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Morning markets: Grain futures dip, as improved US crop ratings weigh


Are corn futures seeing a bit of end-of-year selling?


End of the crop year, that is, which in the US closes for the grain at the end of this month. (As it does for soybeans.)


Tied in with that is the expiry of Chicago September contracts, the last 2018-19 one for these crops (with December corn and November soybeans the first new crop lots).


First notice day, which kicks off the expiry process, is on Friday.


And that is not a good harbinger for corn bulls.


‘Funds love their trends’

“On first notice, over the past five year, September futures have traded to some pretty significant calendar year lows as end-of-crop year selling has weighed on the market,” Benson Quinn Commodities said, also noting how “the funds love their trends”.


These are the funds who, after all, went net short in Chicago corn futures and options as of last week by selling more than 100,000 lots – for only the second time on record..


And with the USDA having pegged June 1 on-farm stocks at a 13-year high of 2.95bn bushels, there could be plenty for growers to sell too.


One hope for bulls is the extent of crop that farmers have already sold, with the commercial short in Chicago corn futures and options at 993,054 lots – below June’s record high of 1.15m tonnes, but an elevated level nonetheless.


The five-year average for late August is a little over 700,000 contracts.


September corn futures were lower in early deals, but only modestly so, by 0.1% to $3.58 ¼ a bushel as of 10:00 UK time (04:00 Chicago time).


Crop improvement

That was in line with a negative trend for futures, with the December lot down 0.2% at $3.67 ½ a bushel.


Still, there are signs too of futures creating some kind of price floor near current levels, with values having slowed markedly their descent since the initial plunge following the surprise August 12 USDA upgrade to its US crop forecast.


Sure, not so helpful for bulls was overnight USDA data showing the condition of the US corn crop up 1 point in the week to Sunday to 57% “good” or “excellent”, although that was in line with investor expectations.


“This is below the five-year average of 69% good or excellent, but is near same conditions as the 2006 and 2007 crops which turned out to be above average yield years,” Benson Quinn Commodities said.


‘The burning question…’

However, will the crop find the oomph to mature, before the first frost strikes?


“Weather seems favourable with no frost/freeze in the immediate futures but highs running 5-10 degrees below normal, and growing degree days behind average, could take just as much a toll on the potential for both the corn and bean crops,” the broker said.


Terry Reilly at Futures International also said that “it should be noted the development of the corn crop is slow,” with the USDA data showing corn in the denting stage at 27%, behind a 59% figure a year ago, and an average of 46%.


Corn in the dough stage was, at 71%, below last year’s 91% figure and the average of 87%.


“The burning question in corn is how late the US is crop and will all of the acres make it to normal maturity,” said ADM Investor Services.


‘A lot of acres yet to produce a crop’

There is a similar debate going on in soybeans too, for which crop setting pods was rated by the USDA at 79% as of Sunday, below an average figure of 91%, as calculated by Futures International, and a year-ago figure of 94%.


“That means 16.1m acres are still to set pods or put another way,” said Benson Quinn Commodities, estimating at 4.6m acres the area of soybeans yet even to bloom.


“That’s a fifth of the soybean crop that hasn’t set a pod yet.


“For a crop that is dependent on daylight to mature, there are still a lot of acres yet to produce a crop.”


“Trade may be more focused on the lateness of the crop and how many acres are setting pods behind average,” ADM Investor Services said.


‘Understandably flummoxed’

Still, soybean futures for November stood down 0.8% at $8.60 ½ a bushel in early trading, with the headline crop rating weighting, up 2 points at 55% good or excellent – 1 point ahead of market expectations.


The rating “is below the five-year average of 67% good or excellent but is in line with 2007 crop which produced a trendline average crop”, Benson Quinn Commodities said.


Furthermore, demand remains a concern, with clouds overhanging US trade relations with China, the top soybean importer, despite more cheery pronouncements of late from US President Donald Trump, saying a deal was closer than it had been for some time – after the plunge in relations late last week.


“Markets are, understandably, flummoxed by these [latest] remarks – good cop, bad cop is not usually a solo game,” said Tobin Gorey at Commonwealth Bank of Australia.


Gasc tender

Wheat futures, meanwhile, shed 0.4% to $4.73 ½ a bushel in Chicago for December delivery.


While Egypt’s Gasc did overnight announce a tender, to be finalised later on Tuesday, so providing a fillip from the demand perspective, there are worries that this will only highlight the lack of competitiveness of US crop.


“US soft red winter wheat export prices remain a premium to Europe prices,” said ADM Investor Services.


“This suggests prices may need to drift lower to find demand.”


Furthermore, “despite a near-record discount to soft red winter wheat, hard red winter wheat prices are still a premium to Russia prices. This could still offer resistance to prices.”


Kansas City hard red winter wheat futures for December also eased, if by a more modest 0.1% to $4.01 ½ a bushel, clinging on above the $4.00-a-bushel mark, and indeed remaining within a price corridor that has now lasted a couple of weeks.


‘Currently the most competitive’

In Paris, Agritel doubted French hopes of winning a Gasc order, despite showing the lowest price excluding shipping in the previous tender.


“Black Sea origins are currently the most competitive,” the analysis group said.


SovEcon reported Russian wheat export prices falling $2 a tonne last week to $191 a tonne “the lowest weekly closing price for this season”, with values undermined by “weak futures markets and strong competition with other origins”.


China worries

In New York, cotton futures fell despite another drop in US crop condition, this time by 6 points to 43%.


However, the market remains overhung by US-China trade worries, with the US the top exporter of cotton, and the latter a key importer.


New York cotton futures for December shed 0.4% to 57.60 cents a pound, adding to losses in the last session.


“Internationally, the Trump administration has considered raising tariffs on all import from China to 30%, which we think was at the heart of Monday’s [price] setback,” said Louis Rose at Rose Commodity Group.


“China imported the equivalent of approximately 750,000 bales in July, little of it obviously coming from the US.”


CBA’s Tobin Gorey said that Monday’s trading “does reveal, or perhaps confirm, the extent to which US cotton’s fortunes are hostage to US China trade.”

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