Grain futures appear to be finding some kind of floor, after their early-August declines.
But will a key US Department of Agriculture briefing allow them to stay that way?
The USDA will later unveil the August edition of its monthly Wasde briefing on world crop supply and demand, which is expected to release data which, on the face of it, are hardly expected to prove bullish.
Supply upgrades ahead?
This is especially true for data on US balance sheets themselves.
For corn, investors are expecting the USDA in the Wasde to lift by 152m bushels to 2.80bn bushels its forecast for US stocks at the close of 2020-21, reflecting increased expectations for the yield reaped during harvest this autumn.
This is seen coming in at 180.4 bushels per acre, an upgrade of 1.9 bushels per acre.
For soybeans, the Wasde is seen showing end 2020-21 stocks at 525m bushels – which would represent an upgrade of 100m bushels from the existing estimate – again thanks largely to an increased yield estimate, of 51.3 bushels per acre.
The current estimate is 49.8 bushels per acre.
OK, for wheat, investors see only a small upgrade, of 5m bushels to 947m bushels, in the estimate for US stocks at the close of 2020-21.
But this market faces the shadow of a potential upgrade to the estimate for production in Russia, expected to regain by a margin in 2020-21 its position as the world’s top exporter.
Agritel became the latest analysis group to lift its harvest forecast, to 80.5m tonnes, “in view of the excellent yields observed in the centre of the country”.
Agritel said too that “the USDA could revise upward Ukrainian wheat production to 27m tonnes,” from a current figure of 26.5m tonnes, including Crimea.
‘Topsoils have dried out’
In fact, wheat futures proved decisively weak in early deals, shedding 0.6% to $4.92 ¼ a bushel in Chicago for September delivery, as of 09:45 UK time (03:45 Chicago time).
Still, that was not enough to reverse the gains of the last session, and encouraged some kind of idea of the contract having found some kind of a floor at about $4.90 a bushel.
Marginally supportive are some concerns over 2021 US harvest prospects, given a drying out of southern Plains soils (which some see as linked to a prospective La Nina).
“Topsoils have dried out across the US south Plains,” said Steve Freed at ADM Investor Services, while noting that “US farmers over the next 30 days will have to start making decisions on 2021 winter wheat planted acres”.
Another price collapse?
Chicago corn futures for December, meanwhile, nudged 0.1% to $3.23 ¾ a bushel, again looking to entrench the idea of a floor at the $3.20-a-bushel level reached earlier in the month.
Not that there is any guarantee that this concept will survive the session.
As Mike Mawdsley at First Choice Commodities noted, “last year corn traded limit down following the August crop report”.
Then, the December (2019) contract “was trading just under $4.20 a bushel and sold off to $3.70 in three days”.
Still, while Mr Mawdsley said that he was “not looking for anything bullish tomorrow”, he also added that he was “not looking for a huge hit as the December 2020 contract is nearly $1.00 lower than where we were last year”.
‘Packed a lot of punch’
Furthermore, there are the crop losses from Monday’s Derecho storm in the Corn Belt (notably Iowa) to factor in.
Benson Quinn Commodities, while saying that “it is not likely that major crop losses result from one storm”, added that Derecho “was a big storm that packed a lot of punch”.
Mr Freed noted that “one US seed company estimated that 10m Iowa corn acres were impacted”, out of 13.55m acres planted this year.
At Futures International, Terry Reilly flagged “talk upward to 400m bushels of corn could be lost, and another analyst warned the national yield could slip 2.5 bushels per acre or more.
“We think the US harvest area will decline in October but don’t think the yield will decline that much if the producer claims insurance and takes the acres out of production.”
As to how the USDA addresses Derecho in the Wasde, and what implications the storm has for soybeans too…
Certainly, while the Chicago November soybean lot eased in early deals, it was by a modest 0.1% to $8.73 a bushel.
Investors will be awaiting too any further signs of Chinese demand for US soybean exports.
Mr Reilly noted market talk on Tuesday that China “bought up to give US October-November [delivery] soybean cargos out of the Gulf and one from the Pacific North West, along with up to six” Brazilian cargos, for delivery early in 2021.
‘Sceptical of large adjustments’
Chinese demand for US supplies is a big feature of the cotton market too, and viewed as a big cause of the 1.1% gain in New York December futures in the last session.
The lot added a further 0.1% in early trade on Wednesday, to 63.55 cents a pound.
As for the Wasde, and estimates for this year’s US harvest, Louis Rose at Rose Commodity Group noted that “this report will not employ results of an objective yield survey”, which will be introduced with the September briefing.
“Hence, we are sceptical of large adjustments to the official production projection versus July as USDA tends to avoid introducing questionable volatility into market.”
Changes to demand estimates could be more of a market factor.