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AM markets: grains edge higher, amid pre-Wasde calculations

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Grains started off by putting a foot in positive territory, although whether they stay that way…

The weather forecast is one key determinant, of course, with prices in the last session swinging forward and backwards, with a little late recovery, on shifts in the outlook.

'Quite striking'

WxRisk.com, while seeing a wet close to August, was less upbeat about immediate prospects.

"Most the Midwest will not see significant rain over the next 10 days," the weather service said.

Talking of the chance of getting more than inch of rain over the next 10 days, the weather service said that "for many areas in the Midwest the probabilities under 30% which is quite striking".

"Ensemble [weather] model agreement is very strong that the heart of the Midwest remains essentially dry all the next five days," although temperatures look like remaining below average, and even well below, limiting the threat of evaporation.

'Feels like late September'

Benson Quinn Commodities put it that "rains continue to miss short areas", with the market focusing in the main on Iowa and Illinois, the top corn and soybean growing states.

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

Harvested area

: 83.418m acres, (83.496m acres)

Range of estimates: 83.1m-83.5m acres

Yield

: 166.2 bushels per acre, (170.7 bpa)

Range of estimates: 162.8-168.5 bpa

Production

: 13.855bn bushels, (14.255bn bushels)

Range of estimates: 13.59bn-14.07bn bushels

Year-end stocks

: 2.003bn bushels, (2.325bn bushels)

Range of estimates: 1.642bn-2.375bn bushels

Year-end stocks, 2016-17

: 2.386bn bushels, (2.37bn bushels)

Range of estimates: 2.34bn-2.73bn bushels

Sources: USDA, Reuters

That said, coolness also means "slowing" the rate at which a crop like

corn

"adds yield", the broker said.

And in

soybeans

, "we are also hearing from some in our trade territory that with beans short, the cooler weather is not necessarily ideal with crops in reproductive phase as beans like heat to fill out".

"It is also a bit disconcerting that here in southern Minnesota, the garden spot," in early August, "morning temperatures feel like late September and we are running about a week behind normal on maturity".

Yield downgrade?

And then there is the prospect on Thursday of the US Department of Agriculture's monthly Wasde report, on world crop supply and demand, to factor in.

The Wasde is anyway a highpoint of the ag investors' calendar, but especially this time, when downgrades to estimates for US corn and soybean yields, following a dry July, are expected.

In corn, for instance, traders are expecting a cut in the US yield forecast to 166.2 bushels per acre, from the current figure of 170.7 bushels per acre.

In fact, this is a "modest" reduction, according to Richard Feltes at broker RJ O'Brien, taking a glance at historical downgrades in August Wasde reports.

"The six years since 2000 with July to August cuts in corn yield, excluding droughty 2012, averaged 5.1 bushels per acre."

Inventory implications

If that offers hope to bulls, not all the takes on this dynamic are monumentally upbeat for prices.

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

Harvested area

: 88.669m acres, (88.731m acres)

Range of estimates: 83.3m-88.731m acres

Yield

: 47.5 bushels per acre, (48.0 bpa)

Range of estimates: 46.9-48.0 bpa

Production

: 4.212bn bushels, (4.26bn bushels)

Range of estimates: 4.165bn-4.307bn bushels

Year-end stocks

: 424m bushels, (460m bushels)

Range of estimates: 424m-460m bushels

Year-end stocks, 2016-17

: 401m bushels, (410m bushels)

Range of estimates: 370m-420m bushels

Sources: USDA, Reuters

That is "not enough to take out summer high for December futures of $4.07 a bushel, but enough to provide strong support in the $3.70-3.80 area".

Corn futures for December stood up all of 0.1% at $3.84 a bushel as of 10:00 Chicago time (04:00 UK time).

Historical trend

For

soybeans

, investors are expecting a modest 0.5 bushels-per-acre drop in the yield figure, to 47.5 bushels per acre, with August more crucial for crop prospects, bringing pod-setting (rather than July as for corn, when the grain pollinates).

This would also be a small downgrade, by historical perspectives, for an August Wasde.

"The eight years since 2000 with July to August cuts in soybean yield, excluding droughty 2012, averaged 1.4 bushels per acre.

"The smallest July to August cut was 0.8 bushels per acre," seen in both 2001 and 2004.

Soybeans back to $10 a bushel?

Furthermore, for bulls, there is the prospect of a cut to the US carryout estimate for 2016-17, which ends this month, thanks to a strong pace of exports.

Mr Feltes mused that a "lower-than-expected 2016-17 US soy stocks figure on Thursday, a positive last half of August soybean seasonal [price trend] and concern over a dry finish to the Midwest summer may collectively boost November futures closer to $10.00 a bushel by late August".

Still, soybean futures for November in early deals stood at $9.74 ½ a bushel, up 0.1%.

'Shipments will be over 31m tonnes'

As for

wheat

futures, while investors maintain a close eye on North American spring crop prospects, after dryness in the northern US and less so Canada's Prairies, there are many factors abroad too to build into prices.

These include, on the negative side for prices, ever-increasing expectations for Russia's harvest,

With Russia's harvest "in full swing, yields are well over initial expectations in several major production regions, mainly in the Centre and Volga," said Agritel.

"Russian exports are expected to grow significantly even if uncertainties remain about logistical capacities."

"Shipments will be over 31m tonnes for sure" in 2017-18.

'Eastern grain market on edge'

However, there are worries for investors too.

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

Hard red winter

: 756m bushels, (758m bushels)

Range of estimates: 737m-775m bushels

Soft red winter

: 307m bushels, (306m bushels)

Range of estimates: 300m-311m bushels

White winter

: 215m bushels, (216m bushels)

Range of estimates: 205m-224m bushels

All winter

: 1.278bn bushels, (1.279bn bushels)

Range of estimates: 1.258bn-1.293bn bushels

Other spring

: 393m bushels, (423m bushels)

Range of estimates: 350m-440m bushels

Durum

: 56m bushels, (58m bushels)

Range of estimates: 50m-56m bushels

All wheat

: 1.711bn bushels, (1.760bn bushels)

Range of estimates: 1.550bn-1.784bn bushels

Sources: USDA, Reuters

"Weather forecasters' confidence in forecasts for significant rainfall in Australia's western crop regions is growing," said Tobin Gorey at Commonwealth Bank of Australia.

"Forecasters' outlook for grain regions either side of the Queensland New South Wales border though is not encouraging.

"These worries will keep the eastern grain market on edge."

'Significant degradation'

And in Germany, worries are growing over a rain-delayed harvest (as they are in the UK too, although more currently over earlier harvested crops than wheat).

Agritel flagged "uncertainties about quality of the German harvest penalised by persistent rains.

"Harvest works have hardly reached 25% in the north of Germany and qualitative tests are confirming a significant degradation" in quality.

Chicago wheat for September added 0.3% to $4.58 ¼ a bushel.

By Mike Verdin

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