How much legs has the narrative about excessive moisture
hurting US crops got?
It's worth asking as the rally ran out of steam in early
deals on Friday, albeit still leaving corn
and wheat futures on course for
their first winning week in six.
Sure, as CHS Hedging noted, "oversaturated fields threaten
crop conditions and give the bulls something to finally talk about.
"Plenty of moisture has engulfed parts of the Corn Belt with
more to come."
'Creeks looking like
In Iowa, Market 1's Mike Mawdsley described a tour on
Wednesday around his county, Kossuth, the state's largest, which showed "hail
damage in the far northern region", on the border with Minnesota, but flooding
the main problem.
He noted "numerous ponds of 5-10 acres, some 30 -40 or more,
drainage ditches and creeks looking like rivers, rivers looking like lakes. A
few roads were closed to high water.
"We did need to build subsoil reserves, but this is a
painful way to do it."
Still, in a drought "all acres are hurt", he said.
"With moisture and heat, there are also a lot of acres that
look good, especially in corn."
'Not buying it'
At RJ O'Brien, Richard Feltes acknowledged that corn futures
had been "responding to standing water issues in the north west Midwest, as
traders opt to focus more on yield losses in affected areas rather than
benefits of timely rains across a much larger area".
But are traders right?
"We're not buying the 'too much rain' narrative. Remember
that moisture is typically the limiting factor in grain production.
"Reduced yields in flooded hollows will be partially offset
by better yields on the high ground, while larger surrounding areas graced with
ample rains produce above-trend or even record yields."
Another broker said: "We do not believe the market
fundamentals have changed enough to stop the price decline," terming this week's
price recovery "more of a 'dead cat bounce' rather than the beginning of a
"To see further support we likely need to have a more severe
weather situation develop."
Still, corn futures
managed some small gains, feeding on some other factors too, one being ideas
that China's suspension of imports of US distillers' grains (DDGs), a high-protein
feed ingredient produced as a byproduct of ethanol manufacture, may not be so
serious after all.
At least, so the US Grains Council, which promotes US
exports, said, noting that "existing import permits [for DDGs] are still valid",
even if new ones are not being issued.
"Feed prices in China remain above world market levels, and
buyers in China are still eager to obtain DDGs if possible."
While there is a risk of is financial loss if a cargo is refused
by authorities, "trade sources indicate that buyers in China are willing to
accept this risk, and expect that shipments will pass inspection".
End of MIR 162
Besides, there is also talk that China is mulling consent
for imports of Syngenta's MIR 162 corn at the centre of the import fuss, with
the GM variety approved in Washington, but not in Beijing.
"There are ideas that they will look approving the MIR 162
trait sooner than later," Brian Henry at Benson Quinn Commodities said.
That said, will it, when China already has large corn supplies
– pegged by one senior official at up to 150m tonnes – and with an apparently
decent-looking crop on the way?
Corn for July edged 0.1% higher to $4.51 a bushel as of
09:20 UK time (03:20 Chicago time), while the new crop December lot added 0.3%
to $4.48 ¾ a bushel.
'Cause for concern'
however, showed small losses, amid mixed ideas too of the threat to the crop
from excessive rain.
"As with corn, the weather has given cause for concern as
soybean fields stand in pools of water and updated forecasts keep rains in the
mix," CHS Hedging said.
Still, "as long as the areas with moisture issues up north
can dry out and avoid any heavy rains for 10 days or so afterwards the damage to
the soybeans should be limited," Citigroup's Sterling Smith said.
Investors also seem, for now, to be downplaying tight old
crop supplies, showing relatively little reaction to data on Thursday showing a
further positive week for US export sales, tipping them further over the US
Department of Agriculture forecast for 2013-14.
'Lost their cachet'
"Positive old crop weekly export sales have lost their cachet
as a positive market mover," Benson Quinn Commodities said.
Still, this comes ahead of US inventory data next week which
are somewhat loaded, in that many feel last year's harvest was underestimated,
meaning that stocks could prove more generous than thought.
"Cash markets and exporters appear confident they will be
able to source beans this summer," the broker said.
Soybeans for July shed 0.2% to $14.17 ½ a bushel, with the
November contract easing 0.2% to $12.24 ¾ a bushel.
'Lower yields, fungal
As for wheat, it struggled
a bit too to add to gains already made its own concerns over moisture, in terms
of slow spring sowings in parts of Canada – of which more may become apparent
in a Statistics Canada crop report due next week– but more particularly on the impact
on US winter crop.
In the southern Plains, rains have provoked quality
concerns, coming on to ripe hard red winter wheat crops and so encouraging sprouting
and adding to setbacks from drought earlier in the season, while in the Midwest
soft red winter wheat region the fears are more over disease.
"Lower yields, fungal diseases and IDK [insect damaged
kernels] are all being seen and lending support to the wheat market," CHS
There is more idea of demand too, with Taiwan on Friday
buying 96,180 tonnes of US wheat at tender.
This follows the purchase by Pakistan of 90,000 tonnes of
Black Sea origin wheat for August shipment, while Jordan is in the market for
100,000 tonnes of optional origin milling wheat for December-January shipment.
And Saudi Arabia is in the market for 715,000 tonnes of
wheat, with a deadline of today.
For now, Chicago soft red winter wheat for July gained 0.25
cents to $5.93 ¾ a bushel, while Kansas City hard red winter wheat for July
stood unchanged at $7.29 ¼ a bushel.
Among soft commodities, cotton
reversed some of the bear spreading seen in the last session, with the old crop
July contract outperforming this time, adding 0.3% to 88.60 cents a pound in
New York, albeit recovering only a small portion of the 3% losses made in the last
Wild swings in the contract have been expected in the run-up
to expiry, with the expiry of the July 2013 contract witnessing a huge spike in
The December contract, which gained in the last session as
investors switched from the July lot, stood 0.4% lower at 76.86 cents a pound.
"Given the favourable weather being seen for the new crop,
and the large global stock situation, the December futures could find
themselves under considerable pressure," Citigroup's Sterling Smith said.