Evening markets: Wasde sinks corn. Coffee drops even further

If Washington's first report on the world grain, oilseed and cotton balance sheets in 2014-15 was the big story of the day for agricultural commodity investors, it wasn't the only one.

In fact, while grain markets saw some pretty strong price moves on the day, notably in new crop corn, the biggest moves were witnessed among soft commodities, where coffee futures took a dunking.

Arabica coffee for July, the benchmark contract, plunged 5.9% to 183.90 cents a pound, the lot's lowest in a month.

'Not be as bad as feared'

The selling was partly based on ideas that Brazil's production potential may not have been harmed as much as some investors believe. on Thursday reported talk of a decent start to Brazil's robusta coffee harvest – although it must be restated that this is still early days, and the carryover to arabica is not exact.

Furthermore, it is not just Commerzbank that is taking a sanguine view of production prospects, with Jack Scoville at Price Futures noting comments from a Brazilian exporter "that losses in the country might not be as bad as feared".

At Citigroup, Sterling Smith said "yesterday's ideas of lower damage and better harvest weather are giving some pressure to the market".

Key price point

Certainly, Brazil export data released by Cecafe on Friday were firm, showing shipments of 2.73m bags of green coffee last month, up from 2.52m bags in March, although that likely of course represents sales form the country's large stockpiles to roasters wanting insurance against a poor crop.

Whatever, technical factors played into bears' hands, with the contract's decline gaining strength after it broke decisively below its 50-day moving average – underneath which it closed for the first time in nearly six months.

"The July futures do look primed to test the support at the 183.00-cents-a-pound level," Mr Smith said, adding that "where we finish the day and the week will be of paramount importance" technically.

In fact, the contract got no lower than 183.35 cents a pound, which may offer some hope to bulls that the price drop will not set a trend.

'Good mid-crop production'

Robusta coffee was dragged lower too, ending down 1.9% at $2,093 a tonne for July delivery.

And it was not as if investors proved much more positive towards other soft commodities, with cocoa ending down 1.1% at $2,864 a tonne in New York, a fourth successive negative close, if remaining above the three-month low set in the last session/.

"Prices have moved lower on reports of good mid-crop production in West Africa," Mr Scoville said, adding that "mid-crop harvest results imply a good-to-very-good mid-crop in West Africa and bigger-than-expected offers".

Raw sugar remained uninspired, ending down 0.4% at 17.20 cents a pound for July.

"We continue to drift sideways in light volume and it seems like we haven't really moved since March," Sucden Financial said.

Mixed cotton

The one soft commodity which did manage gains was cotton, new crop at least, which ended up 0.2% at 83.71 cents a pound, back over its 10-day moving average.

Which brings us to the US Department of Agriculture and its first forecasts, in the Wasde report, for 2014-15 balance sheets for the likes of cotton, corn, soybeans and wheat.

For cotton, the changes were not all bullish – the USDA lifted its estimate for domestic stocks at the close of 2013-14 by 300,000 bales to 2.8m bales citing weaker hopes for exports. And old crop July cotton fell 0.7% to 92.36 cents a pound.

But for 2014-15 it forecast a relatively small rise in inventories, of 1.1m bales. Relative, that is, to the 1.6m bales it suggested at the USDA's Outlook conference in February.

Wrong first impression

Still, the Wasde's main impact was on corn, for which the report spelled a sharp drop in prices.

USDA corn forecasts, change on previous estimate, and (on market expectation)

World stocks, end 2013-14: 168.42m tonnes, +10.4m tonnes, (+11.m tonnes)

World stocks, end 2014-15: 181.73m tonnes, n/a, (+22.32m tonnes)

US stocks, end 2013-14: 1.146bn bushels, -185m bushels, (-168m bushels)

US stocks, end 2014-15: 1.726bn bushels, n/a, (+54m bushels)

Not that the reaction was immediate, with one of the numbers that investors first turned to, that for US corn stocks at the close of 2013-14, in fact positive, in showing a downgrade of 185m bushels to 1.15bn bushels, a bigger cut than investors had expected.

The USDA raised expectations for US exports this season, and use of the grain in making ethanol too.

"The market reacted positive in the first initial moments after the report," Darrell Holaday at Country Futures said.

Plentiful supplies

"…But once the market digested the entire report, and world numbers, the market gave up ground," Mr Holaday added.

On the world corn balance sheet, the USDA hiked its estimate for stocks at the close of this season by more than 10m tonnes, citing revisions to previous seasons, and a higher forecast for some 2013-14 harvests too, notably Brazil's.

And, with US production seen at a record this year, despite lower plantings, and world stocks seen ending 2014-15 at 181.73m tonnes – the highest in 15 years and far higher than investors had expected – futures retreated fast.

Chicago's July contract closed down 1.7% at $5.07 ½ a bushel, while the new crop December lot dropped 2.5% to $4.98 ¾ a bushel.

Nor may corn have that much hope of redemption, in bullish terms.

Long positions in corn appear "vulnerable unless crop is threatened, which is unlikely before late June", Richard Feltes at RJ O'Brien said.

Crop damage

Corn's decline dragged on fellow grain wheat, even though the Wasde was not nearly as downbeat for this grain.

USDA wheat estimates, change on previous and (on market forecast)

World stocks, end 2013-14: 186.53m tonnes, -0.15m tonnes, (+0.58m tonnes)

World stocks, end 2014-15: 187.42m tonnes, n/a, (+2.89m tonnes)

US stocks, end 2013-14: 583m bushels, unchanged, (-5m bushels)

US stocks, end 2014-15: 540m bushels, n/a, (-13m bushels)

Indeed, in pegging the US winter wheat crop at 1.40bn bushels, a drop of 9% year on year, it undershot market forecasts by some 70m bushels.

The USDA blamed the lowly forecast on damage particularly to drought-hit hard red winter wheat, but also to the soft red winter wheat crop.

That said, the Wasde also came in with a world wheat production forecast which, at 187.42m tonnes, was nearly 3m tonnes above market expectations.

"The world wheat numbers were negative with ending stocks for the current year at 186m tonnes and next year's ending stocks at 187m tonnes," Mr Holaday said.

Prices fall

Still, this is based on assumptions of strong harvests in the likes of China, Europe and India.

Wheat is likely to "hold value until trade knows more about 2014 northern hemisphere growing conditions", Mr Feltes said

But it didn't manage it on the day, ending down 1.7% at $7.22 ½ a bushel in Chicago for July delivery, below its 10-day moving average.

Kansas City hard red winter wheat for July dropped 1.7% to $8.28 ½ a bushel, with US contracts for once underperforming their European peers, which have remained relatively unmoved by US production setbacks.

Paris wheat or November closed unchanged at E207.25 a tonne.

New vs old

Soybeans maintained their newly-rediscovered position as leader in Chicago, adding 1.2% to $14.87 a bushel for July.

USDA soybean estimates, change on previous and (on market forecast)

World stocks, end 2013-14: 66.98m tonnes, -2.44m tonnes, (-2.79m tonnes)

World stocks, end 2014-15: 82.23m tonnes, n/a, (+1.89m tonnes)

US stocks, end 2013-14: 130m bushels, -5m bushels, (-4m bushels)

US stocks, end 2014-15: 330m bushels, n/a, (+23m bushels)

The USDA trimmed its forecast for stocks at the close of this season by 5m bushels to 130m bushels – a small downgrade, but one which left the US looking at its first stocks to use ratio of 3.8% - the lowest on records going back to the 1960s.

That said, new crop numbers were not so bullish, with US stocks seen recovering to 330m bushels in 2014-15, when world inventories will hit a record high of 82.23m tonnes.

New crop November soybeans lagged, but still gained 0.2% to $12.26 ¼ a bushel, with talk of some support from unwinding of long corn-short soybean spreads.

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