Another week, another rally in grain futures.
The likes of corn
and wheat have got into the habit of
fading on Fridays, but going mega on Mondays. This has now happened five times in a row.
As US Commodities put it: "Liquidation occurs ahead of the
weekend in case a US weather pattern changes. The pattern does not change over
the weekend and the market spikes higher."
In fact, there is some rain on its way
"The short range models, the NAM and the GFS, out to
Thursday night are increasing showers and thunderstorms with a cold front
coming down from the great lakes into the eastern Corn Belt -0.50-1.25 inches with
50-60% coverage," WxRisk.com said after the latest run.
Gail Martell, at Martell Crop Projections, said: "The
rainfall forecast this week is rather wet, compared to what we've been used to
'Lost to evaporation'
However, she added: "Bear in mind that the GFS model has
persistently overestimated rainfall, compared to what has actually
occurred. This often happens in a
Furthermore, "temperatures today and tomorrow are predicted
near 100 degrees Fahrenheit (37.8 Celsius) today and tomorrow in the Midwest
corn and soybean belt".
And even if rain does
arrive, most "will be lost to evaporation within a few hours of its fall
suggesting crop stress will prevail in many areas", World Weather said.
"It will be very difficult for very many locations to
experience a net boost in soil moisture for more than a quick day or possibly
In short, as Benson Quinn Commodities said, "yield
potentials are retreating at an alarming rate, while excessively warm
temperatures are expected over much of the region this week",
In the western Corn Belt, "more signs of stress will become
apparent in regions that had been in relatively good shape entering last week".
"The eastern Corn Belt remains a disaster with reports of
corn plants dying and soybean plants wilting away in many areas."
US Department of Agriculture data is expected to show a drop
of five points, in the week to Sunday, in the proportion of the US corn and
soybean crops rated in "good" or "excellent" condition.
And that is before the further deterioration expected this
As for the impact of the damage on yields, the cut by the US
Department of Agriculture last week to 146.0 bushels per acre in its corn yield
forecast, and to 40.5 bushels per acre in its hopes for the soybean yield, is
not expected to mark the end of the downgrades.
"Small crops get smaller," a Chicago adage goes.
"Such a hefty [USDA] reduction is likely, in our view, to be
followed by further, albeit more modest, yield declines" when the USDA next
updates its forecasts, in August, Barclays Capital analyst Sudakshina
"Weather remains the key risk as continued drought conditions
could affect soybean yields further, while corn yields could fall to the 140-to-low-140s
In fact, Informa Economics cut its estimate for the US corn
yield to 142.5 bushels per acre, from 153.5 bushels per acre, meaning a
The soybean yield estimate was cut by 2.0 bushels per acre
to 40.0 bushels per acre, with the harvest pegged at 3.01bn bushels.
And even these figures may be too high.
"The trade is now openly discussing a sub-140 bushels-per-acre
corn yield, and sub-40 bushels-per-acre soybean yield," US Commodities said.
'Stopped growing to
The impact on prices was to send the December lot soaring to
a contract high at $7.78 a bushel, before
a slight retreat in late deals to close at $7.72 ½ a bushel, a gain of 4.7%.
The September lot, in its first day as the spot contract,
soared 5.4% to $7.76 ¾ a bushel.
And, this time, soybeans managed decent gains too, jumping
2.5% to $15.90 ½ a bushel for November delivery, and hitting a contract high of
$15.98 ½ a bushel earlier.
With the drought continuing, hopes are waning for the
oilseed to be able to exploit its renowned powers of recovery.
"This is a key pod and yield development period. The soybean
plants have stopped growing to survive. They cannot do this forever," US
'Wheat crop in
For wheat, the US situation is more nuanced, in that the
winter crop is largely harvested, and the spring crop, grown in the north, which
has been cooler and wetter than the Midwest, faring pretty well.
Still, broadly, "wheat exports will move higher as corn
exports fall", US Commodities said, adding that "world wheat production this
year will be down and exports up".
And there are fears for wheat crops abroad too, notably in
Russia, over which some investors are now voicing fears of fresh export curbs,
although nothing of the sort has been signalled by officials.
"The Russian wheat crop is in retreat," US Commodities said.
Meanwhile, in Europe, rains are provoking concerns at the size and quality of the French, German and, in particular, UK harvests.
"A persistent trough in the jet stream has produced
ultra-wet July weather in northern Europe, threatening the quality of ripening
grains in the UK, northern France, Denmark and Germany," Mr Martell said.
"At the same time, high pressure is keeping conditions hot
and dry in eastern Russia and Kazakhstan in mid-July.
"The stressful weather is expected to cause further declines
in grain production estimates."
Chicago wheat for September finished 4.3% higher at $8.854½ a bushel.
In Europe, Paris wheat for November closed up 2.3% at E264.75
a tonne, having earlier hit a contract high of E267.50 a tonne.
Its London peer ended up 1.7% at £191.25 a tonne, itself
having set a contract high of £193.00 a tonne.
Still, Paris rapeseed
went one better, with the August contract hitting a record high, for a spot
lot, of E526.25 a tonne, before easing back to close at E523.25 a tonne, a gain
The oilseed was helped not just by oilseed peer soybeans, but
by a caution over UK production from the HGCA crop bureau.
The UK has, over the last couple of seasons, been a major exporter
to continental Europe, helping fill a void left by disappointing German rapeseed
Soft commodities achieved smaller gains, helped by a weaker dollar, which lost 0.3% against a
basket of currencies amid speculation that testimony later this week from Ben
Bernanke, the chairman of the US Federal Reserve, will hint at easier monetary
policy, and the pressure on the greenback that would infer.
A softer dollar makes commodities in it more affordable to
buyers in other currencies.
got a hand from dry weather in the US, the top exporter, and hopes that China,
the top importer, will do more to boost its economy.
Wen Jiabao, the Chinese premier, said at the weekend that
China's government would do more to spur growth.
Cotton for December gained 0.9% to 73.30 cents a pound in
Raw sugar notched
up losses earlier on, pressed by ideas from Czarnikow that the rains which are hampering
Brazil's cane crush would end up bringing a net benefit, in boosting yields later
in the season.
However, with El Nino potentially around the corner, the
worry is that the rains will not stop, leaving investors ultimately to focus
back on the short term.
"Heavy rainfall in Brazil is currently weighing on sentiment
as it is hampering harvesting and thus delaying exports," Commerzbank said.
At Phillip Futures, Lynette Tan said: "Coffee and sugar
traders continue to keep their eyes on weather developments in top producer
Brazil, where unseasonal rains has damaged the quality of coffee harvest and
continues to delay sugar production.
"Sugar production in June this year is lagging behind last
year by 29%," according to industry group Unica.
New York's October raw sugar contract recovered to end up
0.2% at 22.77 cents a pound.