Late recoveries which pared losses in grain futures in the
last session set the scene for a firm start to this one, although the mood in
markets is hardly bullish.
The question is whether prices have already fallen enough
for now, promising though signs are for crops in the US and other major
producing countries too.
It remained difficult to find outright news to support price
gains, although there has been some comment over some removal of rainfall, and
injection of heat, into the Midwest forecast.
'Warmer and drier
"Weather models pointing to warmer seasonal temperatures
next week and into July 28," said
Darrell Holaday at Country Futures.
"The GFS did have a slightly warmer and drier forecast for
next week which may have been the reason November soybeans rallied 16 cents off
the daily low" in the last session, another US broker said.
That said, while excessive heat and dryness can threaten
ongoing corn pollination, a vulnerable process, the conditions being talked
about for next week are thus far "not very threatening", the broker added.
Indeed, CHS Hedging said that "the corn crop could use a few
heat units" to improve its development.
Too high, too early?
Still, there is an appreciation that investors can overdo
the price gloom, just as they can the market top.
It is generally reckoned that the market is factoring in a
yield of 170 bushels per acre for US corn, or somewhere near, above the 165.3
bushels per acre that the US Department of Agriculture has forecast, already
set at a record high.
Is the higher yield justified?
Commodity Weather Group noted that although the current corn
crop has high condition ratings, these remain well those in 1986, 1987 and
1994, which posted final yields 8-12% above trend.
"Thus corn yield sceptics caution against taking 2014 US
corn yield too high, too early," Richard Feltes at RJ O'Brien said.
Leave room for
The US cash market has also already reached bargain basement
levels in some regions.
"Nearly all locations in North Dakota are posting [per
bushel] fall corn bids to farmer that begin with $2," Mr Feltes said.
And this already, before the crop is fully made, and when there
is still harvest pressure later on in the year to weigh on futures prices,
which typically bottom out in the autumn.
"Traders are increasingly aware that years with large crops
typically post row crop price lows October-November," Mr Feltes said.
Indeed, Moore research shows a tendency for corn prices to stay
rangebound from mid-July to mid-August.
Whether they have already begun this process, well, December
corn futures rebounded 1.2% to $3.86 ½ a bushel as of 09:15 UK time (03:15
Chicago time), failing for the first time in 12 sessions – yet – to put in a
new contract low.
The old crop September contract added 1.3% to $3.78 ¾ a
That was some help to fellow grain wheat, but it also felt pressure from the harvest in the northern
hemisphere, limiting its gains to 0.5%, taking Chicago's September contract to
$5.40 ½ a bushel.
There is increasing comment on the progress of harvests in
the Black Sea, a region which typically sets the pace on export markets early
in the marketing year, ie around now, with competitive offers.
"The Russian harvest is expected to accelerate and this will
add more physical pressure to the market," Sterling Smith at Citigroup said.
"US wheat is still non-competitive in the global market and
this only adds to the bearishness that pervades the market."
'Trying to push
The competitiveness of Russian wheat has been highlighted by
offers to an Iraq tender, for which its grain is offered at $309-311 a tonne
including freight, a discount of more than $40 a tonne to US supplies.
"Black Sea exporters keep trying to push prices lower in
order to attract some buying," Darrell Holaday at Country Futures said.
"Obviously, one of the problems is they have a large crop to
"But the other problem is that the turmoil between Ukraine
and Russia has caused potential buyers to hesitate to contract with them as
they are concerned about default if tensions escalate.
"There is a lot of competition to sell wheat in the world."
'Worried about crop
A more price-positive point is that concerns remain over
rain damage to European crops, with moisture on ripe wheat encouraging
sprouting, lowering protein levels and cutting kernels' milling qualities.
"Operators remain worried about crop quality because of latest
rains registered around France and Germany," Paris-based Agritel said.
"Indeed, germinated wheat and barley are signalled on
several production areas."
As for oilseeds, palm
oil showed a bit of life, adding 0.7% to 2,300 ringgit a tonne for October
delivery in Kuala Lumpur, helped by a ringgit retreat which bodes well for
Malaysian exports, such as the vegetable oil, making them more affordable to
buyers in other currencies.
Indeed, data from cargo surveyor SGS showed Malaysian palm
exports up 11.4% so far this month, compared with the first half of May.
And canola has
already managed to recover from early week lows, adding 0.4% to Can$447.10 a
tonne in Winnipeg for November delivery, looking for a third successive
While prices faces weight from ever-increasing estimates for
the European Union harvest of sister-crop rapeseed,
which Oil World now pegs at a record 22.7m tonnes, a rise of 1.5m tonnes year
on year, prospect for canola in Canada, the top exporter, look less favourable,
with heavy rains preventing some sowings and inundating some of what was planted.
November canola has the rare honour of yet to come close to
setting contract lows, unlike many other grain and oilseed contracts, including
Paris rapeseed for November, which hit E325.50 a tonne in the last session.
'Negative price dynamic'
In Chicago, new crop soybeans for November added 0.7% to 10.94
¾ a bushel, signally reducing further their discount to the old crop August
contract, which added 0.6% to $11.87 ¾ a bushel.
The August lot was undermined in the last session by data
showing the US soybean crush for June at 118.7m bushels, a touch shy of
expectations, and adding to ideas that old crop supplies are, while tight, not distressingly
Indeed, on a bearish note, Country Futures' Darrell Holaday
said that "the breakdown of this [August-November] spread is a negative price dynamic
for the soybean complex as it indicates the cash market strength is basically
"Keep in mind that this spread was over $1.80 a bushel just
six weeks ago."