Is the Wasde losing its touch?
That is, while the benchmark US Department of Agriculture report on world crop supply and demand on Wednesday upgraded the US corn crop to a record high, and the US soybean harvest to the second largest ever - both ahead of market expectations – futures for only a matter of seconds.
They went on to close the last session higher.
And Chicago corn and soybean contracts gained further on Thursday, with wheat getting in on the act this time too.
There was some support from the overnight newsflow, and say the surge of 3.2% to 6,346 yuan a tonne in January soyoil futures on China’s Dalian exchange, where rival vegetable oil palm oil gained 2.1% to 5,612 yuan a tonne for January.
This on talk that China is rebuilding soyoil stocks by some 2m tonnes - a rumour which was actually alive in Western markets late on Wednesday, when Chicago futures enjoyed a spurt.
Kuala Lumpur palm oil played a little bit of catch-up on Thursday by adding 1.4% to 2,726 ringgit a tonne for October as of 10:15 UK time (04:15 Chicago time).
This again defying the Wasde, which made upgrades to estimates for Malaysian palm oil production in both 2019-20 and next season, by a combined 900,000 tonnes.
For wheat too, the overnight news provided support in terms of another tender by Gasc, its second this week, suggesting that the Egyptian grain authority, a huge importer, believes the risk to prices is to the upside rather than the downside.
Not, it has to be said, that any orign outside Russia and Ukraine is seen as likely to win business.
“In the current environment, Black Sea origins will undoubtedly take over,” Agritel said.
In fact, there are ideas of the ostensibly bearish nature of the briefing attracting some purchasing in other markets too, with Steve Freed at ADM Investor Services noting “talk of some consumer pricing” in corn and soybeans post-Wasde.
‘Not as bad as feared’
Furthermore, there are ideas that traders had braced for even more bearish data in the Wasde than that suggested by a Reuters poll ahead of the report – meaning the actual numbers were in fact something of a positive surprise.
“Most of the explanation” for price resilience “lays with the overall numbers not being as bad as the market feared”, said Tobin Gorey at Commonwealth Bank of Australia.
“All in all the report was deemed slightly bearish, just not as bad as expected,” said Benson Quinn Commodities.
And then there are technical factors to consider, and the failure of prices to fall on ideas of huge supplies unsettling speculators with short bets, of which they have a mass in corn in particular.
“It’s hard to justify a short position in this market, at least for the short term, when traders rallied the corn market after USDA reported a record corn yield,” said Terry Reilly at Futures International.
Also to factor in are crop losses from Monday’s derecho storm which ripped through Illinois and Iowa, affecting in the latter some 10m acres of crops, according to the state’s ag officials.
“There continues to be a debate over how much Iowa corn crop was damaged due to recent wind storm,” Mr Freed said.
On Mr Reilly’s calculations, the storm has placed a question mark over some 950m bushels of corn in field, besides “10s of millions of bushels of commercial grain storage, and millions of bushels of on-farm grain storage was impacted, destroyed, or severely damaged”.
(Not that all interpretations of the storm were quite so bullish, with Karl Setzer at AgriVisor, for instance, saying that it could cause some short-term, harvest pressure on prices, if farmers are forced by a lack of storage to sell more crop straight from the combine.
“The greatest concern is damage to storage facilities right ahead of the harvest season that will leave many unusable - both on-farm and commercially.
“This may force more bushels than normal into the supply line right at harvest, impacting basis as it does.”)
‘A supportive piece’
The dynamics fed through into a 1.5% gain to $3.32 ¼ a bushel in Chicago corn futures for December, taking the contract back above its 20-day moving average for the first time in a month.
November soybean futures gained 0.9% to $8.90 ½ a bushel, also rising back above their 20-day moving average, as well as their 40-day and 50-day lines.
Soft red winter wheat for September gained 0.5% to $4.93 ½ a bushel, reversing most of its losses of the last session, and continuing to look it is forming some kind of floor around $4.90 a bushel.
Kansas City hard red winter wheat for September fared better, up 1.0% to $4.21 ¾ a bushel, after the USDA in the Wasde cut its forecast for US stocks of the class at the close of 2020-21, thanks to a lower harvest figure, and upgraded export estimate.
“Wheat numbers for US demand looked friendly with an increase for exports in hard red winter wheat a supportive piece,” Benson Quinn Commodities said.
Not, it has to be said, that all investors expect upward progress in grain prices to continue for long.
CBA’s Tobin Gorey, focusing on corn, said that “we start highly sceptical, for a number of reasons” of the gains representing “the start of a larger recovery in prices.
“One reason is that the timing runs afoul of seasonality, a task made much more difficult by what is still a going to be a very big crop.
“Beyond that though, the US will need to see hefty exports to realise those more comfortable inventory projections. And that is much less likely at materially higher prices.
“In our view prices trading broadly sideways is more likely.”
Rabobank too said that while large US production ideas are “about to materialise”, the upgraded “demand estimates for 2020-21 retain a large margin of error”, particular in view of the US-China talks due on Friday to discuss progress on the countries’ phase one trade deal.
‘Much more dismal’
This of course is relevant for the cotton market too, although the fibre also found some support on Thursday, after tanking in the last session on surprisingly high USDA estimates for supplies, both for the US and globally.
“While we thought Wednesday’s report would sport more bearish figures than were generally expected, the estimates and projections put forth were much more dismal than our expectations,” said Louis Rose at Rose Commodity Group.
Still, cotton futures for December recovered 0.7% to 62.61 cents a pound, to stay ahead of their rising 40-day moving average line.