Evening markets: corn, cotton futures drop as Wasde looms
By - Published 11/05/2015

It wasn't the busiest day on grain markets.

But then there are some nerves ahead of the US Department of Agriculture's monthly Wasde world crop supply and demand report due on Tuesday.

Besides updating balance sheet estimates for 2014-15, that will include the first forecasts for next season too.

So it required confidence in some other factors to move prices of grains, or cotton, too far ahead of the briefing.

'Wide range of opinion'

In cotton, investors got that confidence from talk that a large speculative investor may start to liquidate a long position, with a weakened US export trend seen as increasing the likelihood of such liquidation.

Whether the rumour is true, investors had in black and white data from the US Commodity Futures Trading Commission regulator late on Friday showing that hedge funds held more than 56,000 contracts in New York cotton futures and options as of Tuesday last week.

That was the highest figure in nearly a year.

Besides, Tobin Gorey at Commonwealth Bank of Australia noted the "wide range of opinions" that analysts have for the US cotton estimates that will show up in the Wasde.

"A wide range of opinion generally results in a wide trading range for prices," he said, implying hazardous conditions for the risk averse.

New York cotton for July ended down 0.8% at 65.39 cents a pound, back below its 20-day moving average.

'Strong progress'

For corn, investors got confidence to sell from expectations that USDA data due later on Monday will show rapid US plantings last week.

"Planting expectations for US corn this afternoon are around 73% completed, and soybeans around 27%," said Darrell Holaday at Country Futures.

"The reality is that the actual pace is quite likely several points higher," given largely open US weather for sowings in the latest week.

"Corn planting likely made strong progress," before rains returned at the weekend, said Gail at Martell Crop Projections. 

"Perhaps 19% of additional corn was planted last week boosting the total corn sown to 74% complete.

"Summerlike temperatures also promoted rapid corn germination."

And while the weekend rainfall may slow later sowings, it will boost prospects for crop already in the ground.

Chinese auction

As an extra pressure, China is planning to auction 3.83m tonnes of corn from state reserves this week, up from the 3.4m tonnes offered last week, with the increase seen as down to appeal spurred by a raised subsidy.

The government agreed to give processors in the key Heilongjiang province 200 yuan ($32)a tonne in handouts for buying from state reserves.

And extra crop bought from state reserves potentially counters import demand.

Certainly, Chicago corn futures for July dropped 0.9% to $3.60 a bushel, the contract's weakest close in seven months, despite some decent US export data, at 1.14m tonnes last week, up from 1.06m tonnes the week before.

'Some damage has been done'

However, investors felt less certain in shifting wheat futures too far, especially given that hedge funds already have a record short in Chicago and Kansas City winter wheat contracts, raising some concern over the appetite for further such bets.

OK, the wheat market "continues to be haunted by rumours that Russia may eliminate their export tariff as early as the end of this month", said Country Futures' Darrell Holaday, terming this "a pressuring influence" on prices.

But on the more positive side for prices, cold weather of late in the US may have caused some damage.

"Expectations are that this afternoon's crop conditions report will show that some damage has been done to the winter wheat crop," CHS Hedging said.

And dryness continues in some parts of Europe too, albeit not so widespread in the top growing countries.

Chicago soft red winter wheat eased 0.1% to $4.81 a bushel for July, while the Kansas City July hard red winter wheat contract edged 0.25 cents higher to $4.81 a bushel.

US wheat exports last week, at 378,407 tonnes, were up more than 50,000 tonnes week on week, although hardly at a bumper level.

'Wetter than desired'

For soybeans, US export sales came in at 263,263 tonnes, actually not too bad for a time of year when South America is taking control of the market, and up from 172,556 tonnes the week before.

Allendale said half way through the trading day that "China's lowering of their interest rate is providing early support to soybeans", with the country the top importer of the oilseed.

And Mr Holaday said that "there is some support in soybeans around ideas that the forecast remains a little wetter than desired" in major US growing regions, where the oilseed is only around 25-30% planted.

Furthermore, there was some support from soyoil, which ended up 0.7% at 33.19 cents a pound for July, after a strong performance by rival vegetable oil palm oil in Kuala Lumpur, helped by strong Malaysian export data for May so far.

However, Chicago investors found it tricky to justify buying soybeans themselves, given the prospect of the Wasde showing huge US stocks for the end of 2015-16.

July soybeans ended down 0.2% at $9.74 a bushel.

'Colossal May expiry'

Back in New York, raw sugar for July ended up 0.4% at 13.48 cents a pound, as the idea of a strong vessel line-up following the record, 1.9m-tonne delivery against the expiring May contract spurred ideas that buyers for the supplies had been found.

"The world's leading commodity commentators are switching on to sugar it seems following the colossal May expiry," said Sucden Financial, also noting New York sugar even this week, besides the interest rate cut in China, a huge importer of the sweetener.

"The New York dinner Wednesday has the reputation for being a 'bull' dinner," Sucden said.

"We await with baited breath the fallout/gossip later today and tomorrow from the meetings/cocktail parties/corridor chats/shared taxi conversations et al."

The bullish talk comes at a time when hedge funds had been renewing their bearish bets on raw sugar, prompting the potential for further short-covering.

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