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US data hurt grain, soy prices. Brazil data turn sugar sour

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 expected.

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 feed'

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.

'Especially bearish'

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 a bushel, its lowest close, while the old crop September lot shed 1.0% to $3.789 a bushel, the weakest close for a nearest-but-one contract in four years.

China upgrade

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 little elastic

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.

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