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Morning Markets: Big crops and weak demand leave bears in charge

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Weather and export demand fundamentals continue to drive ag commodities with market bears in the ascendant. Favourable US midwest weather patterns promise high yielding corn and soybean crops while export orders lag previous years. The post-pandemic recovery in crude oil prices and sliding dollar lent some support to prices.

 

Wednesday’s trading was light with funds net buyers of 7,500 lots of corn and 2,000 lots of wheat, while selling a net 3,500 lots of soybeans.

 

“It’s still a big supply market, with demand side buyers willing to wait it out for better pricing,” noted Benson Quinn’s Lael Weselmann. “The next couple weeks will be tough on the bulls.”

 

Wednesday’s trading saw the Chicago September SRW contract gain some ground after the steep falls earlier in the week to a month low of $5.08¼ a bushel. The position closed at $5.10¾/bu. However, the wheat contract was losing further ground as markets opened on Thursday, with early trades at $5.07/bu.

 

Markets analyst Food and Ag Commodity Economics (FACE - formerly known as Informa Economics) forecasts a US wheat crop of 1.843 billion bushels (USDA 1.824bn bu) and a global wheat output of world wheat at 759m tonnes (USDA 769m tonnes).

 

Farmlink’s estimates of Canadian wheat production for 2020 point to a record 38.9m tonnes crop comprising 31.9m tonnes of soft wheat and 7m tonnes of durum.

 

Latest GASC price drops $2.6/tonne

 

The latest Egyptian GASC tender saw 410,000 tonnes of Black Sea wheat purchased – 295,000 tonnes from Russia and 115,000 tonnes from the Ukraine. The average price is $212.8/tonne FOB, or $2.6/tonne under the previous tender’s price.

 

The September Paris wheat futures closed Wednesday at €179.25/tonne, a second consecutive €0.50 loss on the day after Monday’s €2.50/tonne tumble.

 

Official French Ministry figures have confirmed trade predictions of lower than average French wheat yields leading to a sub-30 million tonne crop of 29.71m tonnes. Barley falls 18% from 2019’s crop to 11.30m tonnes.

 

“Euronext wheat prices are testing their support zone at €180/tonne in a context of upward revision of production in Russia, Canada and Australia”, notes analyst Agritel. “The European origin remains penalized by the strength of the Euro against the dollar.”

 

“Wheat futures prices were flat to slightly higher on Wednesday, the gains looking grudging in the context of much bigger falls the previous day to season lows,” added Tobin Gorey at Commonwealth Bank of Australia. “Spot prices in the US gained by similar amounts. And, perhaps tellingly, spot prices in Europe and around the Black Sea were marked low, accepting the lead lower from the US.

 

“The world is going to have either accommodate some extra US exports or drop prices to prevent that. Pricing, for now, favours accommodation,” he observed.

 

US corn also recovered some ground from Tuesday’s close when the September CBOT corn futures stood at $3.08¼/bu. Wednesday’s activity saw the contract reach $3.11/bu. However, it was down to $3.10/bu in early Thursday business.

 

Corn ethanol drops 10.4% yoy

 

The latest weekly US ethanol production figure is 274 million gallons, a 2.8% drop from the prior period’s 285m gallons and 10.4% lower year-on-year. “Ethanol production fails to instil confidence that an economic renaissance is taking place,” commented Mr Weselmann at Benson Quinn.

 

“Production is down for the week and inventories show a slight build. Margins have improved and more idle plants are considering restarting.”

 

FACE forecasts a US corn crop of 15.036 billion bushels (USDA July WASDE 15.000 bn bu) with world production at 1.159 bn tonnes (USDA 1.163 bn tonnes).

 

In Europe, the November Paris maize contract closed at €164.5/tonne on Wednesday. France now estimates 2020 corn production volumes of 14.4m tonnes, while warning this figure could fall further with the current hot, dry weather conditions there.

 

Soybeans were marginally lower by Wednesday’s close, having gained slightly during the day’s trading. The Chicago August position closed Tuesday at $8.83¾/bu, to trade at $8.84/bu in early business but end the session at $8.82/bu. Early Thursday trading was unchanged.

 

‘Disappointing’ US soya sales

 

The US reported sales of 192,000 tonnes of soybeans to China, which Benson Quinn terms disappointing.

The FACE US soybean estimate for harvest 2020 is 4.355bn bu (USDA 4.135bn bu) with the world soy crop predicted at 371m tonnes (USDA 362m tonnes).

 

“The soybean is benefiting from the firmness of prices in Brazil,” stated Mr Gorey. “The US export activity, especially the flows toward China, remains well below the targets set at the time of the agreement signed between the two states last January.”

 

The Paris rapeseed contract was down €0.75 over Wednesday to close at €379.25/tonne. The Canadian November canola contract lost 0.5% to close at CAN$488/tonne.

 

The French ministry forecasts a 2020 rapeseed crop of 3.33m tonnes, 4.8% lower than the 2019 harvest, and 35.7% down on the average of recent years.

 

“Yesterday, the rapeseed retreated on Euronext, despite a falling 2020 harvest in Europe,” said Agritel. “Canola prices in Winnipeg are also under pressure - Canadian canola production is estimated at 20.2m tonnes compared to 18.6m tonnes last year.”

 

Mr Gorey added: “Oilseed prices were a little weaker on Wednesday. Soybean prices retreated a little further from recent highs. US$ canola prices were unchanged, standing stoically at near recent highs on prospectively tighter supply. Market worries about dry parts of Canada’s prairies continue.”

 

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