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Morning markets: grain, cotton prices sink on US crop data

US corn and soybean crops indeed deteriorated last week.

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 good ratings.

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.

'Benefits outweigh the negatives'

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 a bushel, back within range of contract lows.

After all, rains are expected to ease off in the north west Midwest too.

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 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 underperform corn.

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".

China auction

As for old crop July soybeans, they fell 0.9% to $14.11 a bushel.

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 inventories.

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.

Vomitoxin threat

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.

Export competitiveness

Still, prices have come under pressure from ideas that they remain too high compared with those abroad, being weakened by better harvest hopes.

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 a bushel in Chicago.

Kansas City hard red winter wheat dropped 0.4% to $7.11 a bushel.

Improved condition

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.

Evening markets: corn futures tumble as US wetness fears ebb
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