Just how low can corn
Morgan Stanley on Monday had them standing around $4.50 a
bushel for the June-to-August period, and averaging $4.35 a bushel in the next
Last week, Rabobank had them averaging $4.20 a bushel in the
current quarter, and $4.07 a bushel in the last three months of the year.
Goldman Sachs has forecast corn futures falling to $4.00 a bushel
towards the back end of 2014.
'Sign of exhaustion'
But the most recent behaviour of futures may have put far
lower values in the markets' sights, depending on your view of the significance
of a chart gap on Monday, when the December contract fell so hard it left a space
of 4 cents a bushel between its highest trading level that day and the low
point of the previous session.
Brian Henry at Benson Quinn Commodities reported two
viewpoints concerning the gap, the first being that it was a "sign of exhaustion"
from a technical perspective, which signal the end of a move.
That would "fit with the fact the market has been under heavy
pressure during the $1.10-a-bushel move lower" over the past two months.
Yes, it was only on May 9 that the December contract stood
at $5.14 ¾ a bushel.
'$3.50-3.55 a bushel
However, "on the other hand, the gap from $4.10 ½ to $4.14 ½
a bushel in December futures could be a measuring gap", otherwise known as a
runaway gap, and which occur only mid-way through a price move.
"That would point to December corn prices ratcheting down to
the $3.50-3.55 a bushel level before finding support," Mr Henry said.
He added that "with the idea that production will be quite
good, but not knowing just how good, I feel the corn market would have value
well above the $3.50-3.55 a bushel price level.
"I feel the corn market needs to work lower over time."
Another broker said: "All signs point to a bear market with
a gap open lower in corn and soybeans
after another favourable weather forecast."
'Due for a correction'
Whatever, with US growing conditions remaining benign,
futures were certainly heading still lower on Wednesday, although the December
contract was baulking at falling below $4 a bushel, standing at $4.02 ¼ a
bushel as of 09:45 UK time (03:45 Chicago time), down 0.5% on the day.
The old crop September contract was less timid, standing
down 0.5% at $3.96 ¼ a bushel, the lowest for a nearest-but-one contract in
That said, CHS Hedging noted another technical sign, that "the
market is oversold, and is due for a correction to the upside", if adding that
a rally of $0.20-0.30 a bushel "should generate producer selling".
Another factor for investors to take into account is the
prospect on Friday of the US Department of Agriculture's monthly Wasde crop report,
a highpoint of the agricultural commodities calendar.
The briefing should be downbeat, in factoring in the highest
inventories revealed on separate data on June 30, besides potentially adjusting
the corn yield estimate higher to account for the strong crop condition.
Investors expect the Wasde to show US corn stock of 1.232bn
bushels as of the end of 2013-14, an 86m-bushel upgrade, and of 1.774bn bushels
at the end of next season, a figure 48m bushels above the current forecast.
Nonetheless, could uncertainty over the data prompt a
tail-off in the downswing?
"The weather continues to be a strong negative for prices,
although selling should taper in front of the report," Citigroup's Sterling
'Shelf of support'
That comment applied to soybeans
too, although there was little sign of any tapering off yet, with the August
contract down 1.3% at $12.31 ¼ a bushel, the weakest for a nearest-but-one
contract in 11 months.
The November contract dropped 0.7% to $11.08 ¼ a bushel.
"Momentum studies indicate lower prices before finding a
shelf of support in the soybean market," Brian Henry said.
The oilseed is also coming under pressure from fresh talk of
cancellations soybean orders by buyers in China, the top importing country,
where futures fell on the Dalian exchange too, by 0.5% to 4,347 yuan a tonne
for January delivery.
Soybeans vs corn
Nonetheless, against corn, the oilseed still looks highly
priced, with the November soybean: December corn ratio at 2.75:1, a
historically high ratio.
"A more appropriate ratio of 2.5:1 would suggest November
soybean futures at about $10.10 a bushel," Richard Feltes at RJ O'Brien said,
assuming the Wasde will show US stocks of the oilseed ending 2014-15 above 400m
Investors actually expect a figure of 418m bushels, up 93m
bushels on the current estimate, after a figure of 128m bushels for the close
of 2013-14, an upgrade of 3m bushels.
Gasc tenders again
It was left to wheat
to show some attempt at upward progress, but even then it was of a minimal 0.25
cents to $5.56 ½ a bushel for Chicago's September contract.
The Wasde is expected to be less downbeat for wheat, showing
a relatively small upgrade of 17m bushels to 591m bushels in the figure for end
And there are some bullish inputs into the market too, with
Egypt's Gasc authority overnight unveiling a fresh tender, indicating demand at
lower price levels, and the Rosario grains exchange cutting to 4.24m hectares,
from 4.4m hectares, its forecast for Argentine wheat sowings.
Furthermore, there remain some concerns over damage to the
European Union crop from harvest-time rains.
That said, there was plenty of such talk in the US too last
month, but that has dissipated with talk of better-than-expected yields and
quality in northern Kansas, and more northerly areas too.
'Strong sell signal'
Back among oilseeds, Kuala Lumpur palm oil dropped 0.6% to 2,370 ringgit a tonne, not far above the
2,362 ringgit a tonne reached last month which was the lowest price since
The market breached a strong technical floor in falling below
2,400 ringgit a tonne in the last session, triggering "a strong sell
signal", AmBank said.
And that tugged on canola,
which managed gains in the last session, against the market trend, but fell
0.7% to Can$459.30.
Canola, as an oil heavy rather than meal heavy oilseed, is particularly vulnerable to vegetable oil prices.