Month ends have a reputation in Chicago for price weakness.
Funds are seen by many observers as using this period to consolidate portfolios and withdraw money, with month beginnings more likely to attract fresh cash.
Such ideas are complicated this time by the extent of short positions held by funds, particularly in corn.
Closing these would mean upward pressure on prices.
And, as an extra overlay, before even getting to fundamental supply and demand factors, it is first notice day for December contracts, when the futures market takes on some of the behaviour of a cash market, and contracts take on physical obligations.
Already, that had spurred a shake-up in positioning, as investors ditch December contracts before these physical obligations are assumed, with open interest in Chicago wheat futures lots overall down 50,000 lots in the past two weeks.
Open interest in Chicago corn futures lots is down 160,000 lots since Thanksgiving last Thursday.
And the process produced a further test overnight with the release of deliveries against the expiring December lots – figures which for some contracts came in far from expectations.
Note that elevated deliveries are seen as a negative for prices, in signalling the futures market as an attractive place to sell, and in the immediate timeframe, rather than delaying sales to put against eg March 2018 contracts when they expire.
Expectations vs reality
For Kansas City hard red winter wheat, deliveries of 55,000 lots actually came in well below expectations, according to Reuters, of 200,000-600,000 contracts.
Ditto for soymeal, for which deliveries of 60 lots came in at the bottom end of a range of up to 300 lots, and for soyoil, for which forecasts were spread from 300-1,000 contracts, but the actual figure came in at 179 contracts.
However, for Chicago soft red winter wheat, deliveries of 2,000 contracts were a multiple of the 0-500 contracts expected by traders.
And for corn, deliveries of 1,204 contracts also exceeded expectations, albeit less so, with forecasts at 200-800 lots.
‘Soil moisture concerns’
Of course, this is not the only game in town, with South American weather, for instance, still in focus.
Terry Reilly at Futures International said that after some rains into Sunday, “Argentina then dries down after that event amid warm temperatures bias south and west, which may raise soil moisture concerns/crop stress”.
Benson Quinn Commodities, while terming South America weather “mostly favourable” for crops, adding that “it is early in the growing season”.
The issue “will become bigger story if the dryness advertised in European extended [weather] models comes to fruition”, an outlook that appears “mildly supportive [to prices] at the moment”.
‘Rising China import demand’
Mr Reilly also flagged that “ongoing talk of rising China import demand for corn is starting to gain attention”.
The country “could potentially import up to 3.5m tonnes of corn in 2017-18, followed by up to 5m tonnes in 2018-19 and 7.5m tonnes by 2020, in our opinion, given a slowdown in yearly production and rising industrial consumption”.
The country is encouraging farmers to switch to alternative crops, and incentivising corn demand from the likes of ethanol plants, to fuel a drawdown of huge state inventories – which some say, though, are of questionable quality.
‘Grain quality at risk’
Meanwhile, for wheat, the recovery in hopes for Australia’s drought-hit crop is hitting turbulence, with the rains which have revived yield expectations a bit now seen increasingly as a quality threat.
While the January east coast wheat contract overnight settled unchanged in Sydney at Aus$278.00 a tonne, that followed a 4.5% surge over the previous two sessions.
At Commonwealth bank of Australia, Tobin Gorey said that “we think the market is worried by what looming rainfall will do to unharvested crops in the south east” of Australia.
“Weather forecasters expect some further heavy rain in the region. And the rain will be enough to put grain quality at risk.”
Still, in early deals back in Chicago, there appeared something of a correlation between prices and delivery information, with corn futures for March showing a modest decline of 0.4% to $3.53 ¼ a bushel as of 09:30 UK time (03:30 Chicago time).
Meanwhile, March soft red winter wheat futures shed 0.7% to $4.31 ¾ a bushel.
But Kansas City hard red winter wheat futures outperformed in dropping by half that percentage, to $4.30 a bushel.
Soymeal bucked the trend, by falling 0.4% to $325.90 a short ton for January despite lower-than-expected deliveries, but soyoil for January stayed on message in adding 0.5% to 34.23 cents a pound.
It was a help that rival palm oil gained 0.9% to 2,585 ringgit a tonne in Kuala Lumpur.
While cargo surveyor ITS reported Malaysian palm exports down 5.3% this month, that represented an improved on the 8.4% pace of month-on-month decline as of November 25, with data from rival SGS showing a more marginal improvement over the past few days.
The soyoil market is expected to face further tests later, with the Environmental Protection Agency due later to release final volume standards for the 2018 and 2019 biodiesel volume requirements in the US – biodiesel being made from vegetable oils.
And of course there are US weekly export sales data later, expected for soyoil to come in at up to 22,000 tonnes.
For soybeans themselves, which for January eased 0.2% to $9.90 ¾ a bushel for January delivery, US export sales are expected at 800,000-1.20m tonnes, at least matching the last figure.
For corn, export sales are expected at 700,000-1.10m tonnes, at best matching their performance of the previous week, while for wheat sales are forecast at 250,000-450,000 tonnes, which would be an improvement on last time.
For cotton, meanwhile, US export sales data for last week are seen coming in a bit short of last time.
“Data analysis suggests that sales are likely to be less than the approximately 375,000 running bales total put forth for the week ending November 16,” said Louis Rose at Rose Commodity Group.
“Still, the average and minimum lows prices over the period reported upon suggest that sales will likely well exceed the pace required to match the USDA’s export target” for 2017-18.”
He also flagged that the on-call position, ie the amount of cotton awaiting fixing against December futures, “remains burdensome, which is bullish, although there is recent evidence of some covering of on-call commitments”.
There is also talk that Cotton Outlook will alter unveil monthly updates to its supply and demand estimates.
For now, New York cotton for March stood down 0.2% at 73.27 cents a pound.