darrel Good, at the University of Illinois, has his
The fall in December corn futures, which hit contract lows
below $3.65 a bushel last week, shows that the market "appears to be expecting
an average corn yield above 170 bushels per acre, with a lot of forecasts
pushing into the mid-170s".
However, while "those expectations appear justified based on
crop condition ratings, the growing season still has a ways to go", and already
US weather has provided some setbacks, even if they are not so apparent yet.
"July precipitation will likely end up well below average,
which is not characteristic of previous very high yielding year," Professor
"If dry conditions persist in August, the US average yield
will likely still be very high, but perhaps fall short of some of the current
lofty projections," meaning that "prices would increase modestly going into
And after harvest, there is the potential for prices to "move
modestly higher in a typical large-crop pattern".
He concluded: "While there is still risk of lower prices, a
little patience in pricing additional quantities of the 2014 corn crop appears
It has to be said that some other commentators have a
At broker Country Futures, Darrell Holaday, while concurring
with a consensus yield expectation
of 170-171 bushels per acre, said that had yet to be fully baked into prices,
which would fall towards harvest.
"We feel a final yield of 170 bushels per acre would mean a
harvest low in the $3.40-a-bushel area," he said.
Still, corn futures so far managed to hold on to most of
their gains of the last session, easing 0.3% to $3.75 ½ a bushel for December
delivery as of 09:30 UK time (03:30 Chicago time), staying just ahead of their
10-day moving average, and avoiding too much of a "turnaround Tuesday" - the
idea that a trend in Chicago on the first day of the week is reversed in the
It helped that US Department of Agriculture data overnight
showed the condition of US corn deteriorating in the week to Sunday, by 1 point
in the combined "good" and "excellent" categories.
At 75%, the rating is still unusually high, the best for a
decade for the time of year, and corn often begins to deteriorate after
Still, it was a modest disappointment to a market which had
been expecting a stable if not better figure, and reminded that ratings can go
down as well as up.
As an extra support, there is talk from Brazil, led by
farmers group Aprosoja, of genetically modified corn seeds no longer providing
protection against insect pests.
For soybeans, the US crop rating fell by 2 points to 71% rated
good or excellent - still the best figure in the past 20 years, but less
And there are growing concerns about further deterioration,
given a turn drier in the weather at a sensitive time for the crop.
"Some traders fret about dry weather for beans as we enter
the critical pod-filling month of August," CHS Hedging said.
At RJ O'Brien, Richard Feltes flagged concerns "about the
declining trend in Midwest summer precipitation".
He urged against short soybean-long corn spreads "until we
know more about the August rainfall pattern".
'Modest risk premium'
Kim Rugel at Benson Quinn Commodities noted that "weekend
rains were disappointing and the outlook is dry for the next 10 days.
"Weather concerns add a modest risk premium to prices",
although she added that the "outlook for ample 2014-15 ending stocks on
record-large US planted acreage caps gains".
In fact, November soybeans were 0.4% higher at $11.12 ¼ a
bushel in Chicago.
As for wheat, it extended
its modest declines of the last session, easing by 0.2% to $5.33 ¾ a bushel.
The USDA crop progress showed the US spring wheat crop
remaining stable at 70% rated good or excellent.
And while there are concerns around over the quality of the European
Union harvest, and the dryness in eastern Australia, crop prospects in neighbouring
areas, ie the former Soviet Union and Western Australia respectively, are
The Ukraine wheat crop was upgraded on Tuesday by UkrAgroConsult
by 500,000 tonnes to 21.0m tonnes.
As for Russia, the latest upgrade, by Ikar, in the wheat
harvest forecast to 57.5m tonnes "could allow exports to rise to 22m-23m
tonnes, from current estimates of 19m-20m tonnes", Benson Quinn Commodities
Among soft commodities, cotton
fell 0.4% to 65.63 cents a pound in New York for December delivery.
The fibre maintained its contrary trend in respect of crop
ratings – ie rising in the latest week, by 2 points to 54% good or excellent.
The warmer and drier weather pressing on corn and soybeans
is good news for yield prospects for cotton, which requires that kind of
weather to reach its potential.
Meanwhile, London robusta
coffee edged 0.2% higher to $2,031 a tonne for September delivery.
Vicofa, the Vietnam coffee industry association, estimated
the 2014-15 harvest at 23m bags, down a touch from the 23.3m bags produced last
time, citing dry weather during the flowering period,
Vietnam is the top producer of robusta beans.