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AM markets: grain futures revive from lows, as key data loom
By Mike Verdin - Published 12/10/2017

The slew of data has already begun.

The highlight, in ag statistics terms, of the day will be the US Department of Agriculture's monthly Wasde crop supply and demand report, due at 11am Chicago time (5pm UK time).

But we have already had China's monthly Casde briefing, on domestic crops.

China corn harvest downgrade

While 2017-18 forecasts on cotton, sugar and soybeans were largely unchanged (the latter seeing a 260,000-tonne upgrade to 14.94m tonnes, on a higher acreage estimate, but with the import figure of 94.5m tonnes left unchanged), for corn, China's ag ministry did in the Casde make some sizeable revisions in corn.

The corn harvest forecast was cut by 2.4m tonnes to 210.11m tonnes, on a reduced area estimate, down 400,000 hectares at 35.1m hectares.

And the consumption estimate was lifted too, by 1.05m tonnes to 216.62m tonnes.

The result was that China's huge corn stocks (for which a figure was naturally not provided) will drop by 4.31m tonnes this season (starting this month), rather than the 890,000-tonne drop previously expected.

'Better-than-expected yields'

The USDA, by the way, currently sees the Chinese corn harvest at 215.0m tonnes, and the country's stocks drawdown at 20m tonnes, to 81.3m tonnes, being far more upbeat on demand prospects.

Still, such estimates will be open to revision later in the Wasde, although investors' eyes will be more on updated forecasts for US crops, and in particular the figures on corn, cotton and soybeans.

For corn and soybeans, modest yield upgrades are expected, with Benson Quinn Commodities noting that "average guesses by the analysts point to slight yield and therefore production increases".

CHS Hedging said "early yield reports throughout the corn Belt indicate better-than-expected yields in many areas".

Soy vs corn

This is, arguably, particularly the case for corn.

Forecasts for US 2017-18 soy data in Wasde and (existing figure)

Harvested area: 89.017m acres, (88.731m acres)

Range of estimates: 88.5m-89.82m acres

Yield: 50.0 bushels per acre, (49.9 bpa)

Range of estimates: 49.1-52.1 bpa

Production: 4.447bn bushels, (4.431bn bushels)

Range of estimates: 4.335bn-4.490bn bushels

Year-end stocks: 447m bushels, (475m bushels)

Range of estimates: 375m-500m bushels

World year-end stocks: 96.48m tonnes, (97.53m tonnes)

Range of estimates: 93.9m-98.0m tonnes

Sources: USDA, Reuters

"Harvest reports continue to indicate a lot of variability in the soybean crop," Benson Quinn Commodities said.

"The corn crop seems to be more uniform."

That said, "with only 22% harvested through last Sunday it's early in the process", with the Midwest harvest having been delayed by rains, although now looking at drier weather and a bit of a reacceleration.

Certainly, with corn futures already low - for December ending the last session only 0.5 cents above a contract closing low set in late August investors were reluctant to press prices any lower in early deals.

The December contract stood up 0.1% at $3.46 a bushel as of 08:45 UK time (02:45 Chicago time).

'Rest is a crapshoot'

Besides, corn and soybean futures to have a habit of setting seasonal lows around now, many commentators have noted.

Forecasts for US 2017-18 corn data in Wasde and (existing figure)

Harvested area: 83.531m acres, (83.496m acres)

Range of estimates: 83.1m-84.0m acres

Yield: 170.1 bushels per acre, (169.9 bpa)

Range of estimates: 168.7-171.5 bpa

Production: 14.204bn bushels, (14.184bn bushels)

Range of estimates: 14.06bn-14.355bn bushels

Year-end stocks: 2.289bn bushels, (2.335bn bushels)

Range of estimates: 2.168bn-2.450bn bushels

World year-end stocks: 201.91m tonnes, (202.47m tonnes)

Range of estimates: 196.7m-204.5m tonnes

Sources: USDA, Reuters

Soybean futures for November stood up 0.4% at $9.69 a bushel, although that could of course change later.

Benson Quinn Commodities said: "The known entity is that USDA will adjust carry-in down 44m bushels" for 2017-18, based on the September 1 inventory figure released two weeks ago.

"The rest is a crapshoot," as in the US dice game.

Still, soybean prices were also helped by, besides lingering worries over Brazil's dryness-delayed sowings, strength elsewhere in the oilseeds complex, with palm oil jumping 0.8% to 2,718 ringgit a tonne in Kuala Lumpur, supported by a 0.5% rise to 5,548 yuan a tonne in values on China's Dalian exchange.

'The $1m question'

As for cotton, this Wasde is crucial as it will make estimates for US crop damage to hurricanes Harvey and Irma.

"Analysts expect the USDA to cut both its cotton production and inventory estimates by about 1m US bales," said Tobin Gorey at Commonwealth Bank of Australia.

"Whether that will be enough to allow prices to remain at current levels is the question."

Australian traders at Ecom said that "when we wake up tomorrow morning I expect we will see the market will have settled 200pts [2.0 cents] away from where it currently is.

"Will it settle up or down is the $1m question."

At US-based McCleskey Cotton, Ron Lee noted that cotton futures "have been locked in the same 250-point price range since last month's numbers were released.

"Mills want to buy cotton at 67.00 cents a pound and lower. Growers want to sell cotton at 70.00 cents a pound and higher."

Heart vs head

As for the hurricane damage, Mr Lee noted that the USDA has, in its weekly Crop Progress reports, "increased the crop rating every week since the week after Irma hit", ie raising the proportion of crop rated good or excellent, this week by 3 points.

"While Harvey and Irma likely took away 800,000-1m bales, the crop may have grown by that same amount in unaffected areas," he said.

"My heart wants to tell me that the USDA will cut the crop to 20.8m-21.2m bales and the market will react favourably - my head says 'big crops get bigger' and we could see a 21.8m-22.2m bale number and the downside could get tested once again."

Separately, Rabobank said that its "worst case scenario for crop damage from the two major weather events" is that "800,000 bales have been damaged or lost.

"That still leaves a crop of more than 21m bales."

For now, New York cotton futures for December added 0.5% to 69.04 cents a pound.

'Deteriorated significantly'

As for wheat, Chicago futures for December added 0.4% to $4.34 a bushel, recovering a little from their lowest six-week low finish to the last session.

Forecasts for 2017-18 wheat output in Wasde, (existing figure)

US year-end stocks: 946m bushels, (933m bushels)

Range of estimates: 928m-971m bushels

World year-end stocks: 262.8m tonnes, (263.14m tonnes)

Range of estimates: 258.0m-265.4m tonnes

Sources: USDA, Reuters

Overnight, Abares, the Australian commodities bureau, took the unusual step of cautioning that it was to downgrade its forecast for the country's harvest of winter crops (which include wheat), thanks to continued dryness.

"Unfortunately, in New South Wales, crop conditions in the central west have deteriorated significantly and yields are likely to be well below our September forecast," the bureau said.

"Seasonal conditions were generally unfavourable for crop development in the eastern states in September with well-below-average rainfall, above-average daytime temperatures and significant frost events in many regions."

It appears that this statement came after the close of Sydney markets, where east coast wheat futures for January ended down 1.4% at Aus$267.80 a tonne.

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