There were hopes among some ag investors of a "sell the
rumour, buy the fact" rally in grains as regards the release of the benchmark
Wasde crop report.
The idea was that, with the extent of selling in the run-up
to the US Department of Agriculture's monthly briefing on crop supply and
demand, even data as bearish as investors had expected would prompt
profit-taking on short positions, rather than provoke fresh selling.
The trouble was that the data were even worse than forecast,
in upgrading estimates for grain inventories even further than investors had
The result was, well, further carnage, especially in wheat, which tumbled 4.1% in Chicago to
$5.26 a bushel for September delivery, the lowest close in four years, and
touching a fresh contract low of $5.25 a bushel earlier.
Hard vs soft
OK, the data were not all bad for wheat.
Richard Feltes at RJ O'Brien noted that the Wasde cut the
estimate for the US hard red winter wheat crop by a "whopping" amount to an
eight-year low of 703m bushels.
With the estimate for US hard red winter wheat stocks at the
close of 2014-15 cut to a five-year low of 185m bushels, the data "should be
supportive" to Kansas City hard red winter wheat prices compared with futures
in other wheat types, Mr Feltes said.
And, indeed, Kansas City wheat for September closed down a
relatively modest 1.7% at $6.36 a bushel, enough to take its premium over
Chicago soft red winter wheat back over $1 a bushel.
The trouble was that the US raised its forecast for the
overall wheat crop to 1.99bn bushels, 23m bushels higher than expected, reflecting
an upgrade to 520m bushels in the estimate for the hard red spring wheat crop,
a rise of 30m bushels year on year.
Overall US wheat inventories were estimated at 660m bushels
at the end of 2014-15, an upgrade of 86m bushels, and well above the figure of
591m bushels that investors had expected.
And it was Chicago soft red winter wheat, as the speculators'
favourite, which took most of the hit.
'Lowering quality to
European contracts were lower too, hardly helped by an
upgrade of 1.63m tonnes to 147.88m tonnes in the USDA's estimate for the EU
harvest, although it has to be said that figures of this size or bigger have
been on the market radar for a while.
"Mostly favourable weather during June in central Europe
further improved prospects for a near-record EU wheat harvest," the USDA said.
"Prior concerns about winter and spring dryness in central
Europe were alleviated by well-timed rain."
That said, the USDA cautioned that, in Spain, "unfavourably
dry conditions" prompted a 600,000-tonne reduction to the estimate for the
country's wheat harvest, while highlighting the worries over late rains in the
south east of the EU.
"In the Balkan Peninsula, heavy rains and flooding reduced
crop potential in the export countries of Romania and Bulgaria, likely damaging
wheat and lowering quality to feed standards."
Paris wheat for November touched a contract low of E180.25 a
tonne and ended at E180.50 a tonne, down 0.7%, and the weakest close for a spot
contract in two and a half years.
London wheat for November also touched a contract low, of £130.50
a tonne, before ending at £130.55 a tonne, down 1.2%, and a four-year closing
low for a spot contract.
For fellow grain corn,
the Wasde data were bearish in that they estimated US inventories at the close
of 2014-15 at 1.801bn bushels, an upgrade of 75m bushels.
And that was without any lift to the yield estimate, of
165.3 bushels per acre, of which many investors now see a figure of 170 bushels
per acre as likely.
"Remember, if yield is above 165, and the odds of that
happening are very high, then the increased production will add on to those
ending stocks," Darrell Holaday at Country Futures said.
Furthermore, there were some downbeat revisions to the world
balance sheet too.
"World corn numbers were especially bearish with Brazilian
corn production being moved up in the current crop year and Chinese corn production
up 2m tonnes in the new crop year," Mr Holaday said.
And, with US weather remaining benign, corn for December
ended down 2.0% at $3.84 ¾ a bushel, its lowest close, while the old crop
September lot shed 1.0% to $3.789 ¼ a bushel, the weakest close for a
nearest-but-one contract in four years.
New crop November soybeans,
meanwhile, set a contract low, of $10.65 a bushel, for the first time in this downdraft
in prices, before ending at $10.75 a bushel, down 1.7% on the day.
The Wasde raised the estimate for US soybean stocks at the
close of 2013-14 above market expectations.
This despite raising the estimate for much-watched Chinese imports in 2014-15, by 1m bushels, to 72m bushels.
China is the top soybean importer, responsible for
two-thirds of world volumes.
Cotton proves a
Where the Wasde was not perceived as quite so negative was
in the cotton market.
Sure, the report lifted the estimate for US production this
year by 1.5m bales to 16.5m bales, and raised the forecast for end-of-season
stocks to a six-year high of 5.20m bales.
However, there were harvest downgrades too for Australia,
Brazil and India, if not enough to prevent the estimate for world stocks being
upgraded again, by 3.0m bales to a record 105.7m bales.
Cotton for December
closed down a relatively modest 0.6% at 68.12 cents a pound in New York, having
touched a contract low of 67.10 cents a pound earlier.
'Bearish short term'
Futures in raw sugar
performed worse, dropping 1.3% to 17.07 cents a pound for October, as investors
got the first chance to react to last night's Unica data showing an acceleration in Brazil's harvest.
"The chat around the trade/market following last night's
update from Unica seems to have been digested as bearish short term, with
increased productivity," said Thomas Kujawa at Sucden Financial.
That said, given that the dryness speeding harvesting is
damaging cane, it could be "perhaps bullish in the first quarter of next year, with
further indications of potential for a short tail off to Brazil's campaign".
While Rabobank forecast a world production deficit in
2014-15, its estimate of 900,000 tonnes was well within the existing range of
expectations, and the bank was cautious over any impact on raising prices.
'Slow season for consumption'
And arabica coffee
fell 1.0% to 161.14 cents a pound for October delivery, earlier hitting 159.55
cents a pound, its lowest since February.
"Seasonally we are in a slow season for coffee consumption
and this slowing some end user demand," Citigroup's Sterling Smith said.
Brazil's dry weather is also speeding the coffee harvest,
adding pressure on prices from that perspective too.