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What will the Wasde bring? Grains make small gains, for now

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The, modestly, positive tone around in early deals was there at the close too, as traders proved reluctant to take values too far in any direction ahead of key data ahead.

Thursday will bring a slew of ag commodity statistics, starting off with monthly data on Malaysian palm oil production and stocks, followed by the monthly briefing on Brazilian crops from Conab.

But the main event will be the US Department of Agriculture's monthly Wasde report on world crop supply and demand, with particular interest in revised estimates for US corn and soybean production.

'Exiting positions'

The central forecast is for a cut of 4.5 bushels per acre to 166.2 bushels per acre in the USDA estimate for the domestic

corn

yield, and a 0.5 bushels-per-acre reduction to 47.5 bushels per acre in the forecast for the

soybean

figure.

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

But with much uncertainty around – the range of estimate for the corn yield, for instance, is 162.8-168.5 bushels per acre – many investors have been leery over sticking their neck out too far.

Indeed, open interest, ie the number of live contracts, was down nearly 25,000 lots in Chicago corn futures in the last session – after falls of 24,600 on Monday and 20,500 lots on Friday - in what was taken as evidence of investors taking profits and heading for the sidelines.

"Open interest changes yesterday were certainly in keeping with traders exiting positions ahead of the all-important Wasde tomorrow," said Tregg Cronin at Halo Commodity Company.

'Will continue to stress crops'

One factor which mitigated towards slightly higher prices on Wednesday was a fresh round of Midwest weather worries, and a less benign outlook than that earlier in the month which prompted a sharp removal of risk premium.

Sure, "notable rains across the central Plains, Delta, and far north western Midwest through the upcoming weekend should continue to improve moisture there, which will favour late growth of corn and soybeans," said MDA.

"However, notable dryness will continue to stress crops in central and western Iowa, north eastern Missouri, and south western Illinois."

Richard Feltes at RJ O'Brien said that the weather outlook "leans positive" for prices, with "only 30%, five-day Midwest precipitation coverage, spawning the view that US corn and soybean yield is eroding".

Corn, soybean prices

Still, trading volumes were soft, and price movement limited, with soybean futures for November indeed closing flat at $9.73 ¼ a bushel.

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

Corn futures for December fared better, adding 0.5% to $3.86 ¼ a bushel, at the end of a trading day constrained at the top by the 20-day moving average, and the bottom by the 10-day.

Demand news on the grain was better, with weekly US ethanol production last week up 10,000 barrels a day to 1.01m barrels a day.

"Business on domestic corn usage remains good, but any new export business is difficult," said Benson Quinn Commodities.

'Recharging soil moisture'

Wheat

futures, meanwhile, for September gained 0.4% to $4.59 ½ a bushel in Chicago, continuing to tread a part just below the 100-day and 200-day moving averages, at some $4.66-4.67 a bushel, but sterring clear of the $4.50 mark too.

On the downside (arguably) for values were decent quality results from the French harvest, released late on Tuesday, and wet weather on the way for the southern Plains mid-month.

"If they verify, these rains would go a long way in recharging soil moisture ahead of fall wheat planting across almost the entire region, including the panhandle areas of Oklahoma and Texas," said CHS Hedging.

Quality factors

But the results from the Russian harvest, while strong in volume terms, are not so in quality terms, with consultancy Ikar reporting that Russian protein spreads are pushing to record highs, with 11.5% protein wheat trading at a $15-a-tonne discount to 12.5% protein wheat.

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

In fact, strong harvests often come in with depressed protein levels, with high yields seen as "diluting" protein levels.

Furthermore, quality worries continue to grow over German, and now UK, harvests - but over rain delays which threaten harvesting and leave crops out to deteriorate.

While the UK is typically better known for feed wheat, the development of higher-yielding milling varieties has spurred farmers to try for quality as well as quantity.

'Serious concerns'

The rainfall is causing "serious concerns for UK wheat quality", CRM AgriCommodities said.

"Relentless rains continue to fall on ripe crops across much of the UK as harvest stalls once again.

"Quality, as a result, is deteriorating and buyers are starting to increase the premium which they are paying pay for higher spec grains."

London feed wheat, meanwhile, for November eased 0.7% to £142.75 a tonne, weighted byt eh prospect of extra feed supplies.

'Spectacular harvesting'

Among soft commodities, New York

arabica coffee for

September settled down 0.1% at 142.65 cents per pound, despite weak Brazilian export data, with some investors opting to take profits on a rally of approaching 25% from a mid-June low.

Furthermore, the real weakened 0.8% against the dollar, which found firmness as a "safe haven" at a time when cage rattling by US and North Korea is unnerving broader markets.

A softer real undermines the value in dollar terms of assets in which Brazil is a major force.

But New York

raw sugar

for October settled down 1% at 13.64 cents per pound, dropping with the real, and worries that values have not been low enough for long enough yet to encourage Brazilian mills to champion making ethanol from sugar, and depress output of the sweetener.

Indeed, Sucden Financial flagged a shortfall in "positive news for the sugar bulls at present from within the sugar sphere, with reports of spectacular levels" of cane harvesting in Brazil, and "market chat that 50% plus of sugar for October from Brazil is still to be priced".

By Mike Verdin

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