AM markets: speedy US cold front pushes grain prices lower
By Mike Verdin - Published 24/07/2017

The grain traders who a couple of months ago were begging for more market volatility have certainly had their wish granted.

Futures started the week with another big move this time downwards, and sufficient in corn to produce a gap in the chart for the December lot, with Monday's price high so far, at $3.89 a bushel, more than $0.03 below the bottom of the trading range for the last session.

The contract stood down 1.7% at $3.86 a bushel as of 09:30 UK time (03:30 Chicago time).

The cause of the selling was, again, primarily down to changes in the US Corn Belt weather, this time for the better in production terms.

As David Tolleris at noted, this weekend "there was significant rain over the north eastern 25% of Iowa, with some  areas getting as much as 7 inches of  rain.

"This heavy rain extended into the north east 25% of Illinois and north west Indiana, with a second area over south west Indiana near the Kentucky state line."

'Heat pretty much over'

Sure, Mr Tolleris also noted that central and western areas of Iowa, the top corn-growing state, as well as eastern Nebraska and northern Missouri missed out on expected rain.

However, on a more positive note for growers, a cold front has "clearly come in 6-12 hours fast.

"As a result the threat of 95-100 degree Fahrenheit temperatures over Iowa, northern Missouri and downstate Illinois is pretty much over with for the time being."

While heat will continue in the Plains for now, a "second cold front coming down from Canada will develop significant rain and thunderstorms over southern Minnesota, northern Wisconsin, and north eastern Nebraska by Wednesday evening," Mr Tolleris said. 

"This cold front will bring moderate rain to much of Iowa as well as the rest of eastern Nebraska, southern Wisconsin by Thursday morning."

'Multiple ifs and buts'

MDA, meanwhile, said that "showers this week should lead to some [crop] improvements in southern Illinois, western Iowa, and far eastern Nebraska".

And the forecast for the six-to-10 day period has turned "cooler".

That is not to say that the US is suddenly looking at a record corn yield.

Tobin Gorey at Commonwealth Bank of Australia said that "the picture though remains very complex - multiple 'ifs' and 'buts' characterise any discussion.

"The consequence is that we are still looking at some very different paths for the US corn crop and so corn prices."

'Funds more long than estimated'

But the more promising weather outlook blunted concerns over a decline in the US corn crop rating in weekly data later from the US Department of Agriculture.

Futures international forecast a 2-point drop to 64% in the reading for the proportion of corn in "good" or "excellent" condition, besides a 1-point fall to 60% in the soybean rating, and 1 point to 33% in the figure for spring wheat.

And the temptation to sell was only enhanced by separate data on investor positions showing that hedge funds actually increased their net long in Chicago corn futures and options in the week to last Tuesday, rather than reducing it has investors had expected.

"The trade was looking for funds to add a good amount of shorts to corn, Chicago wheat, soybeans, soymeal and soyoil," said Terry Reilly at Futures International.

"However, actual versus trade estimates had the funds more long than estimated."

Chinese imports

Similar thinking in terms of better Corn Belt weather and a bigger hedge fund long than expected spurred selling in soybeans too, with Chicago's November contract down 1.7% at $10.04 a bushel, also leaving a small gap in its chart.

Chinese customs data over the weekend confirmed a small pullback in the country's soybean imports last month, of 6.7% year on year to 7.69m tonnes, although that had already been flagged by analysts.

 (Imports for the first half of the year were still up strongly, by 14.2% to 44.8m tonnes.)

Chinese corn imports were more upbeat, in jumping 472% year on year although, at 383,093 tonnes, that is relatively small beer and, from a US perspective, less exciting in that 287,593 tonnes came from Ukraine, with only 72,704 tonnes bought from the US.

Back among oilseeds, palm oil imports shed 8.5% year on year in June to 217,306 tonnes, hardly a help to Malaysian prices of the vegetable oil, which eased by 1.0% to 2,547 ringgit a tonne.

'Still too long'

Back in Chicago, soft red winter wheat futures fell by 1.6% for September to $4.91 a bushel, feeling downward pressure from fellow grain corn, besides ideas that the world has ample supplies of poorer quality wheat, and that funds may have bought too much.

"I do believe [funds] are still too long the winter wheat markets," said Benson Quinn Commodities.

"The technicals in the winter wheat markets are neutral to weaker. The momentum studies are flattening out.

"If the winter wheat markets broke about $0.30 a bushel, I wouldn't be surprised."

Too late?

One factor limiting losses somewhat was the, relative, strength in spring wheat, which dropped by 1.3% to $7.55 a bushel in Minneapolis for September delivery.

Sure, the forecast for the drought-hit spring wheat belt has turned "slightly wetter", said Commodity Weather Group, and this after some precipitation last week.

However, last week's moisture "across the US spring wheat areas may have come too late to boost crop conditions", Futures International's Terry Reilly said.

And the condition of the US crop will come into particular focus this week with a much-anticipated crop tour.

"Their traditional route is more focused on areas that have a good crop, but they will see some of the poorer crop," Benson Quinn Commodities noted.

Cotton eases

In New York, cotton joined its fellow row crops in retreat, although less so, in shedding 0.4% to 68.12 cents a pound for December delivery.

That said, the fibre had failed to enjoy the same uplift over the past couple of months, with weather concerns less significant in the southern US cotton belt.

"Futures this morning are off," said traders at Ecom, adding that the December contract has struggled to hold above 69.00 cents a pound.

"Without more strength to push the market to hold and close above 69.00 in the December contract, we would expect the futures to fall back down into the 66.00-68.50 range."

© Agrimoney 2017