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Evening markets: More temperate Midwest outlook rains on grain bulls' parade

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The Midwest weather outlook appears more benign.

 

And that was really all grain investors needed to know, with the reduced threat to US corn and soybean yields for this year’s crops translating into price pressure.

 

“Weather leans negative [for prices] with temperatures not as hot as feared,” said Richard Feltes at RJ O’Brien, quoting Commodity Weather Group estimates that “scattered Midwest showers keep [crop] stress areas to only 20%”.

 

“Weather forecast had both November beans and December corn [futures] gapping lower to start the week,” said Karl Setzer at AgriVisor.

 

‘Rains exceeded expectations’

Maxar said that weekend rains “exceeded expectations in north central Illinois, Indiana, and Kentucky, improving soil moisture a bit”.

 

And looking ahead, “rain is expected across the Midwest tomorrow through Thursday, leading to some improvements in soil moisture.

 

Not that conditions look perfect, with weather models showing “a large range in rainfall amounts, particularly in eastern Iowa, Illinois, and Indiana,” Maxar said.

 

“Hotter weather is expected during the 6-10 day period, with highs expected to reach 95-100 degrees Fahrenheit (35-38 Celsius) in Nebraska, Iowa, Illinois, and Missouri, which would stress corn pollination.”

 

‘Below-trend yields are unlikely?’

Still, there was enough optimism around on production prospects to see the withdrawal of some more of the risk premium added with the lowball US acreage data on June 30.

 

“Row crop markets are trading as if below-trend yields are unlikely,” Mr Feltes said.

 

Karl Setzer said that “surprisingly, some crop scouts have actually raised their yield projections on both corn and soybeans in recent weeks, even with adverse weather.

 

“These are being based on crop ratings which remain higher than usual despite less than favourable conditions.”

 

(The USDA will unveil revised weekly crop ratings later.)

 

Fund shift

The outcome of such thinking is that in corn, the “remainder of managed fund short may stick while the recently-accumulated soybean long liquidates”, Mr Feltes said.

 

Regulatory data for the week to last Tuesday showed hedge funds cutting again their net short in Chicago corn futures and options, but leaving it at a still substantial 60,000 lots.

 

For soybeans, the managed money net long rose to a two-year high.

 

Export data

Nor was there anything on the demand side to make investors think twice over leaning bearish.

 

(Not that US export sales announcements carry much power at the moment anyway, to judge by the lack of reaction to the huge sale of corn to China announced on Friday. More on this later.)

 

US export data for corn for last week were fine, at 902,623 tonnes, but down ore than 130,000 tonnes week on week, with the soybean figure from nearly 80,000 tonnes from last time, at 483,331 tonnes.

 

And the USDA’s daily alerts system for large US export sales of ags was quiet this time, despite rumours of further Chinese purchases.

 

Prices fall

“We heard China was active late last week for Pacific North West soybeans,” said Futures International’s Terry Reilly.

 

“We heard China bought 15-17 soybean cargoes last week,” although whether all that was from the US…

 

Chicago corn futures for September stood down 2.4% at $3.29 ¼ a bushel in late deals, with the December lot down the same at $3.36 ½ a bushel.

 

Soybean futures for August dipped by 1.8% to $8.71 ¾ a bushel, with the new crop November lot shedding 2.0% to $8.72 ¾ a bushel.

 

Wheat prices fall too

With that, Chicago wheat futures fell too, although with a little less gusto, shedding 1.6% to $5.25 ¼ a bushel, and winning thus far a battle to stay above its 100-day moving average 1 cent or so below.

 

Kansas City hard red winter wheat lost a more modest 0.9% to $4.48 a bushel for September delivery, but that after missing out on Chicago wheat’s gains in the last session.

 

Bulls had some supportive factors to point to, including a further downgrade by Ikar to its estimate of this year’s Russian wheat harvest, this time with a cut of 1.5m tonnes to 76.5m tonnes.

 

US wheat exports last week were decent, at 624,211 tonnes, up 250,000 tonnes week on week.

 

‘Corresponding sanctions’

One of the reasons that investors have been somewhat reluctant to convert talk of further Chinese purchases of US ags into price gains is concern over the sustainability of such orders – given fresh tensions between the two countries.

 

China on Monday announced “corresponding sanctions” against the US, after Washington penalised senior Chinese officials over the treatment of minority Uighur Muslims in the western region of Xinjiang.

 

Against this backdrop it was not such a surprise that cotton – a big US export to China – fell too, by 1.2% to 63.57 cents a pound for the December contract.

 

Louis Rose at Rose Commodity Group also urged investors not to get too excited over Friday’s Wasde, despite it cutting expectations for both US and world cotton stocks for the close of 2020-21.

 

“The figures were far from bullish, despite the reductions.” Mr Rose said.

 

“After all, how bullish can potential carryout of 6.9 bales [US] and almost 103m bales [world] be?

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