Tuesday brought something of a turnaround feel – although this eluded cotton, which remained on the retreat.
Sure, there is seen quite some potential for a short-covering rally in the fibre, given the record net short that hedge funds hold in New York futures and options.
Investors’ hefty short position still looms as a major factor in the market,” said Tobin Gorey at Commonwealth Bank of Australia.
However, “the trigger levels to buy that position back are closer to 66 cents a pound for now”, for the December contract.
That is above the 64.05 cents a pound at which the contract was trading as of 10:00 UK time (04:00 Chicago time), down 0.3% on the day, finding its 20-day moving average something of a ceiling.
‘Slowing of physical business’
In fact, the lot “continues to display an aversion to the 64.5 cents-a-pound level, faltering even before it got there on Monday,” Mr Gorey noted.
And the US Department of Agriculture’s crop progress briefing overnight showed US cotton condition nudging 1 point higher in the week to Sunday to a historically elevated 61% good or excellent.
“Domestic production holds strong production potential, despite noted lateness of this season’s crop, especially with respect to the Mid-south,” said Louis Rose at Rose Commodity Group.
He also noted the impact of last week’s price recovery in deterring demand, noting a “slowing of physical business as prices have moved higher.
“Too, there are concerns regarding this week’s face-to-face [US] trade negotiations with China and notions that China may be stalling until after the 2020 US elections.”
For Chicago grains, by contrast, at least the losses in early trading followed some gains in the last session.
It was not so helpful for corn futures that the USDA pegged the US corn crop at 58% good or excellent, up 1 point week on week, whereas investors had expected an unchanged reading.
Ratings improved for all three of the “I states”, Illinois, Indiana and Iowa, with the latter, the top corn-growing state, seeing a 2-point improvement to 65% good or excellent.
That said, the national reading compares with a 72% figure a year ago, with Terry Reilly at Futures International calculating that “the five-year average is 71%.
Mr Gorey said that “crop condition remains relatively poor,” adding that “bottom line, US corn crops remain vulnerable” to poor weather.
Benson Quinn Commodities said that “fears of the crop having a shallow root system,” a consequence of the (overly) moist spring, “are merited with many in the trade believe that a couple of weeks without measurable precipitation is detrimental, regardless of the temperatures”.
‘Problem for corn’
Harder for corn bulls to nullify are worries over demand, even though USDA data on Monday showed 645,367 tonnes of US corn exports last week, towards the top end of a range of forecasts of 400,000-700,000 tonnes.
“Weekly inspections for corn and wheat were in line with expectations, which is a problem for corn as every sales and inspection report justifies further reductions to the export number,” said Benson Quinn Commodities.
“That said, I believe the trade has factored in a 50m-bushel decline on August 12,” when the USDA unveils its next Wasde crop briefing.
“They may already be working with a 75m-bushel decline,” the broker said, noting that so far this season, which ends next month, “corn shipments are off about 15%”.
‘Could trigger additional liquidation’
And, thinking of the Wasde, it is the prospect of that briefing which represents a particular challenge to the market heading for long in either direction, with huge anticipation over what the USDA will put in for US sowings numbers, in particular for corn.
Given the historically slow US spring sowing season, there are ideas that the figure might end up well below the 91.7m acres currently estimated.
“Uncertainty over US 2019 planted and harvested acres and yield plus talk that demand for US corn may be dropping could keep futures trade choppy until more is known about the US crop size,” said ADM Investor Services.
However, noting a USDA area resurvey of some Midwest states, it said that “some doubt this survey will change much.
“This could trigger additional fund long liquidation.”
‘Into feed rations’
Wheat futures also declined, pulled lower by rival grain corn, but also on profit-taking after their gains in the last session, which some attributed to worries over dryness in Russia, Ukraine and Australia, although looked to have a large chart element too.
Chicago soft red winter wheat for September stood 0.7% lower at $4.99 ¾ a bushel, falling back below the psychologically important $5.00-a-bushel mark, but staying well above its 100-day moving average.
Kansas City September hard red winter wheat dipped by 0.6% to $4.33 ¾ a bushel, also keeping a lid on its premium over corn, which has recovered a bit, although still “remains unusually low”, CAB’s Tobin Gorey noted.
Price moves suggest that “some substantial quantity of US hard red winter wheat is finding its way into feed rations”.
Minneapolis spring wheat fared better, holding at $5.32 ½ a bushel for September delivery, after the USDA showed a 3-point reduction in the good or excellent rating of the US crop.
As for soybeans, they eased by 0.4% to $9.01 a bushel for the Chicago November lot, remaining just a touch below their 100-day moving average.
In a neutral move, the USDA kept at 54% good or excellent its rating for the US soybean crop, in line with broker expectations.
“Crops are in relatively poor condition,” Mr Gorey said, adding that soybean crops too “are vulnerable”.
Less helpfully for bulls, as for corn, worries are growing over demand.
While the USDA sees US soybean exports hitting 1.875bn bushels in 2019-20 “some could see exports drop to 1.825bn bushels,” ADM Investor Services.
And that could of course find some resolution in the Wasde.
“The USDA’s looming August crop report remains a heavy dampener on activity,” Mr Gorey said, adding that “the market is highly uncertain about what new surveys will reveal about soybean planting”.