US corn and soybean crops indeed deteriorated last
But not by enough to surprise investors, and spark a revival
in futures prices.
Sure, there was damage to the crops in some northern and
western areas from excessive rains, with the proportion of Minnesota corn, for
instance, rated "good" or "excellent" in a US Department of Agriculture report
overnight dropping nine points to 70% last week.
But the overall proportion of US corn rated good or
excellent fell by just 2 points to 74%, and soybeans by 1 point to 72%, still
And while there are continued concerns over crop damage from
the wetness, there are ideas that the broader story is that the rains have
protected many areas from the threat of hot and dry weather during pollination –
a risk which is in the long-distance forecast, although being seen with little
credibility for now.
"There is a ridge of high temperatures in the extended
outlooks, but confidence is low," Benson Quinn Commodities said, adding that
even if the poor weather did arrive, it "could be after key corn pollination in
central Corn Belt".
Corn pollination is a particularly heat sensitive process.
Traders are leaning "toward the notion that benefits from the
active/excess rainfall pattern outweigh the negatives, knowing full well that
ample rains now will cushion crops against potential mid-summer dryness", said
Richard Feltes at RJ O'Brien.
"Ag traders for the week ahead, while concluding that
growing conditions are not perfect, are surmising that ample moisture is better
than a lack of moisture."
"For the vast majority of the growing areas conditions are
very, very good," Sterling Smith at Citigroup said, adding that a lower session
by corn futures today "would point to new leg down" in prices.
That, then, looked a growing possibility with corn futures
for July down 0.3% at $4.43 a bushel as of 09:40 UK time (03:40 Chicago time), while the new crop December contract
dropped 0.4% to $4.40 ¾ a bushel, back within range of contract lows.
After all, rains are expected to ease off in the north west
Corn vs soybeans
Still, at least December corn was performing less weakly
than new crop November soybean futures, which fell 0.9% to $12.22 ½ a bushel.
That reduced the new crop soybean:corn ratio to 2.77:1, a
still high level but a little below recent highs.
Indeed, does this present a cause for spreading a purchase
in new crop corn against a sell in soybeans?
Even if prospects for flat prices look weak, there does not stop
the agricultural commodity investor having plenty of opportunities for profit
(or loss), through short positions or through spreads, either between contracts
in the same crop, or between crops.
'Large price skew'
And the prospect of key USDA acreage and grain inventory
reports on Monday has offered a crystallisation point for such ideas.
"On a year where most private estimates show large increases
to soybean acres we are still heading into the report with a large price skew
toward soybeans," said one US broker, which believes that soybeans are due to
The corn:soybean ratio is "is historically very high but
especially for this point in the year".
However, history suggests that November soybeans actually
gain on December corn from mid-June to mid-July, according to Moore Research.
And Richard Feltes flagged a list of fundamental factors to
support this idea.
These include "ongoing tight old crop US soybean stocks, a much
smaller managed fund soybean long than corn, prospects for growth in 2014-15 US
soybean demand versus likely shrinkage in US corn demand, and the rapidly
closing widow to inflict major damage on 2014 US corn crop versus a longer
period to hurt soybeans".
As for old crop July soybeans, they fell 0.9% to $14.11 ½ a
The complex was little helped by a dip in prices of palm oil, a rival to soyoil, down 0.4% at 2,470 ringgit a
tonne in Kuala Lumpur.
Values fell on the Dalian exchange in China, the top soybean
importing country, too.
Dalian soybean futures for January dropped 0.5% to 4,505
yuan a tonne, after a poor result from the latest auction from state
The government sold 44,741 tonnes of the 354,726 tonnes of
soybeans on offer, at an average price of 4,055 yuan ($650) a tonne - down from
72,852 tonnes, and 4,064 yuan a tonne last week.
Back in Chicago, one crop in which weather concerns remain
is wheat, of the winter variety in particular, with heavy rains threatening crop
quality, for both the hard red winter wheat growth in the southern Plains and
the soft red winter wheat preferred in the Midwest.
In the south, "more precipitation across Oklahoma and Kansas
has delayed the hard red winter wheat harvest and is causing quality problems,"
CHS Hedging said.
In the Midwest, "the Ohio River Valley is experiencing
incidents of high vomitoxin and light test weight in new crop soft red winter
wheat, as the crop continues to turn".
Vomitoxin, a fungal residue which can leave grain unfit even
for feed use, was highlighted by Brian Henry at Benson Quinn Commodities too.
"The quality of the soft red winter wheat crop has suffered,
with vomo being mentioned in many areas and a large portion of the early
harvest coming off sub #2 grade," he said.
Still, prices have come under pressure from ideas that they
remain too high compared with those abroad, being weakened by better harvest
The Egyptian grain tender over the weekend, while underpinning
ideas of demand, also highlighted the uncompetitive nature of US supplies.
And with rival grain corn lower, soft red winter wheat for September
fell 0.6% to $5.85 ¼ a bushel in Chicago.
Kansas City hard red winter wheat dropped 0.4% to $7.11 a
The USDA crop progress data were not too positive for cotton prices either, showing the
proportion of crop rated "good" or "excellent" rising by 2 points to 53%, with the
rains in the south a positive for development.
In Texas, the top cotton growing state, 40% of the crop was
rated good or excellent, up 3 points.
New crop December cotton futures fell 0.3% to 77.46 cents a
pound in New York.