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AM markets: Was that it? Corn, cotton, soy stabilise for now
By Mike Verdin - Published 13/09/2017

Was that it? Or is another bout of turbulence on it way for grain markets?

There was some doubt, heading into Wednesday's session, as to whether selling in the complex - after the US Department of Agriculture unveiled larger-than-expected forecasts for domestic corn and soybean crops would continue into this session, or whether it had played out in the last.

After all, while corn and soybean futures ended markedly lower, they made closes nonetheless well above intraday lows.

Wheat, for which the Wasde was not so negative, recovered to close higher.

In early deals, at least, it was the bulls which had the balance of power in Chicago and, for that matter, were in the game too in New York, where cotton futures for December followed up a limit-down fall in the last session with only a marginal easing in this one.

Data questions

Chicago soybeans for November traded 0.3% higher to $9.53 a bushel as of 09:40 UK time (03:40 Chicago time), earlier attempting a rise back above their 100-day moving average, at a bit over $9.59 a bushel.

OK, the USDA did make a surprise upgrade to its US soybean yield forecast, of 0.5 bushels per acre to 49.9 bushels per acre.

But many commentators took issue with the revision.

"Traders may not feel entirely confident in the USDA's assessment of the bean yield," said CHS Hedging. 

'USDA took some liberties'

To be more exact, the scepticism concerns officials' calculation of pod counts and weight used in the yield forecast (but which is, it has to be said, based in part on field observation).

"USDA took some liberties by using a record pod weight of 0.34 grammes," said Benson Quinn Commodities.

At Kansas-based Country Futures, Darrell Holaday said that "the most interesting aspect of the new yield projection is that USDA is actually using an implied pod weight that is 4% above the final pod weight a year ago.

"That is amazing given the fact that August and early September was substantially drier in many key areas, and the fact that there are about 6m more acres of soybeans planted. 

"Keep in mind this is 4% above the implied pod weight a year ago, which was a record weight."

Fund factor

Still, there were other factors mitigating against further price declines too.

"The fact that funds are already short took some of the pressure off corn and beans," Benson Quinn Commodities said.

This was particularly true of soybeans, a market in which "funds aren't typically as comfortable being short".

Furthermore, comparing the oilseed with corn "because the soybean market has better potential to invite demand, I would be more cautious selling into weakness in that market".

'Stop wasting money'

And corn futures for December indeed underperformed their row crop peer, but still edging a modest 0.1% lower to $3.51 a bushel.

There was some question over the yield forecast here too, with Darrell Holaday, expressing "surprise", noting that the USDA "increased the ear population by about 500 ears per acre".

Was that justified, given a hot July, and in some places a dry August too, which appears to have held crop condition, as measured by separate weekly USDA data, well below year-ago levels (as Agrimoney has focused on).

"We might as well stop wasting money on the Crop Condition report," Mr Holaday said.

"These are awfully good yields given they are the worst rated crops in five years."

'Too dry in Brazil, too wet in Argentina'

Terry Reilly at Futures International was more generous in his interpretation, saying that the "US yields show us just how resilient crops are these days to weather related stress events

"Technology has improved over the past five years, and the yield trend lines appear to have been forever changed, at least for soybeans and corn."

Still, Mr Reilly flagged another reason for sellers to be cautious, with the South American sowing window opening for main crop corn and soybeans, and conditions less than ideal.

"It's too dry in Brazil and too wet in Argentina, and traders will start trading these elements more often as the month of September draws to a close," he said.

"The two-week outlook maps for central Brazil are not all that promising for wet weather, and this is starting to raise concerns," a factor which helped coffee prices in the last session too.

"Too much rain in Argentina is delaying early summer plantings," although it was "too early to start cutting acreage".

'Most significant development'

As for wheat, it showed the strongest gains of all, adding 0.4% to $4.43 a bushel in Chicago for December delivery, lacking pressure from a bearish Wasde, and indeed without the prospect of harvest pressure on prices too.

While harvest is in its early stages in Australia, given the poor state of the country's crop, that is hardly likely to weigh too much on world values.

Indeed, January east coast wheat futures in Sydney settled overnight up 2.0% at Aus$271.00 a tonne, matching a six-week high.

Benson Quinn Commodities, speaking of US markets, said that the late recovery in futures in the last session "offers some optimism that the wheat market can hold the current values".

Tobin Gorey at Commonwealth Bank of Australia said: "The market seems to have found a seam of buying near the lows - that might be the day's most significant development."

'Cheap enough for now'

Benson Quinn Commodities added that "given Tuesday's price action, it feels like the wheat markets may be cheap enough for now", terming the late revival in the last session "constructive for all three wheat classes", ie Chicago soft red winter wheat, Kansas City hard red winter wheat and Minneapolis spring wheat.

In fact, Kansas City wheat lagged a bit, in adding 0.3% to $4.43 a bushel for December delivery, so remaining at a slight discount, which reopened this week, to its Chicago peer.

Minneapolis spring wheat for December added 0.3% to $6.43 a bushel.

'Massively bearish'

As for New York cotton, traders at Ecom had talked of a "most interesting" session on Wednesday, after the "massively bearish" reaction by investors to Wasde upgrades to US and world cotton inventory estimates.

"We will be looking to see if more sell orders need to be executed," as from 12:20 New York time on Tuesday "the market never got even a small bounce.

"So the sellers who missed out before [12:20] probably haven't had a chance to get their orders done."

As it is, the December contract fell back a bit more, to 68.47 cents a pound, early on Wednesday before recovering to 68.98 cents a pound, a 0.2% decline on the day, and has at some points dipped its toes in positive territory.

© Agrimoney 2017