The storm in the corn market ended up passing (for now at least) sooner than many investors had feared.
After a fall to $5.24 ¾ a bushel in early deals - taking nearly to 9% losses since Tuesday’s momentous US Department of Agriculture Wasde crop report – the Chicago March corn contract revived to end at $5.41 a bushel.
That represented a gain of 1.2% on the day, and took the lot back above some key chart levels too, including the 20-day moving average that the contract surrendered in the last session for the first time in nearly two months.
‘Time is of the essence’
Key to the revival was USDA export sales data for the week to last Thursday which, came in at 1.45m tonnes, spurred by strong Japanese and Mexican buying.
OK, that was down 81% from the record 7.44m-tonne figure recorded the previous week. But that was an anomaly, caused by an unprecedented Chinese buying spree.
The figure was above the 800,000-1.40m tonne range expected by investors.
And, signally, actual exports were strong too, at 1.57m tonnes, the highest in 20 months, easing some of the concerns that, however much corn the US has sold, it will need its best-ever performance to get the corn out of the door and meet USDA export expectations for this season.
As Benson Quinn Commodities said, “those numbers will need to continue, cold weather or not, as time is of the essence in the execution department”.
‘Surprise to us’
“Trade is also mindful of the slow pace of the Brazil soybean harvest and safrina corn planting,” said Richard Feltes at RJ O’Brien.
In fact, Conab, in its first formal forecast for Brazil’s safrinha crop this year, came out with a figure 3.3m tonnes above the number it had pencilled in.
The revision “was a surprise to us as we thought Conab would start factoring in potential area loss for the second crop amid delays in soybean harvest,” said Terry Reilly at Futures International.
Nonetheless, the total Conab estimate for Brazil’s corn output in 2020-21, at 105.5m tonnes, remained below expectations from some other commentators – eg the USDA on 109.0m tonnes.
For soybeans, Conab made a smaller upgrade to its Brazilian 2020-21 output forecast, of 125,000 tonnes to 133.8m tonnes, taking the estimate a little further above the USDA’s 133.0m-tonne figure.
Still, many investors had expected a bigger upgrade, with Mr Feltes saying he suspected that gains in Chicago futures were “driven in part by relief that Conab did not post a significantly higher soy production forecast”.
The March soybean contract closed up 1.0% at 13.67 ½ a bushel, bouncing after earlier coming close to its 40-day moving average for the first time in six months.
Decent US export sales data helped here too, at 804,722 tonnes, above the range of 300,000-750,000 tonnes that investors had expected, and with a further 178,500 tonnes ordered for next season too.
Furthermore, actual exports were strong, at 2.21m tonnes, taking the total shipped so far in 2020-21, which is still only a little over half-way through, to 49.7m tonnes.
The USDA us forecasting exports for the whole season to come in at 61.24m tonnes – ie meaning less than 12m tonnes of headroom to go, and requiring the monthly pace from now on to fall short of last week’s total.
However, the return to more normal service in corn was not so supportive this time for wheat, which is seen needing to cut its premium to buy demand from the rival grain.
Chicago soft red winter wheat for March closed down 0.3% at $6.33 ½ a bushel – a small move on its own, but one which made a marked difference to its premium over March corn, which tumbled by 8.4% to $0.92 ½ a bushel.
US export sales for last week were decent too, at 591,044 tonnes, above market forecasts of a figure of 200,000-450,000 tonnes.
Cold threat debate
However, one potential price support which does not seem to finding traction is that of cold northern hemisphere, and its potential to damage winter wheat crops.
“While temperatures drop well below freezing deep into Texas this weekend into next week, weather forecasters are mixed as to the condition of the winter wheat crop as it relates to winterkill,” said Sean Lusk at Walsh Trading.
And in Russia, where “an impressive snow event is potentially expected later this week and into the weekend in western and northern Ukraine to the Moscow area of Russia’s Central Region,” snow accumulations of “10-24 inches could provide a protective blanket with extreme cold to follow.
“Snow cover is also expected to improve in the snow-free areas of Russia’s Southern region before a forecasted bitter cold comes along next week.”
Kansas City hard red winter wheat, particularly exposed in its southern Plains heartland to the US cold story, dropped a more marked 0.5% to $6.11 a bushel for March.
‘Winterkill is likely’
Still, just for balance, Maxar did caution that in the US “extremely cold weather is expected to push southward across the Plains over the next several days, leading to some winterkill threats for the hard red winter wheat crop.
“Snow cover is lacking across the central and southern Plains and temperatures are expected to drop well below winterkill levels by the weekend”, with the area at most risk “eastern Colorado and north central and western Kansas, where winterkill is likely”.
Still, for the former Soviet Union, the weather service was more, um, chilled, saying that “snow cover will continue to build across northern, central ,and western Ukraine, northern Russia, which will maintain winterkill protection”.
Battle for acres
Back among the row crops, and cotton proved particularly strong, jumping by 2.1% to 86.41 cents a pound in New York for March delivery, returning close to Tuesday’s close, which was the strongest since August 2018 for a spot contract.
The weekly US export report offered support. Export sales of 275,364 running bales of upland cotton were fine, but actual shipments of 433,629 running bales were excellent, and a 10-month high.
But adding to the bullish sentiment was the National Cotton Council’s annual survey of US growers planting intentions, which came in at 11.5m acres for this year, down from 12.1m acres for the 2020 harvest.
The council’s Dr Jody Campiche, noting that “history has shown that US farmers respond to relative prices when making planting decisions”, highlighted that “relative to the average futures prices during the first quarter of 2020, prices of all commodities were trading higher.
“For the 2021 crop year, corn, soybeans, wheat, and sorghum are expected to provide more competition for cotton acres.”