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Morning markets: Can corn futures revive, after fixing chart vulnerability?

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Can corn futures pull out of their retreat?

 

The Chicago December corn contract closed the last session down 11.0% from a mid-June high.

 

It is being weighed by improvement in Midwest weather, demand worries, and the US Department of Agriculture’s early-July 91.7m-acre sowings estimate, which was well above market expectations.

 

And there are concerns of further losses ahead, as the easing in the corn price feeds on itself – ie if negative signals persuade funds to sell, only worsening the momentum story and encouraging further liquidation.

 

“Funds are long but may be reluctant to carry longs into August unless weather turns hot and dry,” ADM Investor Services said.

 

Gap closed

Still, not all investors are quite so gloomy (as ever).

 

From a technical perspective, Mike Mawdsley at First Choice Commodities noted that in the last session, a chart gap dating from two months ago, above $4.19 ¾ a bushel, was finally filled as the December lot traded down to that level.

 

Signally, the contract then recovered to end at $4.21 a bushel, rather than encountering a plethora of sell stops, and starting a fresh leg lower.

 

For some confirmation of a bullish signal, the nine-day moving average “at $4.28 ¼ a bushel is the first hurdle to get back over,” Mr Mawdsley said.

 

‘Time to get corn locked in’

Meanwhile, at Global Commodity Analytics, Mike Zuzolo said that, for users such as livestock feeders, “this is the time to get corn locked in”.

 

Sure, there is the uncertainty ahead of the USDA’s August Wasde briefing, which may revise the US corn sowings figure, following a resurvey of major growing states.

 

However, Mr Zuzolo forecast an 87.2m-acre figure, well below the USDA’s (although tallying with a forecast from Nutrien earlier this week of 85m-87m acres)

 

“My acreage analysis suggests limited downside once USDA springs the August report on us - whether its ‘bullish’ or ‘bearish’, the downside after that should be limited.”

 

His analysis suggested a theoretical US corn carryout for 2019-20 of 1.34bn bushels, a figure he said “would be very supportive for the corn market”, coming in some 670m bushels short of the current official estimate.

 

‘Weather is non-threatening’

Not, it has to be said, that such arguments were persuading investors to buy on Wednesday, when the December corn lot stood down 0.1% at $4.30 ½ a bushel as of 10:15 UK time (04:15 Chicago time).

 

Of course, it is the last trading day of July, with month ends often associated with price weakness.

 

Then there is a belief from the likes of Terry Reilly at Futures International that “weather is non-threatening” in the Midwest for row crops,

 

At AgriVisor, Karl Setzer was a little more nuanced, saying that “short term outlooks are calling for cooler temperatures across the Corn Belt, with some areas seeing near-record overnight lows.

 

“Precipitation is scattered with this, with only a 65% coverage of light rains expected.

 

“Long-range models show a warming of temperatures as we head into early August, but not to extreme levels.”

 

Meal stabilises

Also overhanging the market are the latest US-China trade talks, and the somewhat inauspicious start to them, after US President Donald Trump, through tweets, lashed out at China.

 

Still, futures in soybeans, down 0.2% at $9.31 ½ a bushel for November, and New York cotton, down 0.2% at 63.26 cents a pound for December – both crops of which the US typically sells significant quantities to China – both showed only modest losses this time.

 

It was helpful for soybeans that soymeal futures stabilised, down 0.1% at $307.50 a short ton for December delivery, after a 1.3% loss in the last session on news of growing Chinese interest in South American soy.

 

“China is sending a delegation to Argentina to inspect soybean meal plants, a major step forward to opening a potentially large market for soybean meal exports for China,” Mr Reilly noted.

 

‘Rally in palm has more room’

Soyoil, meanwhile, fell by 0.2% to 28.77 cents a pound for December delivery, feeling pressure from hefty delivery data overnight against the expiring August contract.

 

The report showed deliveries of 1,057 soyoil contracts, compared with 404 against August soymeal, and 408 lots against soybeans themselves.

 

Still, rival vegetable oil palm oil made upward progress, adding 0.6% to 2,073 ringgit a tonne in Kuala Lumpur, to get back ahead of its 200-day moving average on a continuous chart, helped by some improved Malaysian export data.

 

Cargo surveyor ITS pegged shipments up 5.1% month on month (OK, July as one more day than June), compared with a 0.7% rate of increase as of July 25.

 

Rival AmSpec Agri showed a 1.6% rise, compared with a 4.3% decline month on month as of July 25.

 

Also helpful was upbeat comment from respected commentator Dorab Mistry, of Godrej, who said that “I believe the current rally in palm prices has some more room and... can go to 2,200 ringgit by September”, reflecting ideas of relatively sluggish production.

 

‘Key will be final demand’

Back in Chicago, wheat futures for December eased by 0.3% to $5.01 ¾ a bushel, taking them right to their 100-day moving average.

 

Besides some pressure from corn, wheat is also being weighed by some decent harvest reports, with Agritel for instance estimating the French soft wheat crop at 39.2m tonnes, the second largest ever, up nearly 15% year on year, and well above a French ag ministry estimate of 37m tonnes .

 

The improvement reflected in the main an expectation of a 12% increase to 7.82 tonnes per hectare in the yield.

 

Some investors see an upgrade to the US crop ahead too, with ADM Investor Services flagging that in the August 12 Wasde, “a few could see a crop 10-15m bushels higher” than the current USDA figure.

 

For pricing, “key will be final demand. Some could see lower export but higher feed use,” with a relatively weak premium over corn encouraging more use of wheat in livestock rations.

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