Here's an argument for lower grain prices.
On Tuesday Agrimoney.com presented some of the case for
grain futures at least stabilising around current levels, an idea given some
support when Goldman Sachs later forecast corn
futures staying at $4.00 a bushel on three-, six- and 12-month horizons.
But taking the still strong US corn crop condition rating of
75% "good" or "excellent" into account can give you a view of futures still
having a way to go to hit their lows.
That is the sixth best rating in 29 years, according to Commodity
Weather Group – with all five years when the corn was in better condition (and two
year when it was in worse health) showing record yields.
As to what that might result in this year, "we know enough
about August weather to suggest that above-average corn ratings will be
sustained, which suggests the potential for a yield 10% or more above the
50-year trend," Richard Feltes at RJ O'Brien said.
An above-trend yield of that magnitude is "typical in record
With the trend yield at 160 bushels per acre, depending on
who you believe, that gives a result of 176 bushels per acre this year.
Whatever, it is a result well above the figure of 170
bushels per acre that many investors say has been factored in to prices so far.
And as for soybeans,
Mr Feltes quoted that the average soybean yield is 27.5% of the corn yield
which implies a frighteningly high figure above 48 bushels per acre.
Not that all this, it has to be said, will be factored into
prices at once, with the August 12 Wasde report by the US Department of Agriculture,
whose estimates set the benchmark, likely to prove the next staging post, and
to come in with a relatively low figure.
Brokers Agrimoney.com has spoken to are currently estimating
a corn yield figure of less than 170 bushels per acre for the August Wasde, a
figure expected to be upgraded gradually further to a peak around October.
There are, after all, still some crops risks, with talk of
the threat of an early frost likely to grow in volume, although potentially
more for spring wheat, which crop
tours of North Dakota last week and Canada this week have shown in good
condition, but delayed in development by cool weather.
'Risk premium leaving'
Anyway, on Wednesday, corn futures were trading a little
lower again as of 09:45 UK time (03:45 Chicago time), by 0.6% to $3.68 ¾ a
bushel for December delivery, leaving it some 4 cents above the contract low
set last week.
The weather forecast remains pretty benign.
"While the south west Corn Belt is still dry, the remainder
of the Midwest as a whole is sitting with favourable conditions and
expectations call for mild temperatures with rains in the second week outlook,"
one US broker said.
"There is still plenty of the growing year left but as time
goes on, risk premium continues to get taken out of the market."
At Benson Quinn Commodities, Brian Henry said that the turn
wetter in the US weather outlook meant that "concerns extending east of this
region through portions of Missouri and into southern Illinois were somewhat
On the demand side, the US will later reveal weekly ethanol
Further step lower
For soybeans, the
weather is particularly important, with the crop still largely to undergo its sensitive
period, pod-setting, while corn is mainly through its vulnerable pollination
"Overall nothing points to below trend-line soybean yields
as a national average," the US broker said.
"So despite the Monday night rally after a slight drop in
crop ratings, the price downtrend has not been broken just yet."
In fact, soybean futures are "quickly approaching that
timeframe and we may see them break another $1.00 a bushel if weather is
Chicago's November soybean contract in fact stood 0.8% lower
at $10.85 ¾ a bushel, given little help by the January contract on China's
Dalian exchange, which ended down 0.7% at 4,399 yuan a tonne.
In Kuala Lumpur, palm
oil returned from a long weekend to trade 2 ringgit higher at 2,263 ringgit
a tonne, despite a softer ringgit, which improves the affordability of
the rival vegetable oil, was 0.5% lower at 36.34 cents a pound in Chicago for December
delivery, undermined by the apparently small change of Iowa senator Chuck Grassley
succeeding in getting tax credits for biodiesel production restored.
He has proposed amendments for attaching to a jobs bill.
Wheat was in fact
the outperformer in Chicago, adding 0.3% to $5.21 ¾ a bushel for September
delivery, helped by fresh evidence of demand, with South Korea's Major Feedmill
Group apparently buying 52,000 tonnes of feed wheat.
The grain was purchased from Cargill for $241.30 a tonne
c&f, with an extra $1.50-a-tonne surge for additional port unloading,
reports from Europe said.
Tellingly even this deal, even for feed wheat, included a
limit of 4% on sprouting, amid concerns over the quality of Europe's harvest.
Furthermore, Egypt's Gasc grain authority is back in the
market, for its fourth tender this month.
Not, it has to be said, that US supplies are seen as having
much chance of winning business, with Russia reportedly offering wheat yesterday
below $240 a tonne, and having a freight advantage on top.
And with Russia's crop subject to a series of recent
upgrades, it looks like its prices will remain low.
"Racing Romania and Russia to lower prices does not look
like an easy task," Mr Henry said.