So, having broken above price ceilings in the last session, will corn futures now rocket higher to the next resistance point?
Not if early deals on Friday are anything do go by.
Gains were not exactly free flowing at least in early deals on Friday, and what was seen were centred around the spot July contract.
So the market in fact saw more of the bull spreading which marked the last session, with the July lot closing its gap to the new crop December lot further, at one point to $0.11 a bushel.
That meant that this spread touched its 200-day moving average for the first time in a year.
‘Slowdown in farmer selling’
The reduction in the spread - which reached $0.21 ¼ a bushel on May 13, the day that corn futures touched their low before spinning round to begin their rally – runs ostensibly against the real driver of that recovery, ie the dismal prospects for the US corn harvest this year.
With new crop supplies the ones at risk, and old crop ones ample, that should, in theory, mean new crop contracts outperforming.
But that is to ignore the psychology of farmers - who may be hoarding existing stocks in hope of still higher prices, especially if they have little new crop in the ground – while some buyers may be tempted to stockpile too at current prices, amid fears they could yet gain further.
ADM Investor Services noted that, in the US cash market, “east Midwest basis traded higher on a slowdown in farmer selling and increase end user buying”.
‘Spreads will remain firm’
Minneapolis-based Benson Quinn Commodities said that “despite ample old crop stocks, almost no exports and the recent rally in futures, the domestic market still feels hungry for corn.
“The backdrop on the market has the domestic user, mostly in the eastern Corn Belt, but really everywhere, needing to secure coverage of corn for the summer months,” as well as for new crop.
However, “the producer and commercial are slow to sell ownership at current values,” and it terms of farmers “it might take getting to tassel before we see enough interest” – that is, that they feel certain enough about their crop prospects to step up sales.
“Right now it feels like the corn spreads will remain firm into first notice day” for the July contract, ie the start of the expiry process, the broker said.
CHS Hedging said that “if the spreads are telling us a story, we should have some more upside to come” to flat values.
The Chicago old crop July corn contract in fact traded 0.2% higher at $4.42 ¾ a bushel as of 09:30 UK time (03:30 Chicago time), earlier touching $4.45 ¼ a bushel, a five-year high for a spot lot.
The new crop December one, meanwhile, stood 0.2% lower at $4.54 ¾ a bushel.
Not that worries over the 2019 harvest are subsiding, with IEG Vantage, for instance, talking of US corn plantings this year at 84.8m acres.
That compares with an initial US Department of Agriculture forecast of 92.8m acres, which was downgraded on Tuesday to 89.8m acres.
IEG reportedly pegged the US corn yield this year at (a relatively high) 169.2 bushels per acre, and production at 13.16bn bushels, compared with latest USDA estimates of 166.0 bushels per acre at 13.68bn bushels.
‘Talk of acreage abandonment’
For soybeans, IEG pegged sowings at 85.0m acres, which is actually 370,000 acres above that the USDA is currently using.
Not that all commentators believe that farmers will be able to lift soybean acreage above initial expectations, even if they want to.
“We are hearing more talk of acreage abandonment across the Corn Belt as areas that are already saturated are in store for more precipitation,” said Karl Setzer at AgriVisor.
And the USDA itself said overnight that “between June 1 and early July - when the [soybean] planting window closes - farmers would have to sow an unprecedented level of soybeans (just over 51m acres) to reach the March intentions,” ie the 84.6m acres as estimated in the March planting intentions report.
Benson Quinn Commodities said that “because I think the rain will verify”, ie that farmers will remain hampered with soybean sowings, “I think we can be patient on bean sales also”.
Soybean futures for July eased, finding a bit of pre-weekend profit-taking, but by a modest 0.1% to $8.87 ½ a bushel.
Hard vs soft
That Friday feeling was evident in the wheat market too, where Chicago soft red winter wheat for July shed 0.4% to $5.33 ½ a bushel, signally underperforming Kansas City hard red winter wheat for July, which stood unchanged at $4.68 ¼ a bushel.
That appeared to show signs of profit-taking on the spread between the two, which reached $0.68 ¼ a bushel in the last session July basis, reported as a record high.
Furthermore, a weekly harvest report later from US Wheat Associates could underline the slow progress of the hard red winter wheat harvest.
“Harvesting of some hard red winter wheat is slow to start,” said Terry Reilly at Futures International.
Benson Quinn Commodities said that “I expect the hard red winter wheat crop to be lighter than normal on protein due to a lack of stress, excess moisture and futures being sub-$4.00 about the time one might do an [fertilizer] application to boost protein”.
Meanwhile, CHS Hedging said that US rains “continue to have varying effects on the three wheat classes.
“Recent and forecasted rains across North Dakota are helping solve dryness concerns in Minneapolis [spring] wheat country.
“Rains in hard red winter wheat harvest areas are causing some concerns, but the less hardy soft red winter wheat crop is starting to garner a lot of concern after round after round of rain has come through.”
Minneapolis spring wheat for July eased by 0.1% to $5.65 ¾ a bushel.
In Kuala Lumpur, palm oil extended its revival, adding 0.8% to 2,023 ringgit a tonne for the benchmark August contract, helped by ideas of Indonesia introducing B30, ie a 30% mix of biodiesel into transport diesel.
With biodiesel made from vegetable oils (in Indonesia meaning palm oil), this stands to mop up some of market’s excess supply.
Separately, palm oil producer MP Evans aknowledged that "high world stocks of all vegetable oils are weighing on the market".
However, it added that "commentators expect stocks to reduce in the face of buoyant consumption, lower reported oil seed planting and anticipated poorer crops of competing vegetable oils".