PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 20:31 GMT, Thursday, 11th May 2017, by Mike Verdin
PM markets: improved US weather hurts corn. But cotton jumps

If the trade debate earlier on had centred on corn, and whether key estimates released by the US Department of Agriculture were "bullish" or not, it was the soybean forecast which appeared the focus of later discussion.

In particular, doubts grew that the US will really export 2.15bn bushels of soybeans in 2017-18, as forecast by the USDA in its first full global crop estimates for next season.

The forecast "is not realistic, given the current world fundamentals", said Darrell Holaday at Country Futures," a feeling only enforced by an upgrade by Conab of 2.8m tonnes to 113m tonnes to its estimate for the Brazilian harvest.

That compared with a market expectation of a 111.8m-tone figure.

'Yield forecast is too low'

The USDA's forecast of a 48.0-bushels-per-acre soybean yield next year came under scrutiny too.

Richard Feltes at RJ O'Brien said he was "hearing more chatter that USDA's US soy yield forecast is too low, given improving genetics and a sufficiently long growing season in the north west Midwest, which typically encounters the first autumn frost".

That was a reference to the decent sowing weather in north western areas of the Midwest, with the south and east the bits where wetness have been provoking sowing worries.

'Shipments on pace'

OK, the balance sheet is not all about production, with Darrell Holaday noting too China's rising demand for oilseeds, over which there appears little doubt.

"It should also be noted that USDA continues to push Chinese imports higher with a projection of 93m tonnes next year compared to 89m tonnes in 23016-17," he said.

And weekly US export data came in strong too for soybeans, at 381,400 tonnes for 2016-17.

"Soybean sales and shipments remain on pace" to meet the USDA estimate for this season "even with USDA raising export demand 50m bushels yesterday to 2.05bn bushels," said broker Benson Quinn Commodities.

"Shipments were up week on week with total sales now 46m bushels above the USDA export estimate."

Actual exports, while down week on week, "were on pace to reach the USDA's increased forecast".

'Not really believing the numbers'

Still, soybean futures found it hard to gain traction against rising South American crop estimates, which heightened concerns over the USDA's forecast for US soybean shipments next season.

Soybean futures for July closed down 0.5% at $9.66 a bushel.

"Obviously, the market is not really believing the USDA 2017-18 numbers," Country Futures' Darrell Holaday said.

Soymeal was little help, ending down 1.1% at $314.90 a short ton for July delivery, losing share of the crush to soyoil, which ended up 0.7% at 32.49 cents a pound for July, helped by a firm performance by rival palm oil on lower-than-expected Malaysian inventory data.

Weather improves for farmers

Still, corn fared even worse, dropping 1.2% to $3.73 a bushel, undermined not so much by the debate over 2017-18 numbers as the return of traders' attention to the Midwest weather which is improving just in time for farmers trying to get the grain in the ground.

Concerns over wetness in the southern and eastern Midwest waned.

"It is fair to say that the current system spinning out of the Southwest US has not been near as vigorous as was projected by the models," Mr Holaday said.

"There is going to be a window of opportunity for eastern Corn Belt over the next five days."

Benson Quinn Commodities said that "right now, conditions tend to look ok for the eastern Corn Belt and very good for the western Corn Belt.

"Gradually warming temperatures and lighter precipitation are slowly helping the eastern Corn Belt get back to more favourable conditions."

'Actually negative'

OK, the news for corn was not all bearish, with Conab's upgrade of 1.3m tonnes to 92.8m tonnes in the forecast for Brazilian production in 2016-17 short of the market estimate of 95.1m tonnes.

(The USDA has the figure at 96.0m tonnes.)

However, weekly US export sales data for corn, at 277,000 tonnes for 2016-17, were "definitely weaker than expected", said Mr Holaday.

"The worst export news was the new crop corn sales were actually negative, by 55,000 tonnes."

Running too slow?

It was left to wheat futures to come to grain bulls' rescue, adding 0.6% to $4.33 a bushel in Chicago for July delivery,

This despite some disappointment at weekly US export sales data, at a marketing year low of a negative 24,200 tonnes for old crop (OK, 2016-17 ends this month), while hitting 273,400 tonnes for 2017-18.

Even an actual export number of 595,800 tonnes (21.9m bushels) did not please all observers.

"There are only four weeks left in the marketing year, all-wheat sales need to average 2.0m bushels and shipments need to average 37.8m bushels" to hit the USDA estimate for exports of 1.035bn bushels for the marketing year, Benson Quinn Commodities said.

'Potential for short covering'

However, on the plus side for prices, the USDA's estimate for a decline in stocks in the hands of major exporters in 2017-18 is providing a little cause for price support.

Especially given that hedge funds retain a large net short in the Chicago market.

"The potential for short covering does exist in the Chicago market," Benson Quinn Commodities said.

Paris wheat futures also managed some headway, edging 0.2% higher to E170.00 a tonne for September delivery, despite firmness in the euro.

"The EU exported 249,000 tonnes of wheat last week taking total exports to 21.2m tonnes or 2016-17 and sustaining a good pace which helped support EU prices today," said CRM Commodities.

Cotton on

Still, for real gains, it was necessary to go to New York, and cotton, which for July delivery soared 3.5% to 79.18 cents a pound.

This despite a mixed reception to USDA forecasts for 2017-18 viewed as bullish on a global level, in foreseeing lower carryout stocks than had been expected, but bearish for the US, where the opposite was true.

Weekly export sales data were fine, at 160,600 running bales for this season for old crop upland cotton, and 146,600 running bales ordered for 2017-18.

But the actual export number of 412,800 running bales was strong.

Traders detected the hand of fund involvement in cotton's jump too, noting that the increase was not repeated to anywhere near the same degree in later contracts.

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