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Morning markets: Does US 2019 = France 2016?

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Can the US in 2019 be compared with France in 2016?

 

That is a question that wheat investors might be asking, in the search for an answer to something of a conundrum – how the quality rating of the US crop is holding up, despite heavy rains, whose severity is evident in another reading, on harvest progress.

 

The US Department of Agriculture’s Crop Progress report overnight showed US farmers having harvested only 8% of their winter wheat crop as of Sunday – well behind the five-year average pace of 20%, and indeed the 14% figure that investors had expected.

 

It is the slowest US winter wheat harvest in 22 years.

 

In Oklahoma, the process is 16% complete – 40 points behind the typical figure for the time of year.

 

‘Let us not forget…’

Yet whatever difficulties the rains are presenting farmers getting their crops and fields dry enough for combines to roll, they are apparently doing little harm to crop ratings.

 

The proportion of winter wheat rated “good” or “excellent” remained at an elevated 64%, a figure that has puzzled many investors, given that rains on developed wheat pose a range of threats, from disease to sprouting on the stalk, a big quality threat.

 

However, is the condition data really picking up all the issues with crops?

 

Paris-based Agritel, terming US wheat dynamics a “situation particularly interesting to analyse”, flagged market “concerns regarding quality” despite the 64% good or excellent reading, using the French crop in 2016, which was also beset by late rains, as a comparator.

 

“Let us not forget the French situation in 2016 where crop conditions were displayed as good due to a good vegetative process, only to see strong degradation of the quality at the harvest,” the analysis group said.

 

France 2016

A look back at FranceAgriMer data for that year indeed shows a decent French winter wheat crop rating, say of the 75% good or excellent posted as of June 13.

 

However, the crop did end up disastrously, with the yield down 32% at 5.37 tonnes per hectare, and quality so compromised too that many of France’s typical export customers turned elsewhere.

 

French wheat exports outside the EU in 2016-17 slumped by 61% to 4.97m tonnes, with more wheat sent instead to feed markets elsewhere in the bloc, with domestic feed use holding up too.

 

Winter vs spring

Not, it has to be said, that too many Chicago investors were taking a bullish view in early deals on Tuesday, with Chicago soft red winter wheat for July down 1.1% at $5.33 ¾ a bushel as of 10:20 UK time (04:20 Chicago time), retreating from a 10-month closing high to the last session, on a spot contract basis.

 

Minneapolis spring wheat did fare better, after the USDA’s weekly US crop condition rating showed a decline of 4 points week on week, more than investors had expected, albeit to a still-high 77% good or excellent.

 

Still, even Minneapolis spring wheat for September eased by 0.1% to $5.66 a bushel.

 

It was hard to keep the grain, which closed the last session at a 10-month high on a spot contract basis, so elevated when corn, the market leader of late, was struggling.

 

‘Cause a correction’

July corn futures stood down 1.3% at $4.48 ¾ a bushel.

 

The weak finish to the last session had engendered some doubt as to the rally continuing for now.

 

“The corn market is getting overbought, with Monday’s price action feeling toppy at least in the short run,” said Benson Quinn Commodities.

 

The market “needs a non-favourable July forecast to keep it going higher”.

 

At First Choice Commodities, Mike Mawdsley said that “some think we may find our [price] highs for the year soon, as there’s plenty of supply worldwide to provide other countries’ needs”.

 

That said, “we don’t yet know what our supply will be or may not for some time”, with the bulk of the US corn growing season yet remaining.

 

“However, weather will likely improve at some point and cause a correction in prices.”

 

Yield debate

The USDA Crop Progress report showed corn sowings remaining slow, at 92% complete as of Sunday and with the plantings window essentially closed.

 

The crop in the ground was rated 59% good or excellent, unchanged, and also in line with investor expectations.

 

Still, “the corn rating still suggests a higher yield than” the 166 bushels-per-acre figure the USDA unveiled last week, said Terry Reilly at Futures International.

 

“Our estimate of 170.5 bushels per acre, however, will likely go down.”

 

‘Supportive data’

Soybean futures for July, meanwhile, eased by a more modest 0.3% to $9.10 ½ a bushel, retaining their outperformance of the last session.

 

US soybean plantings progress, at 77% complete as of Sunday, was up 17 points week on week, but 2 points behind market expectations.

 

Benson Quinn Commodities termed this data “supportive on slow planting progress as weekend rains make for another slow week in the east” – ie with another wet Midwest week ahead.

 

There remained too some conversation about the Nopa US soybean crush data released on Monday which at 154.8m bushels came in below market expectations, and which Terry Reilly said was “still the second highest in history for the month of May, but the daily rate is lowest for the crop-year”.

 

Benson Quinn Commodities said that “some of the month-on-month decline can be attributed to some much needed maintenance downtime but I think the private [analysts] missed the logistics issues created by this springs flooding.

 

“River processors can’t load product by barge and wash outs have made moving beans and product via rail near impossible for many.”

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