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Morning markets: Grains make timid start to October. Does a fresh buying wave await?


So was the recovery in the grain prices a flash in the pan, or did it represent something more sustainable?


There are certainly reasons to think that further price gains could be in the offing – not that these were necessarily so forthcoming in early trading, when corn futures, for instance, gave back a few of the last session’s gains.


One positive factor is the calendar, with the start of a new month and indeed a new quarter, often viewed as a period when funds inject new money into the market.


Then there is the grain trader’s idea that changes in money flows take three days to work through, implying at least a couple of further sessions of price gains.


“As funds liquidate short positions, look for at least another if not two more days of firmer trade,” Benson Quinn Commodities said.


‘Massive reduction’

And this before getting to grips with the fundamentals – and of course the smaller-than-expected US corn and soybean inventory data - as of September 1, so the carry-in to 2019-20 – as revealed by the US Department of Agriculture on Thursday, which powered the last session’s rally.


What has interested investors is not just that the USDA estimated US inventories of both crops well below market expectations, but the extent of the shortfall.


For corn, for instance, as Tobin Gorey at Commonwealth Bank of Australia noted, “previously inventories were estimated to be 62.1m tonnes (2.45bn bushels) - the estimate is now 54m tonnes.


“At 12% plus, that is a massive reduction, analogous to finding out you are not just on the wrong road but in fact in the wrong town.


“A much lower inventory starting point for season 2019 is alone a good reason for [a] hefty rally.”


‘Certainly less burdensome’

At RJ O’Brien, Richard Feltes compared the corn and soybean figures with those that investors had expected, saying that before this week, “since 2008, the largest ever downside surprise on September corn stocks versus expectations was by 125m bushels, in 2012”.


Monday’s figure was 314m bushels shy of this estimate.


For soybeans, “the largest shortfall in September 1 stocks was 34m bushels in 2014,” compared with the 69m-bushel gap revealed by Monday’s briefings.


“Make no mistake - September 1 stocks of US corn, soybeans and wheat are still historically large, but certainly less burdensome that previously perceived.”


‘Bingo - time to rally’

This means that grain “bears are vulnerable in the weeks ahead, if low initial 2019 US corn and soybean yield reports erode further as harvest advances,” Mr Feltes said.


“The extent of the rally will be governed largely by new crop yield reports, South American weather, follow-up Chinese buying and the appetite of managed funds to start building longs.”

Benson Quinn Commodities said: “A little better demand a little less supply, a market generally leaning bearish, bingo - time to rally.”


‘Drier conditions next week’

Not that corn futures were following this script, in early deals at least, falling by 0.4% to $3.86 ½ a bushel for December as of 10:30 UK time (04:30 Chicago time), although remaining above their 50-day moving average, which they closed above in the last session for the first time in two months.


Some profit-taking was encouraged by expectations that the slow start to the US harvest – as underlined by separate USDA data overnight – may give was to some acceleration.


Mr Gorey said: “Weather forecasters expect this period of wet weather to give way to drier conditions next week.


“And that will allow crops to further mature and harvesting to proceed.”


‘Chinese buyers back in the saddle’

Soybean futures fared a little better, in edging 0.1% higher to $9.06 ¾ a bushel for November, offered some support by talk of further Chinese purchases of US supplies.


Reportedly, Chinese buyers purchased 600,000 tonnes of US soybeans on Monday, as part of a tariff-free quota allotted to the importers to buy up to 2m tonnes this week


“Chinese buyers are back in the saddle this week with the purchase of 600,000 tonnes of tariff-free US beans for November-to-January shipment,” said CHS Hedging, although others have cautioned investors not to expect too much in what is a holiday period in China.


Soyoil helped too, in gaining 0.5% to 29.23 cents a pound, after data showed US use of the vegetable oil in making biodiesel in July at 709m pounds,” well above 594m pounds in June and up from 671m pounds in July 2018,” Terry Reilly at Futures International noted.


Futures in rival vegetable oil palm oil soared 1.8% to 2,174 ringgit a tonne in Kuala Lumpur, spurred by soyoil.


‘Unfavourable weather’

Wheat futures, meanwhile, edged 0.1% higher to $4.96 ¼ a bushel for December Chicago soft red winter wheat, retaining some support from the downgrade to the 2019 US winter wheat harvest also issued by the USDA on Monday.


On the negative side, data on sowings of winter wheat for the 2020 harvest, showing 39% completion, came in 3 points ahead of market expectations.


Still, as Agritel noted, “several parts of the world are deserving of special attention” for wheat investors.


“In Canada and in the north of the US, a strong snowstorm during the weekend is disrupting harvesting,” while in Australia “persistent drought is raising concerns about the next crop”, with dryness a worry in Argentina too.


Mr Reilly too highlighted the “unfavourable weather in the US, Canada, western Argentina and Australia”.


‘Slammed with hail’

In fact, spring wheat, the harvest of which is being affected by more wintry North American weather, added 0.5% to $5.47 ¼ a bushel in Minneapolis for December, extending its strong performance of last month, when it was one of the top-performing ags (as Canadian, US crop hopes deteriorated).


Terry Reilly noted that at the weekend, “8-10 inches of snow fell across Montana”, while the “Canadian Prairies were slammed with hail, rain and heavy snow”.


CHS Hedging said: “Snow fell across Montana and rain fell across North Dakota, the two states that had a fair piece of their wheat left to harvest.”


Slow harvest

In fact, US spring wheat harvest overall was 90% complete as of Sunday, overnight USDA data showed.


However, that was up only 3 points week on week, a figure 2 points short of market expectations, and 9 points behind the average pace.


Furthermore, Montana farmers still had 16% of crop left to harvest, and those in North Dakota, by far the biggest spring wheat growing state, 11%, and with the weather outlook not so clement.


“Cold temperatures will remain close to the border of North Dakota, Montana and Canada,” Benson Quinn Commodities said.

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