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Morning markets: Grains target positive close to week, amid China demand hopes

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Just as a week ago, Friday brought a bit of a reversal theme for row crops, amid a touch of pre-weekend profit taking.

 

Not that this was positive for cotton futures, which for December fell back 0.6% to 64.13 cents a pound as of 10:20 UK time (04:20 Chicago time), giving back some of their gains made in the last session spurred by some improved US weekly export sales, and strong actual export, data.

 

There has also been some focus on instability in West Africa, a notable cotton exporting area, after a military coup toppled Malian President Ibrahim Boubacar Keita, which has stoked up activity from Islamic insurgents.

 

“We have before us a serious situation that could destabilise security, not only in Mali, but in the entire region,” said Niger’s president Mahamdou Issoufou on Thursday, at the start of talks by the Economic Community of West African States.

 

Short bets closed

Still, for row crops, reversal meant higher prices, with corn futures for December adding 0.5% to $3.41 a bushel.

 

This amid a continued retreat by investors from the grain, with the expiry of the September contract approaching, and with open interest in Chicago futures down a further 52,565 lots over the past week, to 1.515m lots.

 

When funds have a hefty net short in the lot, reduced exposure implies some background support anyway for values.

 

But also somewhat supportive for values is the ending of the Pro Farmer crop tour which, while showing strong yield potential in most of the Midwest, highlighted too the damage to Iowa crops from last week’s derecho storm – and from dryness.

 

After all, Thursday’s weekly US drought monitor showed the proportion of Iowa – the top corn growing state, and second-ranked soybean producer - rated at 45.5% in drought, up 11.2 points week on week, and at the highest in six years.

 

Ratings decline?

While the Pro Farmer tour is not fully over yet, with a final press conference later on Friday, including a pan-US corn yield average, investor attention is already shifting to the next weekly US Department of Agriculture condition briefing, on Monday, which is expected to show a further decline in ratings.

 

Steve Freed at ADM Investor Services said that “some feel next week’s US corn crop rating will drop another 1-2 percentage points” in terms of the proportion of crop reported in “good” or “excellent” condition.

 

Terry Reilly at Futures International said that “US corn conditions are expected to be down 1-3 points when updated on Monday,” viewing that “data collected this week suggests damage from the derecho storm was larger than we expected”.

 

(in Europe, FranceAgriMer on Friday again cut its rating of French corn, by 3 points to 62% good or excellent, as the crop continues to feel the impact of the second-hottest first half of August on record and the driest July in at least 60 years.)

 

Soy crop decline

Mr Reilly added that in Monday’s USDA crop progress briefing “we look for US soybean conditions to decline 1-2 points,” seeing in Iowa a decline of 3-6 points this week from net drying bias western Iowa and additional data gathering from the derecho event”.

 

Soybean futures for November added 0.3% to $9.08 a bushel, like corn reversing a portion of losses suffered in the last session.

 

While funds still have a (reduced) net long position in Chicago futures, an upward trend in open interest suggests that this is not such a weight to values, in terms of the position closing which would infer pressure on prices.

 

‘Larger player in global corn trade’

And then there is the demand side to factor in, and China – and not just in terms of the soybeans it is particularly famous for in import terms.

 

“China is mostly known for its soybean demand, but the country is becoming a larger player in global corn trade as well,” said Karl Setzer at AgriVisor.

 

“China has suffered from short crops in recent history, and at the same time, has seen its corn demand increase,” thanks to raised demand from ethanol plants as well as the rebuild in its hog herd after African swine fever.

 

“As a result, China is expected to consume 288m tonnes of corn this year while only producing an estimated 250m tonnes.”

 

‘Buying on the close’

In fact, in the last session there were “rumours of China interest in US corn”, Mr Freed said, seeing these as potentially helping corn to pare losses in late deals.

 

He added that China’s “appetite for energy, soybeans, wheat and corn suggests Covid is behind them and their economy is growing”.

 

Indeed, turning to wheat, the “fact China is buying US wheat and more rumours on Thursday of new buying helped futures” in the grain in the last session.

 

“There is talk that China is in the market buying futures on the close over the last few days.”

 

‘Poised to extend the rally’

Chicago soft red winter wheat futures, like corn, managed a strong finish to Thursday, although differing in actually closing decisively in positive territory.

 

And they bucked Friday’s reversal trend by extending headway a bit, adding 0.2% to $5.29 ¾ a bushel for December delivery, extending their cushion to the 100-day moving average regained in the last session.

 

“The chart for US winter wheat futures looks poised to extend the rally,” said Benson Quinn Commodities, highlighting too positive signals for Minneapolis spring wheat, which gained 0.4% to $5.29 ¾ a bushel for December.

 

In Minneapolis, “the funds are fighting a short position that hasn’t worked well for a week,” the broker said.

 

“Minneapolis tends to feel expensive above $5.20, but given the lack of harvest selling, that may not be the case this time.”

 

The Minneapolis December contract stood up 0.4% at $5.29 ¾ a bushel.

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