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Morning markets: Corn futures fall back, as US demand concerns resurface

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Turnaround Tuesday came a day late for the corn market, as demand worries, and the uncertainty ahead of a slew of data, spurred profit-taking on the gains chalked up previously this week.

 

Sure, plenty of concerns remain about the prospect of an onslaught of wintry weather in the US.

 

As CHS Hedging said, “a winter storm is expected to bring 1 foot or more of snow across the Dakotas, Montana and western Minnesota this week”.

 

The broker added that “farmers were said to be making a mad dash to get as many of their soybeans harvested as they can before the winter storm hits”.

 

Terry Reilly at Futures International said that “the central US will see a large storm later this week that will include rain for the central and western Midwest, Delta, and the east central Plains,” adding that “the boundary of the freeze line is now forecast to be further south” than was initially expected.

 

Fibre eases

However, there remains a backdrop of worries over the US-China trade talks, which has kept the soybean market in check, and fostered losses in cotton, which for December shed a further 0.3% to 61.11 cents a pound in New York as of 10:00 UK time (04:00 Chicago time).

 

Louis Rose at Rose Commodity Group noted the “tension regarding US-China trade talks as the Trump administration blacklisted 28 US companies”, a move “reportedly in retaliation for China’s treatment of its Muslim population”.

 

Furthermore, there is little expectation that cotton (normally a large US export to China) will see too much in the way of bullish revisions in the Wasde.

 

Investors see a modest cut, of 160,000 bales to 7.04m bales, in the estimate for US carryout supplies for 2019-20, based on expectations of a harvest downgrade, while the world stocks figure is seen taking a marginal upgrade.

 

‘Even worse note’

And in the corn market there are growing concerns too over the Wasde, in case any cut to the US harvest forecast is offset by reductions to demand.

 

The chief demand worry is over exports, with ADM Investor Services noting that as of latest data, US corn exports for 2019-20 were “66% behind a year ago.

 

“US corn shipments slumped to a six-year low with overseas demand for US corn starting off the new marketing year on an even worse note.”

 

Yet the US Department of Agriculture currently has US corn exports this season hitting 2.05bn bushels, only 10m bushels fewer than 2018-19.

 

‘Demand rationing’

“Corn continues to show demand rationing,” said Benson Quinn Commodities, noting that in export markets “Argentina has the competitive advantage by a wide margin.

 

“The question is whether or not we need to ration corn demand at this point.”

 

This is an issue for the US domestic as well as export markets, with the weak premium of corn over wheat raising concerns over a shift in demand from one grain to the other by livestock feeders.

 

‘Wheat displacing corn’

“Trade is again closely monitoring the spread between corn and wheat futures,” said Karl Setzer at Agrivisor, with the premium of hard red winter wheat over corn setting a fresh contract closing low, December basis, of just $0.14 ½ a bushel in the last session.

 

“Historically,” a weak wheat premium “tends to lead to wheat displacing corn in some needs, primarily feed”.

 

And even “if not in the US, this can take place in the global market and still impact corn demand,” Mr Setzer added.

 

“This is concerning for a US corn export programme that is already well behind a year ago.”

 

Chicago corn futures for December fell back by 0.5% to $3.93 ¾ a bushel.

 

 

 

Not that hard red winter wheat futures allowed their premium to recover, with the Kansas City December lot also down 0.5%, at $4.08 ¼ a bushel.

 

Chicago soft red winter wheat, the world benchmark, shed 0.4% to $4.98 ¼ a bushel, returning below the psychologically important $5.00-a-bushel mark.

 

While competitive against US corn, there are worries over how cheap US wheat is priced against supplies from rival origins, with the return of Black Sea supplies to dominance in the latest tender by Egypt’s Gasc, winning all 295,000 tonnes of orders.

 

Paris-based Agritel said: “The result of the Egyptian tender disappointed French operators,” which have, for Gasc at least, been more competitive than US offers.

 

‘Killing freeze’

Still, as so often happens of late, and is put down to some spreading activity, spring wheat, under threat from North American snows, went the opposite way to winter wheat, adding 0.3% to $5.45 a bushel in Minneapolis for December.

 

“There is concern that US north Plains weather over the next 10 days could stress an already-stressed US and Canada spring wheat crop,” said ADM Investor Services.

 

Terry Reilly at Futures International, noting that 9% of US spring wheat had yet to be harvested as of Sunday (and more in Saskatchewan), said that “1 foot or more of snow is forecast to fall Friday and Saturday in parts of South Dakota and North Dakota and southern Canada.

 

“The event will be accompanied with a killing freeze.”

 

‘Record fourth quarter’

Soybeans managed headway too, adding 0.2% to $9.22 ¼ a bushel in Chicago for November, although this after underperforming earlier in the week, remaining overshadowed by US-China worries.

 

Some believe the US soybean crop is more vulnerable to frost than corn, which is seen as able to last better in snow and winter conditions.

 

On exports, the US soybean performance has been far more impressive than for corn, with ADM Investor Services noting that “US soybean exporters had a record fourth quarter [to 2018-19] with the soybean market hoping for renewed Chinese business”.

 

Futures are also getting support from increasing values of rival oilseeds, with Winnipeg canola for November edging a further 0.1% higher to Can$465.10 a tonne on Canada harvest fears, and earlier setting a fresh six-month high for a spot contract of Can$465.50 a tonne.

 

“The gains in both [oilseeds] are notable because they come in the face of a stiff headwind generated by trade disputes with China,” Tobin Gorey at Commonwealth bank of Australia said.

 

Rising oils

Prices of vegetable oils were higher too, including in China, where Dalian soyoil for January ended up 0.8% at 5,978 a tonne, and palm oil for January added 1.5% at 4,766 ringgit a tonne.

 

Vegetable oil prices in China are being closely watched, given the dent to soybean crushing volumes from the reduced need for hog feed (ie soymeal) in the face of the African swine fever epidemic, in turn meaning less soyoil produced, and so enhanced needs for imports.

 

In Kuala Lumpur, palm oil for December added 0.8% to 2,193 ringgit a tonne, while Chicago soyoil for December edged 0.1% higher to 29.86 cents a pound.

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