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Morning Markets: Corn weakens despite record Chinese purchases

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Corn values continued to weaken on favourable North American weather forecasts, despite the fourth largest order on record from China. Soybean futures also weakened on the weather, but wheat hardened in line with harvest downgrades.

 

China made its largest ever single purchase of US corn on Tuesday, its second major order within the last week, and has also increased its US corn and soybean import forecasts for the current season. The purchases are in line with China’s phase 1 trade deal commitments, even as the political tensions between Washington and Beijing heat up again. The UK yesterday sided with the Trump administration in reversing its earlier decision to continue using Huawei telecoms equipment.

 

The August Chicago corn position closed Tuesday at $3.35/bushel and was weakening to $3.34¾/bu in early Wednesday business. The Paris August position was unchanged at €181/tonne.

 

Tuesday saw China purchase 1.76 million tonnes of US corn, said to be the fourth largest daily volume of corn on record and the biggest single day Asian corn purchase ever. It adds to the 1.14m tonnes bought by China last Friday.

 

“With the current weather situation and supply excess, not even large sales to China change the corn trend,” noted Benson Quinn’s Lael Weselmann. “Early session trade saw a couple cent advance from the release of the Chinese news and the decline in crop conditions reported Monday afternoon. But another late session sell-off ensued after midday weather runs again showed little threat to the corn crop.”

 

Corn stocks:use rises

 

Mr Weselmann noted that as the US national corn yield potential improves, the end season carryout expands, which is bearish for values. “Currently, about 19% stocks to use number is already on the USDA balance sheet - more is unwelcome if values are to remain at current levels.”

 

Benson Quinn is more relaxed about future corn ethanol demand. “The threat posed by renewed lockdowns to US ethanol demand is real, so lower corn prices would be an obvious response. US gasoline prices though are not falling by much, so we are a little sceptical this worry is having much influence.”

 

Reuters reports that ethanol manufacturer Green Plains is suing Archer Daniels Midland in the court of Nebraska over alleged manipulation of ethanol prices to profit from its positions in the derivatives markets. It also claimed that senior ADM officials knew of the alleged manipulation.

 

Reuters also updates yesterday’s reports of mouldy corn stocks in China’s Heilongjiang province – I says they have proved groundless.

 

Chicago September wheat futures were trading 2 cents up early Wednesday at $5.32¼ /bushel as the July contract closed out Tuesday at $5.24½/bu. Paris prices were unchanged at €185.50/tonne as France was closed for the July 14th Bastille Day.

 

Harvest estimates cut

 

“Wheat futures prices went every which way on Tuesday - Chicago up; Kansas down and Paris unchanged,” observed Commonwealth Bank of Australia’s Tobin Gorey. “Chicago continues to trade only syncopatedly with the rest of the wheat market – something to keep in mind.”

 

French analyst Agritel noted the downward wheat production estimates in last week’s WASDE to 49.63 million tonnes in the US and 139.5m tonnes in the EU. The USDA has also reduced its estimate of global wheat ending stocks for 2020/2021 to 314.8m tonnes from the 316.1m tonnes in the previous month.

 

The Paris September futures contract was unchanged at €185.50/tonne – Agritel said the European wheat market is “consolidating in anticipation of further developments” – particularly a clearer assessment of French production as combines move up the country. “Before the rains in the middle of the week, wheat cuts were gradually progressing towards the north of the country, with still extreme disparities in yields depending on the region, which makes the overall estimate complicated. Nevertheless, quality seems to be good.”

 

The USDA reduced its production estimate for Russia (excluding Crimea) by 500,000 tonnes to 76.5m tonnes in the latest WASDE. Agritel added that late harvests and uncertainty about the level of Russian production are supporting prices, with local analysts “successively reducing their estimates of Russian wheat production for the past 2 weeks”.

 

Russian expert Andrey Sizov reports southern Russia’s yields “remain disappointing but slightly improving – the Stavropol region 2.56 tonnes/ha (-25% year on year); Krasnodar 4.71 tonnes/ha (-25%) and Rostov 3.33 tonnes/ha (-4%)”. He estimates that 5 million of the 8.5 million ha crop has been harvested so far.

 

Mixed oilseeds

 

The CBOT August soybean contract closed Tuesday at $8.82/bu and was up to $8.82½/bu early Wednesday. The nearby ICE canola contract gained 0.4% to CAN$479/tonne.

 

“Oilseed prices had a mixed Tuesday,” noted Mr Gorey. “Soybean prices made modest gains to make even more modest progress on recovering recent declines. The higher prices that prevailed last week were not discouraging buyers in China. But support for soybean prices did not translate into higher canola prices.”

 

A Reuters survey showed the June soybean crush rate in the US was at a nine-month low. The survey anticipates that today’s NOPA crush data will show 162.8 million bushels for June, with “rising prices and slack farmer movement cramping processor margins”. If proved right, its June estimate would be a 4.4% decline on May’s crush, but a sharp increase in the year-ago volume of 148.84m bushels.

 

“The soybean market showed better resolve with basis numbers unchanged to firmer and the Aug Nov spread firmer, both possibly supportive of the small advance today,” added Mr Weselmann. “Bean crop conditions declining by 3% also added support along with a couple more cargoes sold to China this morning.”

 

Last week’s WASDE reduced the 2020/21 world end stock estimate by 1.3m tonnes to 95.08m tonnes. USDA attaché reports estimate Brazilian bean exports to China for 2019/20 at 78m tonnes.

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