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Morning markets: What does 2011 tell us about what might happen for grains in 2021?

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When trying to gauge the future, it is always worth looking at the past to see if it can provide any clues.

 

The year of 2008 has been one that investors have turned to for a guide to what is ahead now, with that year seeing a similar, extended rally from the year before, and actually showing early-March price peaks too.

 

(For May soybean futures, which topped out at $15.86 ½ a bushel on March 3 2008, the contract never did regain that high, falling to $11.06 ½ a bushel as of April 1, and managing a bounce only to $13.98 a bushel two weeks later.

 

For May corn, however, having retreated from a March 11 high of $5.97 ½ a bushel to $5.03 ¼ a bushel two weeks later, it recovered to reach $6.27 a bushel on May 9 that year.)

 

La Nina factor

But another year that investors are looking at too is 2011, although more in terms of meteorological patterns than direct price ones.

 

The link is in La Nina, which has a habit of causing dry weather in parts of the US, depending how active it is – but which now appears to be on the way out.

 

And that looks like it could be a good thing from yield perspective.

 

“The longer mild La Nina conditions lingered, the greater the chances of dry ish planting window for that region’s summer crops,” said Tobin Gorey At Commonwealth Bank of Australia.

 

“Evidence has been accumulating that the current La Nina is now dissipating faster. That makes a dry planting window in North American considerably less likely.”

 

‘Analogue year’

The Japan Meteorological Agency on Wednesday only saw just a 10% chance of La Nina by June (in fact, a greater chance, 20%, of El Nino).

 

And nor is this of importance just for US corn and soybeans.

 

At ADM Investor Services, Steve Freed noted that the “drop in La Nina could suggest a more favourable April and May US Midwest and south Plains weather”.

 

The southern Plains, important for cotton and hard red winter wheat, has been particularly dogged by dryness of late, although that matters less so during the winter, when plant moisture requirements are lower.

 

What happened

But what would a repeat of 2011 actually mean this year in crop terms?

 

considered an analogue year for the US planting season” – noted that a decade ago the sowings window actually opened wet.

 

Corn planting “began slowly and delays continued through May, finishing by the second week of June.

 

After this, “early July weather promoted rapid development.”

 

Eight-year low

So far so fine. However, “the second half of July through August saw much above normal temperatures, negatively impacting the crop”, which ended up with a dip of 5.8 bushels per acre year on year in yield, to a then eight-year low of 146.8 bushels per acre.

 

He added that “soybean production was down 8% from the prior year”, with the yield down 1.5 bushels per acre.

 

“Planting and emergence were slower than normal through the end of June. Crop conditions were rated below the 2010 crop through most of the growing season.”

 

Meanwhile, the US winter wheat yield ended up little changed in 2011, down by 0.4 bushels per acre at 46.1 bushels per acre, although the cotton yield, at 790 pounds per acre, was down 22 pounds per acre, and on the low side of the recent range of results.

 

‘Minimal stocks levels’

The takeway looks like being that while a weakening La Nina may cut the chance of a poor harvest this year, it does not guarantee a good one.

 

And that assumes that the La Nina does weaken – which is not guaranteed.

 

“Most climate models kill off the La Nina by June. But a significant minority keep a weak La Nina into the summer,” said WxRisk.com overnight.

 

Without a bumper harvest, as Karl Setzer at AgriVisor said, grains stocks-to-use ratios, “at minimal levels this year… will likely remain so next year as well.

 

“This is especially the case on soybeans, but we cannot overlook the fact they are tight on corn and shrinking on wheat as well.

 

“Given current production estimates and the likelihood for demand to remain elevated, these are unlikely to increase much next year. Until they do, overall downside [price] risk may be limited.”

 

‘Fundamentals remain strong’

Certainly, futures showed a bit more resilience on Thursday, after their selldown of the last session, blamed largely on disappointment that the US Department of Agriculture did not, in its monthly Wasde report, further tighten expectations for US and world corn and soybean stocks this season.

 

“The fundamentals remain strong for the balance sheets but the lack of bullish changes to the balance sheet” in the Wasde offered “the opportunity for a sell-off in the market,” said CHS Hedging.

 

The dollar helped too on Thursday, by easing 0.3% against a basket of currencies, and so boosting the affordability of dollar-denominated assets such as many agricultural commodities.

 

And Brent crude, an important indicator for ags used in making biofuels, stood up 1.3% at $68.78 a barrel.

 

Price gains

Chicago corn futures for May bounced by 0.9% to $5.38 ¾ a bushel as of 10:50 UK time (04:50 Chicago time) – although not quite regaining their 40-day moving average, as surrendered in the last session.

 

Soybeans recouped a more modest 0.1% to $14.11 a bushel for March, holding above their 20-day moving average, offered a little support by soyoil, which added 0.3% to 53.65 cents a pound for May.

 

Soyoil in fact, in contrast to its early-week outperformance, fell behind palm oil, which gained 2.0% to 4,053 ringgit a tonne in Kuala Lumpur for May, and setting a fresh 13-year high, gaining support from Wednesday’s data showing a further decline in Malaysian stocks.

 

‘Exports could rise’

“Palm oil inventory in Malaysia remained on a declining trend on a year-on-year basis,” said Ivy Ng, regional head of plantations research at CGS-CIMB Research, forecasting only a small gain in inventories, of 0.3% to 1.31m tonnes, over this month.

 

Malaysia’s palm oil “exports could rise given palm oil price competitiveness against other edible oils and stronger demand” ahead of the Eid festival.

 

The soyoil-palm oil price trend was also shown in key importer China, where Dalian palm oil futures for May closed up 0.9% at 7,750 yuan a tonne, and up 3.8% for this week.

 

Dalian May soyoil, by contrast, fell by 1.5% to 9,214 yuan a tonne, although still up 2.8% for this week.

 

Gasc tender

Back in Chicago, wheat futures for May couldn’t keep up with their peers, and slid 0.7% to $6.12 ½ a bushel.

 

This despite the announcement overnight by Gasc of a wheat tender, the latest of a series of signs of interest by end-users in stocking up on the grain.

 

Comparison of prices in main exporting countries, competition at the tender “promises to be tough between the different origins”, Agritel said.

 

‘Risk factor’

But in New York, cotton futures for May rebounded by 2.6% to 87.45 cents pound, amid ideas that the recent pullback may have been overplayed.

 

“The drought in Texas, the most important growing state, remains a risk factor” for the crop to be planted in 2021 in the top US cotton-growing state, said Commerzbank.

 

“Even in the best-case scenario a further decline in US stocks will probably prove inevitable – at least if demand remains robust, as most observers assume.”

 

“Even if the cotton price has dropped somewhat as compared with the seven-year high of over 95 cents per pound it achieved in February, the price level is likely to remain high given that the environment will presumably remain tight and a second global deficit in a row is anticipated in 2021-22.”

 

Data later

Still price performance later in cotton, and the grains, may well dance to the tune sung by US export sales data for last week.

 

For wheat, sales are expected at 150,000-350,000 tonnes, compared with 219,226 tonnes last time.

 

For corn, they are forecast at 400,000-750,000 tonnes, compared with 115,888 tonnes the previous week.

 

The soybean figure is expected at 200,000-350,000, compared with 334,039 tonnes last time.

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