Friday's Wasde report – the US Department of Agriculture's
flagship briefing on world crop supply and demand – isn't the only data set
that agricultural commodity investors have to factor in to their calculations.
Monday will bring the so-called "baseline forecasts", in
which the USDA unveils its latest long-term crop estimates.
And later in the month, USDA officials will at an annual conference
reveal forecasts for US crops this year – estimates likely to show sharp improvements
in production from 2012's drought-hit levels.
'Balance the threat'
This leaves ag markets "attempting to balance the threat of
three potentially bearish USDA reports this month with admittedly tight old
crop corn and soybean stocks that still have a massive old-crop rationing job
ahead", Richard Feltes at RJ O'Brien, the Chicago-based broker, said.
Friday's Wasde report is expected to bring upgrades to
estimates for US corn and wheat, if not soybean, inventories at the close of 2012-13, while the baseline forecasts
are likely to see some chunky numbers for crop production potential – before weather
takes its tithe.
And as an extra risk, if these two reports do indeed prove bearish,
Chinese buyers, big crop importers, will not be around, with the country
celebrating the lunar new year.
"With China on holiday next week, we'll be absorbing the
first two of those reports without any bottom picking by the world's largest
soybean buyer," Mr Feltes said.
'Outlook has turned
Adding further wind to bears' sails was a turn wetter in the
outlook for the Argentine forecast, as shown by both the main models, the
European and GFS, which have often been in disagreement.
"Be advised that during the overnight hours, the GFS model
has turned wetter in the six-to-10 day outlook over a significant portion of
central, eastern and northern Argentina," weather service WxRisk.com said.
"This is significant because the GFS does have some skill in
the six-to-10 day timespan," for when it shows "significant rains over 70% of Santa
Fe and Entre Rios, 60% of Cordoba and Buenos Aires, and 80% coverage over Santiago
del Estero into Chaco and Formosa.
"In all of these areas the rainfall amounts range from one
to three inches."
WxRisk.com added that "while there is still up quite a bit
of uncertainty as to whether not these big rains are going to show up, the fact
the European model has turned a little wetter increases the risk that some
moderate or significant rains will reach some portion of central Argentina in
the six-to-10 day period".
Rains mean relief to corn and soybean crops which are being
tested by dryness at a sensitive stage of their development, so tending towards
larger crops, and undermining price support.
Indeed, Luke Mathews at Commonwealth Bank of Australia placed
the idea that "Argentine weather is expected to improve later this month" as
one of the "worrying signs for spot prices" for soybeans.
The others were that "crush margins are compressed, the
Brazilian soybean harvest is gathering steam, and technical resistance", with
Chicago's March lot facing the test of breaking through $15.00 a bushel if it
is to add to its 2013 rally.
In fact, the contract succumbed to the weakness which has
already taken root in grains, and fell 0.5% to $14.88 ½ a bushel as of 09:20 UK
time (03:20 Chicago time).
That was in fact nearly enough to keep up with the retreat
in Chicago corn, which lost 0.6% to
$7.25 a bushel for March delivery, pressed by the better South American weather
and by ideas too that high prices have gone some way to tailoring demand to fit
More will be known later on demand from ethanol plants when
the US unveils official weekly data on production of the biofuel, which last
time remained close to its lowest level since records began in 2010.
Technically, the March contract has lost some of its appeal
too, it falling back below 10-, 75- and 100-day moving averages, standing right
back at its 20-day line.
Corn's decline allowed wheat
to recover a little of its premium, in dropping a less steep 0.4% to $7.54 ½ a
bushel in Chicago for March delivery.
Wheat, for which South American weather is not currently of
direct importance, is being pressed by talk of rain for drought-hit areas of
the US Plains, where winter wheat seedlings are struggling.
Mark Welch at Texas A&M University said that "the
precipitation forecast for the next seven days calls for better coverage of
increased rainfall than we have seen the last several weeks - the Texas and
Oklahoma panhandles, southwest Kansas, and southeast Colorado the exceptions".
Furthermore, there is some disappointment at the pace of US
exports, if not from Dr Welch himself, who said that "in contrast to the corn
market, wheat export sales are slightly ahead of pace to reach USDA's marketing
While export sales for the latest week were, at 10.1m
bushels, short of the required rate, "the average so far this year of 16.9m
bushels is above the 16.1m-bushel weekly pace needed to reach the 1.05bn-bushel
target", he said.
Still, there are other ways of dissecting export data,
factoring in seasonal factors, for example, or focusing on actual shipments, as
measured by cargo inspections.
Brian Henry at Benson Quinn Commodities took a more downbeat
"Despite the recent weakness in the wheat market, I can't find
a reason to be friendly the market until we trade lower prices and/or the story
becomes more supportive," he said.
"There may not be a lot of confidence in the benefits of next
week's rain events in the southern Plains, but tepid demand for US wheat is
offsetting the potentially bullish scenario that could develop in the hard red
winter wheat crop."
'Could help to ease
The negative mood filtered over to Kuala Lumpur too, where palm oil edged 0.3% lower to 2,540
ringgit a tonne, depressed by weakness in prices of oilseed peer soybeans.
However, the loss was limited by "hopes of better-than-expected
inventory and export data next week", when the Malaysian Palm Oil Board unveils
monthly data, Ker Chung Yang at Phillip Futures said.
He also flagged the potential for depressed soyoil output in
Argentina, the top exporter, shifting "some demand to the cheaper palm oil.
"This could help to ease record stocks for the tropical oil."
However, whether prices rise for now – well, on Tuesday Standard
Chartered placed more faith in prospects of a rally later in 2013.
In New York, raw
sugar for March extended its losses of the last session, falling 0.2% to
18.52 cents a pound, weighed by technical factors as well as talk coming from
an industry conference in Dubai.
"Last week's short-covering rally appears to have run out of
steam, with the consecutive failed attempts at the 50 day moving average, at about
20 cents a pound," CBA's Luke Mathews said.
"Most comments surfacing from the Kingsman sugar conference
in Dubai are negative for sugar prices," with analysts surveyed foreseeing a drop
in prices to 17.66 cents a pound.