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Morning markets: Rally in grain futures pulled over for reality check

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Gains were a bit harder to come by in grain futures on Wednesday, after their headway in the previous two sessions.

 

Sure, some worries over US soybean and, especially, corn crops remain, after the unexpectedly large downgrades on Monday to official crop ratings, as dryness saps yield prospects in many major Midwest growing states.

 

Indeed, with the Midwest weather outlook remaining somewhat hostile, many investors are expecting further cuts to the USDA crop ratings next time too.

 

“I believe the trade is already trading declines on next Monday’s progress report,” said Benson Quinn Commodities.

 

“Can’t argue with it as it is generally hot and dry for much of the Corn Belt into the weekend.”

 

‘Situation should not be overestimated’

However, there is also the question of whether prices up 4.0% for Chicago corn in the first two sessions of the week, and 1.7% for soybeans, have factored in enough in the way of risk premium for now.

 

Futures on Wednesday paused for a bit of a reality check, with US harvest seen as now being a little less humungous rather than weak.

 

Agritel noted, for instance, that the “situation should not be overestimated in view of the increasingly proven resistance of varieties to water deficit”.

 

Benson Quinn Commodities, meanwhile, flagged the potential for higher prices to choke off consumption, saying that “the corn market isn’t a market that can afford to limit demand at this point”.

 

‘Adequate for demand’

Steve Freed at ADM Investor Services suggested that investors were trading a corn yield of 178 bushels per acre, compared with a US Department of Agriculture figure of 181.8 bushels per acre, and soybean yield of 52 bushels per acre, compared with the official forecast of 53.3 bushels per acre.

 

In production terms, this would equate to losses of 326m bushels for corn, and 100m bushels for soybeans, compared with current USDA estimates, in turn suggesting that the US would end 2020-21 with corn stocks “closer to 2,430m bushels” than the current figure of 2,756m.

 

For soybeans, “this could drop US 2020-21 soybean carryout to closer to 510m bushels”, from the current 610m bushels.

 

But in both cases, the stocks remained “adequate for demand”, he said, advising famers to “consider adding to 2020 cash sales [of crop] and starting to sell 2021 cash”.

 

‘Bavi will be destructive’

Not that US factors are the only ones relevant to the corn market.

 

Agritel flagged, in the context of corn, “the continuing water deficit in France, while Ukrainian production could also be revised downwards in view of hot and dry weather”.

 

Tobin Gorey at Commonwealth Bank of Australia noted the threat to Chinese production from Typhoon Bavi, currently gusting up to 115 knots (132mph), according to the Joint Typhoon Warning Center, and heading for North Korea.

 

“Bavi will be destructive in some corn regions in China and dump unwelcome heavy rain in even more,” Mr Gorey said.

 

‘Reports of sudden death syndrome’

Still, Chicago corn futures for December eased back 0.1% to $3.54 a bushel as of 10:30 UK time (04:30 Chicago time).

 

Soybean futures did manage to add to gains, but by a modest 0.2%, taking the November lot to $9.22 ½ a bushel, albeit enough to represented a fresh seven-month high on a nearest-but-one contract basis.

 

Karl Setzer at AgriVisor noted too “reports of sudden death syndrome in some US soybean fields”, sudden death syndrome being a fungal disease that can cause significant yield loss.

 

Importers in the market

Wheat futures were the best performers among Chicago’s big three, adding 0.6% to $5.38 ½ a bushel for December.

 

But this after lagging earlier in the week, for which they remain up a modest 0.7%.

 

The grain gained support from corn, but also from a spree of tenders by importers, with Pakistan reported to have bought 210,000 tonnes, and Jordan, Taiwan and Turkey tendering.

 

Egypt’s Gasc, meanwhile, bought a hefty 530,000 tonnes of wheat at tender on Tuesday, which, while all from Russia, came in at an average price of $213.11 per tonne FOB.

 

At the previous tender, on August 13, the average price was $206.73 per tonne.

 

The price increase since then “reflects the latest market trend”, said Agritel noting in particular the appreciation of Black Sea offers “in a context of limited sales from producers and positive global demand dynamics”.

 

‘4-6 more weeks of storm-dodging’

In New York, cotton futures edged 0.2% higher to 65.70 cents a pound for December, reversing some of their losses in the last session, when demand worries trumped concerns over the threat to US production posed by Hurricane Laura.

 

“Prices remain elevated by the risk that Hurricane Laura present to some US cotton crops,” Mr Gorey said.

 

At McCleskey Cotton, Ron Lee said that “Hurricane Laura is gaining in strength and looks to make landfall somewhere near the Texas/Louisiana line on Thursday morning as a category 2/3 major hurricane.

 

“While not in the direct path of very much cotton, we could see some twisting/discoloration depending on how far into the Mid-South the wind/inundating rain stretches.”

 

He added that Laura’s approach “also keeps the market mindful that we like have 4-6 more weeks of storm-dodging to go for the Mid-South and Southeast”.

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