Thursday is demand day for grain markets, in terms of bringing much-watched weekly US ag export sales data.
And they are likely to be particularly closely watched this time given the concerns of sagging orders of many US crops which could signal that prices have done their job for now in choking off consumption, and matching it better to weather-reduced production.
In fact, some output concerns remain, for instance in Argentina where the “outlook remains too hot and too dry” for developing corn, Tobin Gorey at Commonwealth Bank of Australia said.
Terry Reilly at Futures International said, aimed at soybeans, that “weather in South America is bullish with the wet weather in Brazil delaying fieldwork, while the hot and dry Argentine weather is wreaking havoc on the crops”.
‘Conditions look to be worsening’
Brazil’s rains are seen as a setback not just in terms of delaying harvest, but in cutting crop specification too.
At ADM Investor Services, Steve Freed noted “concern about the late Brazil harvest and rains reducing the quality offered”.
Benson Quinn Commodities noted “more talk of water-logged harvest in parts of Brazil”, adding that in the top growing state of Mato Grosso “yields, and conditions look to be worsening”.
Furthermore, for the follow-on safrinha corn crop, still being seeded (past the ideal sowing window) there is “talk 10-15%… will need to be replanted as poor germination impacts stand”, the broker said.
It also reminded of the Chicago adage “plant in the mud the crop’s a dud” (as opposed to plant in the dust, and the bins will bust).
For Brazil’s little-reported-on first crop corn crop too - for which the development timeline runs parallel with that of soybeans, ie meaning harvest now - there are some concerns too.
Dr Michael Cordonnier, the respected South America crop analyst, said that in Rio Grande do Sul which vies with Minas Gerais as the top growing state for first crop corn, “yields of the early planted corn are disappointing.
This is so “especially in the northern part of the state, which suffered from dry weather early in the growing season.
“Corn yields are expected to be better in other parts of the state especially for the later planted corn,” Dr Cordonnier added.
And this before getting to, say, the dryness and winterkill worries surrounding some northern hemisphere winter wheat crops.
Still, grain futures have lost momentum, as demand signals have lost strength too, particularly from the US.
Some of this is to be expected, with the Brazilian soybean harvest meaning fresh supplies to sell into the global market, and bringing its period of seasonal dominance in trade, before the US harvest returns it to the fore in the autumn.
But there have been some unexpected factors too, such as the fall in Brazil’s real, which has only enhanced its competitiveness in exports - and provoked talk too of a new wave of selling by the country’s producers, for which the currency’s weakness means higher domestic values of assets traded internationally in dollars.
That is a factor not just for grain and oilseed markets, but also for softs, with Brazil the top coffee and sugar exporter, and a major shipper of cotton too.
Indeed, on top of all the talk on the real in grain markets, Louis Rose at Rose Commodity Group said he was hearing “rumours from multiple sources” of hedging of Brazilian cotton against New York futures.
This, Mr Rose said, is a factor which may be exacerbating cotton market reversal he attributed in the main to “a combination of waning demand and the intrinsic nervousness of speculators”.
Cotton futures for May eased a further 0.7% to 87.80 cents a pound as of 10:40 UK time (04:40 Chicago time).
Tobin Gorey at Commonwealth Bank of Australia noted that prices had in the past “found a hefty seam of support” around current levels.
“We’ll see if that support is there again.”
‘The next black swan event?’
Much of this may depend on what emerges from the US export sales data for last week, due later on Thursday.
This is of course a big deal for grains too, yet with the data being overshadowed by ideas that China’s demand may not turn out to be as robust as had been hoped, against a backdrop of reviving cases in its huge hog herd of African swine fever, and other swine diseases too.
Mike Mawdsley at First Choice Commodities, noting “more chatter about African swine fever in China”, asked “how bad is it? How bad could it get? Is this the next black swan event?
“If China’s feed needs are cut, there goes the excitement in their demand outlook.”
Swine fever talk
Benson Quinn Commodities said that while “Beijing has reported few outbreaks recently” - although one was confirmed from Yunnan province, involving illegally-transported piglets - “some analysts estimate nearly 20% of the north China breeding herd was affected this winter”.
Mr Freed meanwhile noted that “Dalian corn futures remain near historical highs but there is no new evidence of new interest in US corn”.
In fact, Dalian corn for May eased 0.6% to 2,759 yuan per tonne, declining for a fifth successive session, hardly improving the mood in Chicago.
Chicago corn for May stood down 0.4% at $5.33 a bushel.
‘Export business remains elusive’
Where the contract ends the session may depend on where the US weekly export sales data for last week come in, compared with expectations of 400,000-800,000 tonnes for old crop.
While above the previous week’s result of 453,281 tonnes, that would be a fraction of the China-fuelled figures seen earlier in 2021.
“Export business remains elusive, limiting corn and wheat prices from advancing,” said Benson Quinn Commodities.
’Concern about a slowdown’
For soybeans, old crop export sales for last week are expected at 100,000-500,000 tonnes, compared with 100,000-500,000 last time, and also well below earlier-year levels.
Mr Freed noted here too “concern about a slowdown in China buying”.
Still, there is at least some consolation for bulls in that the US soybean export programme is loaded into the front of the season, giving way to Brazil around now, meaning that a bigger proportion of expected trade for 2020-21 has already left the US.
May soybean futures held at $14.07 ½ a bushel, also gaining support from soyoil, which added 0.8% to 50.18 cents a pound, in turn supported by palm oil which in Kuala Lumpur added 1.3% to 3,725 ringgit a tonne.
A Reuters survey showed that investors expect Malaysia Palm Oil Board data next week to show a rise of 7% month on month in Malaysian palm oil stocks for February – but at 1.42m tonnes, they would remain historically slim.
‘Futures are struggling’
Chicago wheat futures eased by 0.2% to $6.54 ½ a bushel, against worries of another downbeat US export sales figure for last week of potentially as low as 100,000 tonnes, although other investors see a figure nearer 500,000 tonnes.
The previous week recorded 167,741 tonnes in sales.
What has irked investors is that, as Mr Gorey related, “US prices remain substantially lower than the other side of the Atlantic, yet the export action from the US remains modest”
“Wheat futures are struggling with talk of lower EU and Russia wheat exports and high inverses in Matif and Russia wheat futures, versus low US wheat export demand and carries in US wheat futures,” Mr Freed said.