The grains rally extended, but changed driver, with soybean futures showing their mettle this time.
In the last session, bulls overlooked the oilseed in favour of corn, which in the market’s key Wasde briefing suffered a hefty downgrade to the US Department of Agriculture’s US production forecast for 2019.
The USDA made few changes to the US soybean balance sheet, and then notably a bearish one, cutting its for exports in 2018-19.
“Some are already arguing the soybean yield should have been dropped on the June Wasde” too, said Tregg Cronin at Halo Commodity Company, adding that this “is not an argument that needs to happen in mid-June”, when the planting window remains open.
‘We will see adjustments’
But that does not mean that a US soybean production downgrade for 2019 won’t happen, maybe in July’s Wasde briefing.
In fact, USDA chief economist Robert Johansson said as much, overnight.
"I think we didn’t have information to go on right now to change those soybean numbers” on Tuesday, he told a reception of International Grain Council conference delegates.
“I think we will see adjustments being made to the soybean crop in the July Wasde.”
‘Stalling remaining planting’
And nor is it a certainty that US farmers, many of which have missed the boat on completing corn sowings, will fare that much better with soybeans, with weather still cooperating.
In the Midwest, “rains in north west areas are stalling remaining planting, and any remaining planting in eastern areas will slow late week and this weekend,” said Maxar.
Halo’s Tregg Cronin said: “For those who do not have crops in the ground, an open window for seeding does not look promising.
“The central and eastern Corn Belt will see several rounds of rain in the next week, especially early next week with 1.00-3.00 inch totals expected in Oklahoma, eastern Kansas, Missouri Arkansas, Illinois, Indiana, Ohio and Michigan, with lesser totals in Nebraska, Iowa, Minnesota and eastern North Dakota and South Dakota”.
At RJ O’Brien, Richard Feltes said: “Uncertainty over the 2019-20 US soy supply is rising given the wet forecast,” with “over 40m acres yet to plant”.
(That said, “ample US soy carryover, a large South American soy crop and a topping out of Chinese soy import demand will limit gains.)
Soybean futures for July closed up 2.2% at $8.78 a bushel in Chicago, climbing back above their 50-day moving average.
That represented a significant outperformance over corn, for which few sowings are now expected anyway, meaning that wet weather now will have relatively little impact on the area figure, and could even help crop which has got planted.
“If your crops are in the ground, or out of the ground as it were, the forecast looks nearly ideal with below normal temperatures and mostly above-normal precipitation for the majority of Midwest growing area,” Mr Cronin said.
‘Demand will be rationed’
He added that, despite the hefty Wasde downgrade to the US corn inventory forecast for the close of 2019-20, investors should “not get complacent thinking ending stocks will sit at multi-year lows the entire year.
“Demand will be rationed, and usually much more quickly than the market thinks.”
Still, on the demand side, US ethanol production data for last week came in stronger than many had expected, gaining 52,000 barrels a day to 1.096m barrels a day, the fifth largest weekly figure on record.
US ethanol stocks fell too, by 751,000 barrels to 21.80m barrels.
Chicago corn futures for July closed up 0.5% at $4.30 a bushel.
‘Slowest harvest paces on record’
Wheat futures outperformed corn this time too, as a wet weather outlook for the US southern Plains, where farmers are attempting to get their combines rolling, countered harvest pressure typical at this time of year.
“It is quite likely we will be looking at some of the slowest harvest paces for various hard red winter wheat states on record,” Mr Cronin said.
“In addition, the market will remain leery about developing dryness across the US northern Plains and Canadian Prairies.
“Most of Saskatchewan is running less than 40% of normal precipitation over the last 30 days.”
Chicago soft red winter wheat futures for July gained 1.6% to $5.26 ¼ a bushel, a four-month closing high.
The Chicago wheat premium over corn widened to $0.96 ¼ a bushel July basis, ending above its 100-day moving average for the first time in nearly nine months.
Cotton, coffee gain
The gains extended to New York too, where cotton for July added 1.4% to 66.57 cents a pound, more than making up its decline in the last session.
Bargain hunting was credited for the headway, helped by technical support, with the contract having trouble staying for long below 65.50 cents or so, suggesting some kind of price floor has been set.
Arabica coffee futures for September, now the best-traded lot, ended up 2.0% at 101.50 cents per pound, getting back above the psychologically important 100-cents-a-pound mark, but not quite making it back above its 100-day moving average.
“There remains internal market price resistance within the producer bloc of Mexico and Central America,” besides Colombia, said merchant I&M Smith, although noting that there “ still reasonable stock levels within the main consumer markets and good volumes of Brazil coffees” being sold.
‘Downward revision in yields’
Also in New York, raw sugar for July ended up 0.6% at 12.62 cents a pound, breaking above its 100-day moving average, and not far from a tussle with its 200-day.
Staying on the technical front, Sucden Financial noted that “yesterday’s action represented an outside day reversal on the charts,” a bullish signal in this case, with July initially dipping towards support at the 50 day average at 12.29 only to rally later and post a new recent high of 12.54 on the close”.
The trading house also noted “continuing reports out of India stating that dry weather and low reservoir levels would have an impact on the cane due to be harvested at the end of this year.
“The monsoon has finally arrived in the south and is moving northwards but the dry and very hot weather has already caused a downward revision in yields in the main cane areas.
Last year’s crop of “approaching 33m tonnes is still overhanging the market as are the high levels of stocks, but at least the outlook suggests that there will be a sharp reduction in sugar output next season”.