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Morning markets: Firm US cash markets vs sagging futures. Which will win out?

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Who will win the tug of war over US grain prices?

 

However sluggish the performance of Chicago futures, US cash values have shown a fleeter turn of foot.

 

Benson Quinn Commodities terms it a “developing a dual dichotomy”, in which US grain and soybean cash markets “are sharply firm yet futures market trades at two-month lows, and spreads are wide.

 

“Domestically, the US farmer is not a seller at current board prices and cash basis bids are trading near historic seasonal levels to find ownership,” the broker said.

 

However, futures prices are struggling nonetheless, with this upward pull offset by pressure from world markets.

 

“Global stocks are ample and other suppliers are willing to sell at values well below US, shunning US exports.”

 

‘Significant basis pushes’

How the divergence resolves itself… Benson Quinn Commodities wondered whether it would for a while, seeing a market potentially “trying to find a new norm where futures seem to trade divergent from local markets and producer selling patterns are reflected in basis not the board”.

 

Still, futures could win out if US farmers are persuaded to sell, perhaps by US harvest progress.

 

For now, ADM Investor Services noted that “talk that final US unharvested corn crop is lower test weight and wetter than normal is slowing harvest and grain into the pipeline”.

 

“Even with winter weather moving through the Corn Belt, few farmers are showing urgency in getting their corn out of the field,” said Karl Setzer at AgriVisor.

 

“Many have elected to leave corn stand as long as they can in hopes remaining fields will continue to dry down naturally,” a delay which “has caused a tightness in the cash market that is being reflected by current basis levels, especially in regions where production is down from last year.

 

“It is not uncommon to hear of significant basis pushes in these areas, with cash bids above futures in select regions.”

 

Data later

Bulls may be hoping by contrast, that US export sales data for last week, due later, show ideas that US cash prices are not so out of the market after all.

 

The data are expected to show 200,000-500,000 tonnes in US export sales of wheat, compared with 360,568 tonnes last time.

 

Many investors are expecting some acceleration in corn, albeit from a low base, with export sales for last week forecast at 400,000-800,000 tonnes, up from 487,944 tonnes last time.

 

Hungry gap

For soybeans, export sales are expected at 800,000-1.40m tonnes, compared with 1.81m tonnes last time, although there remains some doubt as to exactly how much Chinese buyers have purchased of late

 

“China has been a buyer this week of US beans, with USDA confirming 129,000 tonnes sold under daily reporting, while privates estimate buying could be upwards of seven cargoes this week,” ie nearer 400,000 tonnes, said Benson Quinn Commodities.

 

Mr Setzer said that “even with a large supply in port and ongoing trade friction, China continues to buy from the US, with over seven cargoes being sold this week already.

 

“This is because trade feels these sales are just to cover the gap between South American crops, and demand will drop once the South American harvest begins.

 

“To negate this, we will need to start seeing soybean sales for late spring and early summer months, when US sales tend to erode.”

 

‘Widely vary’

Also on soybean investors’ radars later on, from a demand perspective, will be monthly data on the US crush from industry group Nopa, which is expected to come in at 166.795m bushels of the oilseed, according to a Reuters poll.

 

If realised, that would be the second largest October crush on record, behind only the 172.346m bushels crushed in October last year (which still stands as the all-time high for any month).

 

It would also represent a 9.3% increase from September, when Nopa members crushed 152.566m bushels of soybeans.

 

However, as Terry Reilly at Futures International noted, market estimates for the figure “widely vary”, between 157.500m-173.000m bushels.

 

‘Getting close’

Such uncertainty, as well as over the US export sales data due later, was one reason why soybean futures for January managed only a 0.1% gain to $9.30 ¾ a bushel for March, despite some broader market support from a upturn in sentiment on a US-China trade deal.

 

Overnight, White House economic adviser Larry Kudlow said that the countries were “getting close” to a trade agreement, saying that “the mood music is pretty good”.

 

That said, while these comments were credited by newswires for a 0.7% gain in Tokyo stocks, and a slight strengthening in the renminbi, there is more than a hint of market fatigue at the travails of the negotiations.

 

In New York, cotton - like soybeans, normally a large US export to China, and so sensitive to trade talks progress – stood 0.1% lower at 66.05 cents a pound for March, although staying just ahead of 10-day and 20-day moving averages.

 

‘No gargantuan numbers’

Whether they will after the US sales data later…

 

For cotton, “we again expect sales to exceed the weekly pace required to match the USDA’s export projection” for 2019-20, said Louis Rose at Rose Commodity Group.

 

“But we do not expect figures put forth to be stellar.

 

“The most recent on-call data release certainly do not suggest that gargantuan numbers are in the offing.”

 

Season high

Back in Chicago, corn for December added 0.1% to $3.76 ¼ a bushel, remaining well within this week’s tight trading range, as investors indeed await signs of whether the US cash market will succeed in pulling futures higher.

 

“Move along, nothing to see here,” was how Tobin Gorey at Commonwealth Bank of Australia saw it.

 

There remained some positive talk over weekly US ethanol production data as revealed on Thursday, up 16,000 barrels a day week on week.

 

“Production last week was the highest weekly figure corn crop-year to date,” as started in September, Mr Reilly said.

 

Gasc result

Wheat futures for December stood flat at $5.07 ¾ a bushel, digesting too the results of the latest tender by Egypt’s Gasc, which saw a large order, of 465,000 tonnes - mainly of Russian wheat, which has been out of favour of late, with two cargos of Ukrainian origin too.

 

Does this mean that Russian wheat is fighting back in competitiveness, signalling fresh pressure on world prices?

 

One relief for bulls was that the average price Gasc paid, of just under $218 a tonne excluding freight, was more than $2.50 a tonne above that it paid at the previous tender, last week.

 

“Values were slightly higher than last tender as was volume of trade, which may be supportive longer term to the broad market,” said Benson Quinn Commodities.

 

“But with French missing out and closing lower seems to scuttle trade” shorter term.

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