Morning markets: cotton beats grains in run up to key report

It's the big day.

The US Department of Agriculture will later unveil its monthly Wasde crop report, a highlight of the agricultural commodities anyway, but especially this time, as the briefing will include the first full, world estimates for 2014-15.

And grains and soybeans got a bit of stage fright ahead of the unveiling.

Cotton in demand

Indeed, they were handily outperformed by cotton, which added 0.5% to 93.50 cents a pound in New York for July delivery, as of 09:50 UK time (03:50 Chicago time), continuing to feel a bit of glow from decent US export data on Thursday.

The USDA reported weekly US export sales of 63,800 running bales for 2013-14, "up noticeably from the previous week and 11% from the prior four-week average", and a healthy 150,600 running bales for 2014-15.

Actual exports for last week remained above 200,000 running bales, if slightly below recent levels, including 52,500 running bales to the key market of China, the top importer, whose market is under close scrutiny for signs of the impact of a change to subsidy regime.

One of these already looks like being a massive drop in output, with the new scheme being trialled only in Xinjiang, the main producing state, leaving other producers out in the cold.

Indeed, will the USDA later in the Wasde follow the International Cotton Advisory Council in seeing India overtake China as the top cotton producer?

Stocks downgrade?

Christopher Narayanan at Societe Generale said that "cotton exports, while slowing and stabilising, continue to outpace the USDA's estimate for the 2013-14 year".

Will that lead the USDA in its Wasde later to cut the forecast for domestic stocks at the close of the season?

"We do expect a lower ending inventory figure versus the USDA's previous forecast," Mr Narayanan said, foreseeing a 300,000-bale downgrade to 2.2m bales.

That would represent a tight 15.1% stocks-to-use ratio.

'Stress supplies even more'

As for the 2014-15 figure, investors do foresee a rebuild in inventories, given a rise in sowings of more than 1m acres, according to standing official data, to 11.5m acres.

But there is drought in Texas, the top US producing state, to take account of.

"Drought continues to plague many cotton-growing, areas in Texas, particularly in the Panhandle and South Plains areas," Mr Narayan noted, foreseeing a stocks recovering to 3.31m bales, albeit well below the 4.6m bales the USDA pencilled in in February, at its Outlook conference.

At Price Futures Group, Jack Scoville also highlighted the problems in Texas, where "crop conditions continue to deteriorate" and there is "talk that the planting delays seen so far this year will lead to a late crop and stress the current supplies even more.

"Weather remains too dry and warm in much of Texas. Panhandle areas are under deep stress from drought conditions that should also impact irrigated crops."

In fact, official data on Thursday rated 83.4% of Texas as in drought, up 8.9 points week on week, and nearly twice the proportion at the start of 2014.

New crop December cotton added 0.4% to 83.86 cents a pound.

'Rains too late'

Of course, where southern Plains drought is also a major factor is in wheat, with the dryness prompting a continued deterioration in yield prospects for the hard red winter wheat crop grown in the area.

Forecasts for US wheat output in Wasde report, (2013 figure)

Hard red winter wheat: 782m bushels, (744m bushels)

Range of estimates: 610m-870m bushels

Soft red winter wheat: 467m bushels, (565m bushels)

Range of estimates: 409m-569m bushels

All wheat: 2.046bn bushels, (2.130bn bushels)

Range of estimates: 1.891bn-2.182bn bushels

The proportion of Kansas, the top US wheat growing state, in drought remains at 98.8%, although the rating for the amount in "extreme" drought doubled to 52.6% in the latest official Drought Monitor.

In neighbouring Nebraska, where wheat rating have shown a sharp decline, the proportion in drought is 93.0%, while in Oklahoma the figure edged 0.5 points higher to 93.3%, of which nearly half is in extreme drought, up 9.8 points on the week.

And the weather remains poor.

"Recent rains have circled around the driest hard red winter wheat-growing region of the panhandles, western and central Kansas," said Brian Henry at Benson Quinn Commodities.

"The benefits of recent rains in Oklahoma are debatable as they may have been too late to improve conditions very much."

How low will they go?

But how will the USDA reflect that in the Wasde?

After all, while many analysts foresee a figure of about 760m bushels for the US hard red winter wheat crop, there is also an idea that, with sowings up this year, the USDA might wait for further evidence of crop damage and start with a figure above 800m bushels, as espoused by the likes of Informa Economics and Macquarie.

"The report, as it pertains to wheat, depends on how the USDA goes about lowering their vision of the hard red winter wheat crop," Mr Henry said.

"They could try to back into a lower number," ie delay a fall to mid-700m bushels, although this is an attitude "which many in the trade would discredit".

Prices ease

Still, many investors were not waiting to find out, sending Kansas City hard red winter wheat down 0.7% to $8.36 a bushel for July, and Chicago soft red winter wheat, the world benchmark, down 0.5% to $7.31 a bushel for July.

Minneapolis hard red spring wheat, grown in the northern US, where the problem is too much rain and cold slowing sowings, rather than dryness and heat sapping seedlings, fell 0.4% to $8.02 a bushel for July.

In Canada, Saskatchewan ag official late on Thursday revealed their first crop progress report of the year, but the briefing threw up few surprises.

"Despite a cool and wet start to spring, seeding has begun in some parts of the province," the report said, with 2% of spring crops seeded in the south west, and "the majority of producers" expected to begin plantings "in the next week or so".


With wheat, the grains market prop of late, lower, the prospects for a rise in corn prices deteriorated.

Forecasts for corn in Wasde report, (existing figure)

US ending stocks 2013-14: 1.314bn bushels, (1.331bn bushels)

Range of estimates: 1.231bn-1.435bn bushels

US ending stocks 2014-15: 1.672bn bushels, (n/a)

Range of estimates: 1.295bn-2.354bn bushels

World ending stocks 2013-14: 157.31m tonnes, (158.0m tonnes)

World ending stocks 2014-15: 159.41m tonnes, (n/a)

And even though Midwest rain is expected to slow sowings of the grain somewhat, plantings should still reach 50-60% when the USDA unveils its weekly crop progress data on Monday, up from 29% last time.

Many investors opted to take profits ahead of a Wasde report which is expected to reduce the estimate for US inventories a little for 2013-14, but probably see a rise over 2014-15.

But by how much? Estimates for the end stocks figure for next season range from 1.30bn-2.35bn bushels.

Corn for July eased 0.2% to $5.15 a bushel.

Static soy

Soybeans actually did best, adding to their surprise gains in the last session, although not by much, amid considerable uncertainty over what the Wasde will show.

Forecasts for soybeans in Wasde report, (existing figure)

US ending stocks 2013-14: 134m bushels, (135m bushels)

Range of estimates: 125m-174m bushels

US ending stocks 2014-15: 307m bushels, (n/a)

Range of estimates: 200m-464m bushels

World ending stocks 2013-14: 69.77m tonnes, (69.42m tonnes)

World ending stocks 2014-15: 80.34m tonnes, (n/a)

For old crop, there is the question of by how much US imports will be raised by in the Wasde, with a potential drop to the China import figure too.

And for 2014-15, there is a huge range of estimates for end stocks, with the highest forecast for the Wasde figure of 464m bushels - more than double the lowest broker estimate of 200m bushels.

Futures on the Dalian exchange in China, the top soybean importer, offered little in the way of a steer by closing unchanged at 4,384 yuan a tonne for September delivery.

And Chicago soybeans for July acted likewise, standing unchanged at $14.69 a bushel.

Wasde numbers to highlight tricky market balancing act
Evening markets: soy rediscovers its mojo. But coffee cools
Agricultural Commodities
Agricultural Markets
Agricultural Companies
Agricultural Events