No turnaround Tuesday this time.
(At least, in early trading.)
Data underlining the extent to which heavy spring and early summer rains have damaged US crop prospects kept grain futures heading higher, rather than experiencing a reversal of the Monday (upward) trend, as Chicago lore would have it.
For corn, the US Department of Agriculture’s weekly crop progress report showed the crop rated at 56% - down 3 points week on week, and below expectations of investors, who had expected the reading to stay at 59%.
It was also the lowest figure on data going back to 56% (just beneath the reading for the 2012 drought year, although that may reverse next week).
And while the sowings progress figure has now reached 96%, in line with forecasts, the risk of yield loss has risen with the extent of late plantings.
Iowa State University Extension, taking data from slow planting progress years of 1983, 1993, and 1995, said “in those years, yields were at least 10% below trend, and in the case of 1983, 20% below”.
For 2019, the read through points “to a 21% decline in yield from trend”, which against a trend yield pegged at 173 bushels per acre, implies a “national yield in 135 bushels-per-acre range, with a yield loss similar to the drought of 2012”.
Furthermore, there remain questions as to how much off the sowings progress represents crop actually seeded, and how much written off for prevent plant insurance.
‘Lowest rating since 1992’
For soybeans, the USDA report showed sowings, usually 97% done by now, only 85% finished, and below also the 88% figure investors had expected, according to a Reuters poll.
It was also the slowest pace since 1996.
Meanwhile, the first soybean condition reading of the season, at 54% good or excellent, was 5 points below market expectations.
“This was lowest [initial] rating for beans since 1992, which was 51% good or excellent,” said Benson Quinn Commodities.
For wheat, the condition figure, at 61%, was down 3 points week on week, and 2 points below market expectations – if hardly disastrous.
Still, harvest progress, at 15%, was particularly weak, less than half the 34% usually completed by now, and 4 points below investors’ expectations.
Sure progress is expected to improve.
“Weather forecasters expect drier (but not dry) conditions in the hard red winter wheat states over the next week or so. That context would see harvesting accelerate,” said Tobin Gorey at Commonwealth Bank of Australia.”
However, “questions remain over quality too given how wet many soft red winter wheat and hard red winter wheat crops have been recently”.
‘Weather concerns in the EU’
Furthermore, the US crop is not the only one on the market’s radar, as heat tests the European one, and to a lesser extent the former Soviet Union one, too.
Karl Setzer at AgriVisor noted prices “taking support from weather concerns in the EU”, where “high temperatures are forecast to set in this week over that region and could impact yields,” although noting too talk of “better-than-expected yields out of Russia”.
CHS Hedging flagged helped to prices from “dry, hot weather in much of Europe, Canada, and the former Soviet Union”.
From Paris, Agritel highlighted the “heatwave that is spreading in Europe from Sunday”, although noted that it “is especially tough to predict what could be the consequences of this hot spell on yields and this will mainly depend on the ripening stage of the crops in regions”.
The consultancy added that “in Russia, the recent hot temperatures could impact spring crops”.
Grain investors have an eye too to the key briefings coming out on Friday, when the USDA unveils quarterly statistics on US grain stocks (giving a key insight into the demand side of the balance sheet, ie how much crop has disappeared) and its annual Acreage report giving actual sowings.
That said, this report, which updates from a March briefing on intended sowings, is itself clouded in uncertainty, given that, with the late planting season, it will be based on farmer surveys potentially out of date already.
Mike Mawdsley said that he was “hearing the planting numbers for Friday will include those acres planted and those ‘intended’ yet to plant.
Little wonder that “there is also talk that the USDA may re-survey farmers for actual planted acres next month”.
Karl Setzer said that “there is a tremendous amount of uncertainty heading into this release on acreage given this spring’s conditions across the Corn Belt.
“Not only are initial acres going to be nearly impossible to predict, but so are any acres that may need to be replanted.”
CBA’s Tobin Gorey said that “the Acreage report is always in the ‘heavyweight’ division anyway.
“This edition of the report though will be in the ‘super heavyweight’ given the unusually high degree of uncertainty surrounding the report.”
Corn futures led in Chicago in early deals, adding 0.8% to $4.50 ¼ a bushel for July delivery as of 10:10 UK time (04:20 Chicago time), and gaining the same to $4.60 ¾ a bushel for the new crop December lot.
For soybeans, the July lot added 0.7% to $9.15 a bushel, and the new crop November contract 0.6% to $9.25 ¾ a bushel.
Chicago soft red winter wheat for September, the best-traded contract, added 0.4% to $5.40 a bushel, with Kansas City hard red winter wheat for September outperforming a touch, gaining 0.7% to $4.80 ¾ a bushel (and so maintaining its alliance with corn).
Bearish chart pattern forming?
That said, there remains plenty of pondering about whether tops for the grain rally have been set.
“There is lots of debate over whether or not the highs are in, with markets forming key head and shoulder formations,” said Benson Quinn Commodities.
“Without new highs soon the right shoulder may be forming.
“This would be bearish and follows the seasonal for both corn and beans to peak in late June.”
‘Has to decide what to do’
AgriVisor’s Karl Setzer said that “we are starting to see technical consolidation in the market.
“July corn futures have set a range between support at $4.38 a bushel and resistance at $4.64 ¼, which is the contract high.
“The same is taking place in July soybeans with a range established from $8.96 on the bottom to $9.21 on the top.”
At First Choice Commodities, Mike Mawdsley said that “December corn has to decide what to do soon”, to judge from chart analysis.
Either it has to “stay above the uptrend and $4.54-a-bushel level, or see a steeper correction.”