PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 08:30 GMT, Wednesday, 11th Jun 2014, by Agrimoney.com
Morning markets: grain, cotton futures rise as key data loom

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 areas continues.

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 a bushel in Chicago for July delivery as of 08:30 UK time (02:30 Chicago time), well, at least it helped.

Data later

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 analysts.

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?

Chart floor?

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 opportunity".

Yield upgrade

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 contract.

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 weather premium'

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 Beijing.

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 a bushel for July delivery, while the new crop November lot fell 0.3% to $12.26 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.

'Fundamentals saying the opposite'

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.

Stronger cotton

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.

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