PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 08:56 GMT, Tuesday, 10th Jun 2014, by
Morning markets: China DDG fears keep corn on the defensive

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 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.

Crop rating

That said, the lag was small enough not to instil any real worries.

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 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 gains.

 And there was no sign on Tuesday of Mr Smith proving too pessimistic, although losses this time were limited.

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 domestic supplies?

'Big deal'

"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 state inventories.)

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."

Prices fall

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 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."

Soy weakness

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 Commodities said.

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 a bushel, with the new crop November contract down 0.4% at $12.20 a bushel.

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