What does it take to turn investors upbeat on corn futures? Isn't a shortfall of 200m
bushels (5.1m tonnes) enough?
Investors expected the US Department of Agriculture, in its flagship
Wasde report unveiled today, to estimate domestic corn inventories at the close
of 2014-15 at 2.0bn bushels.
The USDA came out with a figure a little over 1.8bn bushels.
In terms of the stocks-to-use ratio, an important pricing
metric, stocks were actually estimated a smidgen tighter than last, at 13.4%,
and well below figures close to 15% that investors were thinking of.
Still, Chicago corn futures for December closed up just 0.75
cents at $3.69 a bushel, and even getting that gain was a struggle –
representing a sharp recovery from the contract low of $3.58a bushel touched
The trouble is that the USDA estimate is based on a corn
yield of 167.4 bushels per acre which, while a record and up 2.1 bushels per
acre from the previous forecast, is seen as a massive underestimate of where the crop will actually come in.
"Our analysis of comparable growing seasons - 1992, 1996,
2004 and 2009 - indicates the USDA might be underestimating final corn yields…
of somewhere between 172-174 bushels per acre," Brian Roach at broker Roach
In production terms, that is a difference of more than 500m
bushels compared with today's figure.
At RJ O'Brien, Richard Feltes said: "Today's crop report is
not as negative as bears hoped but it is by no means a call-to-arms for the
'Difficult to justify'
Besides, some of the other data in the corn balance sheet
raised eyebrows too, particularly an upgrade of 25m bushels to 1.725bn bushels
in the forecast for US exports in 2014-15.
Many commentators had expected a hefty downgrade to this
figure, based on the pace of forward sales so far.
The forecast "looks questionable", Mr Feltes said, citing
the potential dent to EU corn imports from a low quality wheat harvest, which
has provided plenty of feed from that direction.
And it is "difficult to justify" a 50m-bushel upgrade to the
forecast for US feed consumption of corn too, given increased competition from
distillers' grains, a corn-based feed ingredient of which China has banned
imports from America, leaving more for the US itself to use.
'Big soybean stocks'
Still, at least corn showed some gains after the Wasde.
November sank 1.1% to $10.59 ˝ a bushel, undermined by a USDA estimate for
domestic stocks at the close of 2014-15 which, at 430m bushels, exceeded market
expectations by 16m bushels.
"The USDA did confirm that big soybean stocks are right
around the corner," broker Allendale said.
Although the USDA lifted its forecast for the domestic
soybean yield by a little less than market expectations, it made no increases
to demand, nor trimmed the estimate for carry-in inventories from 2013-14 as investors
And expectations of a still-bigger US soybean yield result
are rising with continued benign weather.
Big Russian supplies
But wheat fared worst
among Chicago's big three, shedding 1.6% to $5.38 a bushel for September delivery,
after the USDA lifted its estimate for world stocks at the close of 2014-15 by 3.4m
tonnes, more than investors had expected, to 193.0m tonnes.
The revision reflected mainly a hike of 6.0m tonnes to a
five-year high of 59.0m tonnes in the forecast for output from Russia, for
which export expectations were upgraded by 3.0m tonnes to 22.5m tonnes.
The sanctions by the West against Russia make healthy
shipments only more likely for now, as farmers turn to crop sales to raise cash,
rather than to banks whose access to Western markets for fund raising has been
curtailed, Macquarie said.
"As farmers struggle to gain finance they will have to sell
out this season's crop in an effort to drive financing themselves for next
season's harvest," the bank said, if acknowledging that, longer term, the
squeeze on credit would prove more supportive to prices.
Paris (so-called) milling wheat for November eased a more
gentle 0.2% to E172.00 a tonne, despite an upgrade by the French farm ministry to
its expectations for the domestic soft wheat crop - on quantity terms, at
The USDA downgraded its hopes for Europe's wheat export hopes, following rains which have hurt quality, making much of the crop fit
only for feed, in which trade competition is more fierce.
Among soft commodities, there were some key data for sugar too, with
Unica, the cane industry group, revealed a sharp slowdown in production of the sweetener in Brazil's key Centre
South district in the last half of July.
Still, raw sugar futures for October extended their decline
throughout the day to end down 1.2% at 16.05 cents a pound, matching their
weakest finish in six months.
"Despite supply concerns, demand remains tepid as the projected
[world production] deficit continues to be pushed forward," said Christopher
Narayan at Societe Generale.
"With prices attempting to consolidate near the 16.0
cents-a-pound mark, continued decreases in sugar production, and perhaps an
early seasonal top for the same, will be needed to support prices, unless
demand recovers rather quickly."
Cotton faced a
negative from the Wasde, which raised the estimate for US production by 1.0m
bales to a four-year high of 17.5m bales, "mainly on lower expected abandonment",
the USDA said, even though the condition of the crop is actually deteriorating
US inventories were seen ending 2014-15, which started this
month, at an eight-year high of 5.60m bales, an upgrade of 400,000 bales.
While the USDA trimmed, by 600,000 bales to 105.1m bales,
its forecast for world inventories at the end of the season, down large to
weaker expectations for Brazilian production and stocks, December cotton futures
fell 1.6% to 63.37 cents a pound, if still retaining some ground gained in its
futures for September fared worse, dropping 2.4% to 184.60 cents a pound in New
York, on a decline deemed fuelled by producer selling and profit-taking on the
recovery in prices since mid-July.
The decline appears to have come before Minasul, a Brazilian
coffee co-operative, revealed that its expects its members to harvest 750,000
bags of coffee this year, a drop of 1.25m bags from last year, thanks to the
drought in the country's coffee belt.
"It was already going to be a 10-15% smaller crop but
then we had the drought and lost 35%," Guilherme Salgado Rezende, a
director at the cooperative, told Reuters.
Next year, output could recover to 937,500 bags, but that
would still represent a fall 25% below 2013 levels, reflecting longer-term
damage from the drought, he said.