Brace yourselves, grain investors.
Last week, “momentum took a big turn after a month of nearly daily higher closes in soybeans to two-year highs and counter-seasonal rally in corn,” as Benson Quinn Commodities said.
But was this turn decisive, or just a bit of flapping in the breeze?
This week brings a series of events likely to have a big say in how prices move - and which have actually already begun, in terms of former Soviet Union weather, important for the winter wheat crops that farmers are sowing.
Ukraine vs Russia
The weekend bought rain relief to parts of Romania, and to the west of Ukraine “where about 15mm in total over 24 hours have been recorded”, said Agritel.
“Most of the Ukrainian plains have been concerned by the rain, sometimes the first ones for almost two and a half months.
“The major part of the country is expected to receive between 15mm-20 mm of additional rainfall over the next seven days.”
(Not, it has to be said, that 15mm, a bit over half an inch, sounds as huge amount given the extent of dryness, even if that amount is doubled up this week.)
“In Russia, with the exception of the Ukrainian border area, rains are still awaited and the weather forecast is not encouraging for producers,” Agritel added.
Tobin Gorey at Commonwealth Bank of Australia concurred, saying that while “weather forecasters have a slightly better outlook for the dry eastern Ukraine… the gains do not extend further east though, leaving substantial winter wheat regions in Russia and Kazakhstan too dry to support early crop development”.
‘A growing concern’
For corn and soybeans, weather is important too, not just in terms of the conditions for US harvest of both crops, but for sowings in South America, where dryness in Argentina and Brazil in particular is beginning to tinkle alarm bells.
“Dry South American soybean regions are a growing concern,” Mr Gorey said.
“The dry period now looks like extending into early October. And that starts to impinge upon the soybean planting window.”
Steve Freed at ADM Investor Services said that “central Brazil is dry”, and while Argentina “could see needed rains… they will need more given talk historically, La Nina tends to suggest drier than normal Argentina and south Brazil weather”.
Benson Quinn Commodities summed up that “Brazil has been dry to the north which has delayed early planting of beans. Dry conditions in Russia are delaying winter wheat planting.
“If both delays go into early October, market could start to get a little nervous.”
And apart from weather, and changes in the outlook, on the demand side, announcements (or not) of demand stand to be influential too.
In fact, “the evolution of the demand, especially from China, is raising growing worries,” Agritel said, with top ag importer China on Thursday to start its Golden Week holiday, likely meaning their buyers have a quiet few days, especially with pre-festival stockbuilding having been completed.
“We did not hear China buying soybeans on Thursday into Friday,” Terry Reilly at Futures International noted.
And after the holiday, will they return to buying US soybeans, or will their appetite have moved to Brazil, whose seasonal period of dominance in exports starts early in the calendar year?
Furthermore, there appear to be for the US some logistical issues to tackle too, with Benson Quinn Commodities noting that “demand for US corn has turned quiet with lack of terminal capacity keeping US either high priced or out of market.
It noted that for wheat a “lack of US export capacity does not help either” to keep US export values competitive, with the country’s offering actually “the most expensive in the world with US dollar trading at two-month highs”.
‘Pop or drop’
Indeed, currency factors, and other external market influences, are of course important too for ags, although the dollar in fact in early deals on Monday reversed some of its strength of last week, shedding 0.3% against a basket of currencies, and making dollar-denominated assets that much more affordable.
Shares gained too, adding 1.6% in early deals in London, after closing up 1.3% in Tokyo, although risk-on feel was not complete, with Brent crude for instance down 0.8% at $41.58 a barrel as of 10:20 UK time (04:20 Chicago time).
An all this before getting to the big calendar events of the week, in terms not just of month- and quarter-end, considered periods when funds often consolidate portfolios, but with September 30 bringing too a key US briefing on quarterly domestic crop stocks, which has a habit of causing prices moves.
“What it says could give the market a pop or drop,” said Mike Mawdlsey at First Choice Commodities, adding that “the numbers could give us a quick move” in prices.
With all this to think about, many investors traipsed to the exit in early deals on Monday, with December corn shedding 0.5% to $3.63 ½ a bushel in Chicago.
For soybeans, the loss was more modest, at 0.2% to $10.01 a bushel for November, fighting hard to stay above the key $10.00-a-bushel mark.
It was helped by firmness in soymeal, which edged 0.2% higher to $339.30 a short ton for December, helped by talk of maintenance shutdowns curtailing supplies in the US, and Brazil too.
Mr Freed noted “talk that Brazil crushers may soon begin to take annual downtime for maintenance”.
‘Popped out of nowhere’
Wheat shed 0.6% to $5.41 ¼ a bushel for December delivery – like soybeans, fighting a battle to stay above a key level, in this case the 200-day moving average.
And, for wheat, losing, with that average at just above $5.43 a bushel.
In New York, cotton fell too, but by a more modest 0.1% to 65.92 cents a pound for December delivery, managing to find some support from the falling dollar and, as an industrial commodity, from rising shares.
Plexus Cotton also noted that the market had gained some support from concerns over damage to the US crop from Tropical Storm Beta, which “popped out of nowhere and dumped a lot of rain on open crops in the Texas Coastal Bend and the Delta, after Hurricane Sally had doused the Southeast
“We estimate that losses from Sally amount to around 200,000-250,000 bales, while Beta was mainly causing quality issues.”