Is the corn rally starting to run out of juice?
“Momentum may be starting to wane,” said Mike Mawdsley at First Choice Commodities, noting the behaviour of the market on Monday, and its “small trading range during the day session.
“The market couldn’t sell off very far, but overnight highs weren’t challenged either.”
Looking as to where futures might retreat too, he noted Fibonacci retracement levels (from the last session’s high of $3.71 a bushel) for the Chicago December corn contract of $3.59 a bushel, $3.51 ½ a bushel and $3.45 ½ a bushel etc, back down to $3.20 level which marks the 100% retreat of the rally.
Furthermore, the $3.57 ½ a bushel at which the September contract expired on Monday as a “possible downside target”.
‘Scrambling for supply’
Whatever, the December corn lot, now the spot contract, traded 0.2% lower at $3.68 ¾ a bushel as of 10:20 UK time (04:20 Chicago time).
And this despite support from a fundamental perspective from US Department of Agriculture data overnight showing a surprise decline in the condition rating of the US crop, albeit by only 1 point to 60% “good” or “excellent”.
Still, less helpful was an initial US corn harvest progress figure of 5%, bang in line with the historical average.
Ahead of the data, Steve Freed at ADM Investor Services said it had been “supportive” for prices “that recent cold weather has slowed maturation of the US 2020 corn crop and could delay harvest.
“This is firming nearby basis and [sending] end users scrambling for supply.”
In fact, thinking of commercial investors, there is more and more talk of producer selling at these higher prices, especially with harvest now begun, a period which anyway - with the surge in supplies it brings - tends to exert pressure on values.
Some of the same dynamics applied to the soybean market too.
“Markets are very overbought,” said Benson Quinn Commodities.
“Demand has offered support but is almost becoming a foregone conclusion. Can we see corn and beans correct a little for a ‘turn-around Tuesday’?”
But in fact, soybean futures for November managed to extend headway in early trading, adding 0.5% to $10.04 ¾ a bushel in its first session as the spot contract.
‘Very dry start’
Of help was an unexpected 2-point decline, to 63% good or excellent, in the US crop rating, led by an 11-point slump to 53% in the North Dakota rating, suggesting that maybe frost last week had a bigger effect than some investors had factored in.
Meanwhile, in South America, where soybean sowings are kicking off in Brazil, a lack of soil moisture is provoking investor concerns – especially when La Nina expectations are on the rise, hinting at the prospect of inclement weather to come.
“The soybean market has very dry start for Brazil’s 2020 season soybeans in mind,” said Tobin Gorey at Commonwealth Bank of Australia, noting that “large swathes” of row crop growing areas in Brazil and Argentina “are bone dry.
“And weather forecasters expect little relief during the balance of September.”
‘Wait until there is more rain’
Even in the Brazilian state of Parana, where the soybean planting window opened on Thursday, dryness is proving more of an issue than suggested by previous reports, which had provoked concern more about Centre West states such as Mato Grosso.
“Only farmers in the western and north western regions of Parana have started to plant their soybeans,” said Dr Michael Cordonnier at Soybean and Corn Advisor.
“Those regions of the state have enough soil moisture to start planting, but in most of the state, farmers will wait until there is more rain in the forecast before they risk planting their soybeans.”
‘Prices are overvalued’
As for wheat, it hovered around unchanged in Chicago, in fact standing 0.1% lower at $5.45 ½ a bushel at time of writing for December delivery, holding above its 200-day moving average at just under $5.43 a bushel.
“Most feel wheat prices are overvalued and need to trend lower to find demand,” Mr Freed said.
However, he added that a “lack of farmer selling in Russia and continued dryness in the Black Seas has helped support prices near season highs”.
SovEcon reported Russian wheat prices up $8 a tonne last week to $222 a tonne, reflecting strong export demand, but also meaning that the country was starting to lose some of its competitive advantage over other origins.
‘Wait for rains’
Kansas City hard red winter wheat for December fared a bit better in added 0.3% for December to $4.75 a bushel, supported by a slowdown in the rapid pace of US winter wheat sowings.
Sure, overall US winter wheat plantings, at 10% complete as of Sunday, remained 2 points ahead of the average pace.
But that was behind the 13% figure investors had expected, a lag attributed to the impact of dryness in discouraging growers.
“US winter plantings for now remain on course, but some producers are deciding to wait for rains to press further,” said Terry Reilly at Futures International.
Thinking of rains, New York cotton futures for December managed to extend a little their headway of the last session on worries over Hurricane Sally, adding a further 0.3% to 66.79 cents a pound.
“The rainfall is ill timed because a lot of the cotton crop’s bolls will be open and so easily degraded and damaged,” said CBA’s Tobin Gorey.
“The 2020 US cotton crop has faced multiple challenges already. Sally will be another challenge that cuts forecast production.”
And the storm is indeed seen heading through a substantial portion of the cotton belt (bar Texas) after making landfall in Louisiana.
Louis Rose at Rose Commodity Group highlighted the risk to “cotton fields within the lower Mississippi River Delta and the Gulf coast area”.