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Morning markets: Grain prices extend rally on US inventory surprise


The big question is, just what did the surprise US inventory data mean for prices?


The US Department of Agriculture sent corn, soybean and, especially, wheat prices soaring in the last session after revealing domestic stocks of all three crops as of September 1 were markedly below expectations.


It reduced its estimate of this year’s winter wheat harvest too.


But whether all this was factored in in the last session’s gains…


Price upgrade

RJ O’Brien looked at the pricing question in terms of the farmgate values that the USDA reveals in its annual Wasde report, saying that the latest data translate, for 2020-21, for corn to an “on-farm price of $4.00 per bushel versus the USDA’s forecast of $3.50 per bushel”.

That would be the highest season-average price since 2013-14, when Chicago spot prices indeed averaged well over $4.00 a bushel, approaching $5.20 a bushel at one point.


For soybeans, the weaker stocks figure as of September 1, the start of 2020-21 (as for corn), suggests an “on-farm price of $10.50+ per bushel”, above a current USDA forecast of $9.25 per bushel.


That would also represent the highest price in seven years ago, when prices averaged was more like $12-13 per bushel.


For wheat, the data suggest a farmgate price of $4.75-5.00 per bushel, above a USDA forecast of $4.50 per bushel, the broker said, although less to write home about, with values averaging $5.16 as recently as 2018-19.


Chicago forecasts

Futures International, meanwhile, took the bull by the horns, as it were, and addressed futures prices directly, raising its forecasts for the trading range of December corn by some $0.20 a bushel to $3.60-4.00 per bushel.


For November soybeans, the forecast was also raised by some $0.20 a bushel, to a trading range of $9.90-10.75 a bushel.


And for December Chicago soft red winter wheat, the forecast was raised by about $0.25 a bushel to $5.50-6.10 a bushel.


New month, new money?

In fact, all three contracts were trading comfortably within these ranges even as of the last session’s close.


And in early deals on Thursday, they added to those settlements. And will there be more buying later?


The start of months, and especially quarters, is associated with extra fund cash, with a say of “new month, new money”, and such inflows often happen late in the session.


‘Squeamish market’

As of 10:30 UK time (04:30 Chicago time), Chicago corn futures for December added 1.0% to $3.82 ¾ a bushel, and earlier touching $3.83 a bushel to set a fresh six-month intraday.


Benson Quinn Commodities said that the September 1 stocks data suggested a 2020-21 carryout of 2.25bn bushels, the type of “number the market has become comfortable and familiar with over the previous four years”.


Still, the “drop of nearly 1.0bn bushels in three short months from USDA’s sky high 3.3bn carryout estimate in July can make the market squeamish to any potential production cuts or demand increases, along with any sort of adverse South American weather”.


South American farmers are starting sowings of corn, and soybeans, boosting the importance of current weather.


‘No useful rainfall’

Tobin Gorey at Commonwealth Bank of Australia said that in fact “weather forecasters continue to expect little or no useful rainfall in major production regions of Argentina and Brazil for another week or so,” Mr Gorey said.


And while meteorologists are a “little more optimistic about Brazil in late October”, they are “just as pessimistic about Argentina.


“The market will likely need to see this nascent rain firm and persist in forecasts closer to the time to take the projection seriously.”


Commodity Weather Group rated September as the equal driest in 40 years for Brazilian corn and soybean growing areas, “upping the importance for a timely arrival of the mid-October rainy season,” said Richard Feltes at RJ O’Brien.


Steve Freed at ADM Investor Services added that “there has been only one year that dry weather in Brazil extended past October 24”, adding ominously that “it was a La Nina year”, as now.


‘I would sell’

“Dry weather in Brazil, Argentina and Russia is supporting prices”, said Steve Freed at ADM Investor Services.


He noted too support from an idea that the “US farmer is not yet a seller”, with soybeans seen as a more obvious target for any fund-raising needs.


Whether producers should be selling…


Mike Mawdsley, at First Choice Commodities, who is a farmer too, said that “I would sell - just my opinion. You can always buy back paper,” ie keep participation in markets through derivatives.


He said on the stocks report that he was “not sure it was bullish enough to keep prices running higher”.


‘Heating up over 100 degrees’

Nonetheless, he too acknowledged the support to prices from dry South American weather, if more for soybeans.


“Some areas are heating up over 100 degrees Fahrenheit.”


Chicago soybean futures for November added 0.7% to $10.30 ¼ a bushel, although the star of the show in the oilseeds complex was palm oil, which soared 2.9% to 2,793 ringgit a tonne in Kuala Lumpur for December delivery.


Palm factors

Besides playing catch-up with strength in Chicago soyoil prices after the USDA data, palm also found a little support from a decision by Indonesia to introduce a $3-a-tonne export tax on crude palm oil shipments from this month.


Furthermore, SGS was more upbeat than other cargo inspectors on Malaysian exports last month, pegging them up 11.2% from August (despite September having one less day).


A ban by the US on palm imports from top producer FGV Holdings was ignored in the commodity markets, as buyers can easily source the vegetable oil from elsewhere, although shares in the group tumbled by 8.7%.


One factor that may increasingly come into play in coming days in palm oil, and soybean, markets is the start of a holiday week in China, a key buyer of both ags – potentially limiting price gains, in denying investors “feedback” in terms of the impact on end user demand of higher values.


Also, for soy, there remain ideas that Argentina may relax its export tax regime to encourage farmer selling, increased crushing and, ultimately, bring extra duty revenues.


Hard vs soft

As for wheat, it added 0.4% to $5.80 ¼ a bushel for December, lagging the row crops this session after outperforming them in the last one.


Indeed, Kansas City hard red winter wheat - which rocketed 7.1% in the last session for December, to hit a 19-month closing high for a spot contract - added a marginal 0.1% this time, to $5.10 ¼ a bushel.


Still, whether its outperformance of the last session is more the trend to be looking at…


Mr Feltes advised investors to “look for Kansas City wheat to gain on Chicago wheat”, given that the USDA, in its small grains production report on Wednesday, cit in particular its estimate for the US hard red winter wheat crop, by 36m bushels.


Furthermore, there are “prospects for a continuation of dry weather across US southern Plains”, where farmers are trying to sow hard red winter wheat for harvest in 2021.


‘Well short of enough’

Dryness in the former Soviet Union remains an issue too, where a strip “from eastern Ukraine, through southern Russia, and into western Kazakhstan, is dry,” Mr Gorey said.


“Weather forecasters expect some rain this week in the region.


“Importantly though, while that rain will certainly be useful, it is well short of enough to get the region off the watch list.”


And after the trim to US production, and stocks, estimates on Wednesday, “any loss of US or Black Sea production will draw down inventories from a materially lower starting point.”

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