Grain bulls haven’t given up yet.
Indeed, Mike Zuzolo at Global Commodity Analytics said that “it is increasingly apparent that the supply-demand fundamentals are becoming more supportive for corn and wheat”.
This is especially so “in light of Russian wheat exports being 15% behind [marketing] year to date, and declining European Union, Australian and Argentine production potential”, a factor mainly relating to wheat too.
Hard vs soft
Sticking with wheat, he flagged data from the US Department of Agriculture overnight showing a 2-point drop to 52% in the proportion of US winter wheat rated “good” or “excellent”, a figure 1 point below market expectations.
“Note that Kansas wheat conditions are only 4 points better than last year, and seemingly on the same, lower, trajectory heading into spring time,” Mr Zuzolo said, with Kansas, as the top wheat-growing state, being closely watched.
“This helps push US winter wheat conditions below year-ago levels by 4 points,” he said, adding that “I think most of this is due to last week’s hard freeze”.
Certainly, what the data did show was the decline led by southern Plains states – Colorado, Kansas, Oklahoma and Texas – which are major growers of hard red winter wheat, traded as Kansas City.
The Texas reading sank by 6 points to just 30%, with the Oklahoma one down 11 points, to 46% good or excellent.
‘Can’t sustain any momentum’
Still, Kansas City wheat futures did not manage to capitalise on the data too much, in terms of closing their large and unusual discount to their lower protein peer, Chicago soft red winter wheat.
The Kansas City December contract stood up 0.2% at $4.19 ½ a bushel as of 10:10 UK time (04:10 Chicago time), while its Chicago peer added 0.1% to $5.07 ½ a bushel.
March basis, there was not much in it either, with Kansas City wheat up 0.1% at $4.26 ½ a bushel, while the Chicago contract stood unchanged at $5.10 ¾ a bushel.
“Hard red winter wheat futures look cheap, but can’t gain or sustain any momentum,” said Benson Quinn Commodities.
Also in focus is an uptick in importer interest in wheat, with note in particular of another Algerian tender, albeit which is expected to favour French origin.
“Algeria launched a wheat tender yesterday for shipments in January and the chance of seeing French origins retained in decent volume underpinned the market,” said Agritel.
Already, “European wheat exports have progressed by 56% from the start of the marketing year compared to last season and are now amounting to 10.3m tonnes”.
Agritel also flagged that “wheat prices in Black Sea have increased by $1 per tonne to $208 per tonne FOB” in the Russian port of Novorossiysk.
‘Will this be the week…?’
Chicago corn futures managed a bit more movement, upwards too, adding 0.3% to $3.68 ¾ a bushel for December delivery.
Mr Zuzolo flagged the ongoing strength in the US cash market, the implications (or not) of which for futures remain keenly debated.
“Will this be the week when cash corn prices start to positively affect the futures market, and the trade can "shake-off" fund-led selling on US-China trade negotiations going poorly once again?
“We wait for funds to exhaust their futures positions.
“This should occur first in corn given strengthening cash corn prices in many locations, as well as the fact that the USDA is projecting a record low planted area in Mexican corn this year”.
ADM Investor Services also noted “slow US harvest pace and strong domestic basis”, over which there is a link, in that the delayed harvest has depressed supplies for sale off the combine.
USDA data overnight showed the US corn harvest at 76% complete, up 10 points week on week, but 16 points behind average levels.
The figure was also 1 point less than market expectations, with progress in, say, the major growing state of Illinois a relatively weak 9 points during the week, taking progress to 80% - 17 points behind the norm.
‘More serious than what we thought’
Benson Quinn Commodities said that “domestic basis levels have to remain firm to attract any type of selling in any of these markets”, ie including soybeans and wheat too, although added that on Monday there was a “decent amount of producer corn for sale”.
The broker added: “The biggest factor in getting trucks dumped is whether or not you can take wet corn and have access to the supplies needed to dry it down.
“Expect to see a fair amount of corn standing well into winter,” especially with worsening ideas of a shortage of propane to power drying.
Terry Reilly at Futures International said that “the propane shortage across the interior US is more serious than what we thought”, noting reports of eight states declaring “emergencies over regional shortages.
“The US wet harvest has increased demand for the fuel.”
Still, “the problem is not the total US supply, it’s getting supply from the coasts to the interior”, with the EIA “reporting US propane and propylene stocks at 97.6m barrels as of November 8, up nearly 14m barrels from a year-ago”.
Soybeans themselves gained a more modest 0.2% to $9.12 a bushel for January delivery.
But then, there is less of them to harvest, warranting less risk premium on that score.
The US Department of Agriculture data overnight showed the US soybean harvest, at 91% complete, up 6 points week on week and bang in line with market expectations, if behind the 95% figure usually seen at this time of year.
And there are better idea of South American weather important in particular for the oilseed, although also for corn.
“South America’s soybean regions are in the process of getting some relieving moisture, and so relieving some nascent worries about crops for now,” said Tobin Gorey at Commonwealth Bank of Australia.
‘Trade needs significant changes’
Benson Quinn Commodities said that while, after recent dryness, “one might expect minor changes to Brazilian bean output… the trade needs significant changes to Brazilian bean output to sustain a rally from current levels”.
And then there is the prospect of expanded US sowings for next year too.
“Trade is looking for US farmers to plant 86.0m-87.0m soybean acres in 2020 which suggest a crop near 4,360m bushels,” said ADM Investor Services.
“This could increase the US 2020-21 carryout to near 675m bushels.”
Where soybeans did get some support was from soyoil, which added 0.7% to 30.85 cents a pound for December delivery, helped in turn by a rebound in rival vegetable oil palm oil.
Kuala Lumpur palm oil for February, now the benchmark contract, added 1.0% to 2,622 ringgit per tonne after Malaysia’s minister of primary industries, Teresa Kok, raised hopes for maintaining exports to the European Union.
She said that Malaysia would enforce regulations to ensure that by 2021 its palm oil meets new food safety standards under consideration by the EU, a key export market, access to which has been under threat from environmental concerns.
Only on Friday France’s parliament voted to remove tax breaks for the use of the vegetable oil as a biofuel feedstock.