Tuesday by reputation brings turnarounds in Chicago, reversing
a strong trend the day before.
And wheat futures
certainly managed a firm start, adding 0.2% to $6.13 ¾ a bushel in Chicago for July
delivery, as of 08:00 UK time (02:00 Chicago time).
Data overnight confirmed the US winter wheat harvest behind
the pace, at 9% complete as of Sunday behind the average of 12%, during a rainy
period, which could threaten crop quality and yield loss.
That said, the lag was small enough not to instil any real
And, as for the condition of the crop, the US Department of
Agriculture data showed it holding steady at 30% "good" or "excellent".
OK, the data showed that the southern Plains rains have not
done much to reverse drought damage, and would have had much better effect
coming earlier in the season.
But it should be remembered that good to excellent ratings
typically decline towards harvest, meaning that even a flat figure is some
compensation to farmers.
Kansas City hard red winter wheat, the type hurt by drought,
was also up 0.2% at $7.35 ½ a bushel.
'Fantasy bull market'
The real surprise in the USDA crop progress data was the
decline in the corn rating of 1
point to 75% seen good or excellent.
While only a small downgrade, it defied expectations of an
increase in the figure, to 79-80% (and reflected largely hail damage to the
crop in Nebraska, the third-ranked corn producing state).
But would it prove enough to reinject in corn futures the
kind of attitude seen on Friday, when it enjoyed strong gains?
"Corn's fantasy bull market lasted one session," was how Citigroup's
Sterling Smith put it, after the grain in the last session gave back most of Friday's
And there was no sign
on Tuesday of Mr Smith proving too pessimistic, although losses this time were
DDGs in the dog house
Another major factor in corn which continues to worry investors
is the talk that China has banned imports of distillers' grains (DDGs), a feed
ingredient produced as a byproduct of corn ethanol manufacture.
The alleged decision comes amid a dispute over a type of Syngenta
genetically modified corn, MIR 162, which while approved in Washington has not
been cleared in Beijing.
Authorities have rejected a series of cargoes of US corn
over claims of contamination with MIR 162, but as yet the dispute had not
spread much to DDGs, a popular source of protein, especially at times of
elevated prices of rival soymeal.
But, with a large (probably record) wheat harvest underway
and apparently ample corn stocks, is China attempting to steer demand to
"China is projected to hold nearly 45% of the world's corn
carryout this year," one US broker said.
"As an import nation that is a very large percentage. They
are trying very hard to reduce this burden and hopefully support domestic price
in the process."
(The government is in fact auctioning off supplies from
At Benson Quinn Commodities, Brian Henry said: "I view the
shift is China's attitude towards US DDGs as a big deal that helps confirm the
idea that China does not need feed stock.
"It also hints at the idea they have little-to-no interest
in approving such GMO traits for additional corn and/or DDG imports," ie to
backing MIR 162 and resolving trade issues.
"I feel the lasting effects of this announcement are lower
DDG prices, which offers resistance to corn futures."
And a ban could other knock-on effects.
"With China no longer issuing permits to import US DDGs, the
ethanol crush margins should come under pressure on weakening byproduct demand,"
CHS Hedging said.
And, without much expectation of bullish numbers in tomorrow's
USDA Wasde crop report, corn futures dropped, by 0.2% to $4.50 a bushel for the
July contract, and 0.3% to $4.48 ¾ a bushel for the new crop December lot.
"Look for bearish but slow pre-report trade," Citigroup's
Sterling Smith said.
DDGs vs soymeal
The DDG situation has implications for soybeans too, in that
it is a competitor to soymeal in feed.
Mr Smith said that China's move "will ease the DDG export
demand and is not bullish for the soymeal", facing more rivalry in the US
market in terms of protein sources.
CHS Hedging noted that on Monday, "soymeal lost more than
$12 a short ton following the China DDG announcement.
"Although demand continues strong for US soymeal, the expected
decrease in demand for DDGs could weigh on prices."
And this time, the soy complex lost some of its support from
soyoil, the other major product,
with soymeal, from crushing soybeans.
Soyoil has been gaining support "from the cancellation of
deliverable receipts that are now becoming almost a daily occurrence", Benson Quinn
Furthermore, demand for US soyoil "in export markets is
expected to improve with both Brazil and Argentine increase soyoil biodiesel
blend rates thereby reducing their exportable stock".
Soyoil is a major raw material, with rival vegetable oils
palm oil and rapeseed oil, for making biodiesel.
But palm oil
continued its run of poor form, on ideas of rising stocks in Malaysia, falling
0.5% to 2,399 ringgit a tonne in Kuala Lumpur.
Soyoil for July dipped 0.3% to 39.16 cents a pound, while
July soymeal dropped 0.2% to $481.20 a short ton.
Soybeans themselves for July eased 0.1% to $14.55 ½ a bushel,
with the new crop November contract down 0.4% at $12.20 a bushel.