Fourth time lucky.
After three times before over the past month trying to push above $3.92 a bushel, and failing, the Chicago March contract on Thursday managed it.
The lot touched $3.93 ¾ a bushel at one point, the highest for a spot contract in three months, before easing back to $3.92 3.4 a bushel in late deals, a gain of 1.0% on the day.
That was enough to put corn in the unusual position, of late, of being the grain market leader (with Chicago oats actually also putting a creditable performance, up 1.0% at $3.16 ¼ a bushel for March, the lot’s highest in nearly two months).
“Why would corn be rallying here, especially given that copper is down 1.1%, ethanol down 1.4%, and RBOB-unleaded [gasoline] is down 2.8%”, with crude oil showing a similar decline, asked Mike Zuzolo at Global Commodity Analytics.
His answer was “Brazil corn”, noting a “spike in the Brazilian corn price which has occurred just in the last week or so”.
Brazilian corn prices have certainly been firm of late, standing up 6.4% so far in 2020 in Brazilian real terms, according to Cepea, at R$51.74 a sack, and last week topping R$52 a bag for the first time since 2016.
In fact, bar a rally in May and June 2016, Brazilian corn is at its most expensive on data going back to 2004.
There are some growing murmurings over the slow pace of the Brazilian soybean harvest, after which the key Brazilian safrinha corn crop is seeded.
“Planting is getting off to a slower start compared to last year because delays in harvesting the soybeans,” said Dr Michael Cordonnier at Soybean and Corn Advisor, noting the knock-on effect of a slow soybean seeding season as started in September.
In Parana, the second-ranked safrinha corn-producing state, “soybeans were planted 2-3 weeks later than normal due to dry weather, so the safrinha corn is also expected to be planted later than normal as well”, he said.
CHS Hedging noted that Mato Grosso, the top safrinha corn-growing sate, farms “have been having 50% of normal precipitation amounts the last few weeks”.
The slow start to safrinha corn seedings comes at a time when Brazil is desperate for a good crop, after running down its stocks thanks to strong exports in 2019.
Corn vs wheat
As an extra support, CHS Hedging flagged a “lack of US producer selling” of corn in the hope of higher prices once China begins fulfilling commitments for purchases of US ags made in the trade deal signed last week.
And a stalling in the wheat rally was taken by many as a positive too, in encouraging profit-taking on short corn-long wheat spreads (or even the taking out of long corn-short wheat bets).
Chicago wheat’s premium in the last session, unusually, rose above $2.00 a bushel, March basis.
Richard Feltes at RJ O’Brien termed “positive for corn” the “strong contra-seasonal gain” in March wheat futures compared with March corn ones.
That said, the wheat premium was back to around $1.84 a bushel in late deals on Thursday, with corn outperforming despite weak US ethanol production data for last week.
US ethanol output fell by 46,000 barrels to 1.049m, barrels the “largest weekly decrease since September 20”, said Terry Reilly at Futures International.
‘Driven by what the funds decide’
Chicago soft red winter wheat itself for March managed some headway itself in late trading, but a modest 0.3% to $5.79 ¼ a bushel.
And the gain in the speculators’ favourite wheat contract was not repeated by Kansas City hard red winter wheat, which stood 0.3% lower at $4.89 ½ a bushel – a disparity which has been troubling a few traders.
CHS Hedging said that “the recent wheat rallies have been fund driven, and that has the market nervous when a rally is built on technical trade like this.
“Chicago wheat is the leader in the wheat complex,” and its direction “will be driven by what the funds decide to do”.
Paris soft milling wheat, meanwhile, which has had an unusually high profile, gained 0.3% to close at E196.25 a tonne for March, recovering some of its losses of the last session.
‘Chinese not showing signs of buying’
Chicago soybeans for March meanwhile stood down 0.6% at $9.08 ½ a bushel, in part thanks to continued disappointment at lack of confirmed Chinese purchases following the phase one China-US trade deal.
Demand hopes have hardly been encouraged by the coronavirus outbreak in top importer China on the eve of its new year holiday, a huge demand driver in normal times.
“The Chinese aren’t showing signs of buying US soybeans,” said CHS Hedging.
“Until we see large purchases by them the market will have a weaker connotation to it.”
‘Exceptional early yields’
And then there was the growing talk of strong yield results from the early Brazilian soybean harvest.
“Early bean yields in Mato Grosso are surprising to the upside, with initial reports of yields running 10-15% better than last year,” said Benson Quinn Commodities.
Karl Setzer at Agrivisor said that “soybeans are starting to see harvest pressure in the global market from South America”, while many buyers, “including China, claim to have soybean needs covered for the next several weeks.
“This may allow them the ability to wait for cheaper offerings out of South America to cover needs.”
Richard Feltes at RJ O’Brien said that the soy market was “responding to exceptional early yields in Mato Grosso, yet another day of no daily US export sales announcements and fear that worst of deadly Chinese virus is still ahead”.
Many of the negative China factors spilled over too into cotton, of which China is the top importer and consumer.
The fibre, as an industrial commodity, tends to be more responsive too to many external markets, such as the shares losing ground across major exchanges on China worries.
Cotton futures for March stood down 1.4% at 70.11 cents a pound in late deals in New York.
‘Now at bargain prices’
But not all softs were so negative, with New York arabica coffee for March ending up 1.4% at 112.60 cents a pound – rising back above its 100-day moving average, as surrendered on Monday.
Sure, “there is a large ‘on year’ Brazilian crop to be harvested at mid-year,” said ADM Investor Service, referring to 2020 being an up year in the country’s cycle of alternate higher and lower production years.
However, “coffee prices are now at bargain price levels and could find a near-term floor”.
‘Estimates have been dialled back’
Furthermore, expectations for Brazil’s harvest are eroding.
“With more than 5 months to go before their harvest reaches full speed, there is currently a wide range of estimates for Brazil’s 2020-21 coffee production,” ADM Investor Services said.
“While traders and analysts have tended to be on the higher end of estimates, they have been dialled back from some early estimates ranging up to 70m bags.
London robusta coffee for March jumped 2.2% to $1.367 a tonne,