At last, a snippet of bullish news on wheat. But only a snippet.
Australia's Abares crop bureau trimmed its forecast for the domestic
harvest, late this year, to 24.59m tonnes, from 24.8m tonnes, and cautioned
that further downgrades could be in the offing if dry weather in some eastern
That took the forecast some 900,000 tonnes below that of the
US Department of Agriculture, whose estimates tend to set world benchmarks.
Whether that was enough to prompt the positive start to
wheat futures, which added 0.5% to $6.04 ½ a bushel in Chicago for July
delivery as of 08:30 UK time (02:30 Chicago time), well, at least it helped.
The main data point today, of course, is the US Department
of Agriculture's monthly Wasde crop report, which is expected to lift a touch estimates
for US wheat stocks at the close of last season, by 5m bushels to 588m bushels,
and for newly started 2014-15 by 10m bushels, according to a Dow Jones poll of
But will they?
These estimates assume, for instance, only a small downgrade,
of 4m bushels to 1.959bn bushels, in the estimate for the ongoing US harvest.
Could the downgrade prove larger, after all the drought
damage to the southern Plains hard red winter wheat crop?
Furthermore, there remain some worries over Russia's
harvest, given dryness which prompted Ikar on Tuesday to cut its forecast for
production, albeit to a still strong 93.5m tonnes.
Against such ideas, there was a temptation to cover short positions
in wheat which have been highly profitable over the past month, when Chicago futures
have lost some $1 a bushel.
Furthermore, technically, $6.00 a bushel may provide a floor
to price falls for now.
While Chicago futures fell briefly below that in the last session,
there was no rash of sell stops placed just below to encourage a further leg
down in prices.
"A bounce tied to [the Wasde] report should not be ruled
out," Sterling Smith at Citigroup said, if adding that this "should be selling
It also helped wheat that fellow grain corn was in better form, nudging 0.3% higher to $4.47 a bushel for
July delivery, and by 0.2% to $4.46 a bushel for the new crop December
Again, there was a suspicion of short-covering, with fundamentals
hardly supporting a rebound, given the benign weather which is supporting thoughts
of a strong US harvest.
Influential crop scout Michael Cordonnier has raised by 1.0
bushels per acre to 165.0 bushels per acre his forecast for the US corn yield.
There has been some talk that the USDA might lift its
estimate too in the Wasde, although history would suggest that is unlikely.
'Not much of a
Then there is the ongoing issue of China's suspension of
imports of US distillers' grains (DDGs) in the latest chapter of the furore
over Syngenta's MIR 162 GM corn variety, which is approved in the US but not by
Authorities have since November rejected a series of cargos
of US corn over fears of contamination with MIR 162, with DDGs, a feed
ingredient, affected as a byproduct of corn ethanol manufacture.
"DDG values have eroded $15-20 a tonne since China announced
they will no longer allow the imports of US DDGs," CHS Hedging said, adding
that the country has "been importing about 500,000 tonnes per month".
But have Chicago corn values fallen enough already for now?
"With December corn 70 cents a bushel off it recent highs,
and approaching contract lows, there is not much of a weather premium built
into the market," CHS Hedging said.
Citigroup's Sterling Smith said: "We are going into the
report deeply oversold."
Corn vs soybeans
This time, it was soybeans
which lagged, edging just 0.25 cents higher to $14.62 ¾ a bushel for July
delivery, while the new crop November lot fell 0.3% to $12.26 ¼ a bushel.
Not that investors are expecting a bearish Wasde, with the USDA
forecast to cut its estimate for end-2013-14 domestic stocks by a further 3m
bushels to a tight 127m bushels, and its forecast for inventories at the close
of next season by 8m bushes to a less squeezed 322m bushels.
"Despite the potential for a record soybean crop this year,
the old crop story has not gone away yet," CHS Hedging said.
Still, corn and soybeans have had a tendency to move in
opposite ways in recent sessions, as investors put in place short corn-long
soybean bets, and take profits on them.
Sure, prospects for the US crop are looking strong. But has
this already been dialled in?
"The market is trading near 1.0m more planted acres than
March intentions and based on Monday's best crop rating at 74% good or
excellent is also trading in agreement with USDA's trend line record yield
estimate at 45.2 bushels per acre," Kim Rugel at Benson Quinn Commodities said.
Some commentators believe soybean prices are hugely
overpriced, with one broker noting a "plethora" of South American supplies, and
saying that "the market is pricing in something that the fundamentals seem to
be saying the opposite".
Still, expectations for Brazil's harvest took a backward
step with Conab's cut by 500,000 tonnes to 86.1m tonnes in its estimate of the
domestic crop, well below the USDA figure of 87.5m tonnes.
Among soft commodities, cotton
opened firmer in New York, adding 0.3% to 86.56 cents a pound for July delivery,
with the new crop December lot up 0.1% at 77.29 cents a pound.
The fibre faces the negative of a potential upgrade in today's
Wasde report to the USDA estimate for the domestic crop, after springs
refreshed drought-hit Texas, the top US growing state.
However, on the more bullish side, Abares cut by 30,000
tonnes to 910,000 tonnes its forecast for Australian production.
And, from a chart perspective, the July contract has
returned above its 10-day and 200-day moving averages.