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Morning markets: Which way will corn futures turn now?

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Are corn prices pausing for breath before their next leap higher, or summoning up the courage for a steep fall?

 

The Chicago July contract stood at $4.41 ¾ a bushel as of 10:00 UK time (04:00 Chicago time), a drop of just 0.2% on the day, and forming something akin to a doji star chart formation, which some seen as a sign of a market having a bit of a think.

 

But as to which way they turn next…

 

‘Negate any loss’

Tobin Gorey at Commonwealth Bank of Australia took a somewhat downbeat note, saying that it “seems the corn market is putting in a strong case for having reached a peak for now.

 

“The US corn crop is going to be substantially smaller in season 2019. Nonetheless the drop does not leave supply tight, it just loses comfort. “

 

And there is, after all, plenty of corn around elsewhere.

 

“While production is an issue in the United States, this is not the case in the world market, especially on corn,” said Karl Setzer at AgriVisor, noting that “Brazil, Argentina, and Ukraine are all expecting record corn crops this year.

 

“It is currently believed that between these three sources they will add nearly 2bn bushels of corn to the world supply this year,” helping to “negate any loss to the US crop”.

 

Data ahead

But by just how much will US production fall this year?

 

The US Department of Agriculture’s latest estimate is for a drop of 1.37bn bushels in US corn production in 2019, to 13.68bn bushels.

 

However, after such a difficult sowings window, and with so much of the growing season still ahead, that could well end up very wide of the mark.

 

Little wonder that investors are anticipating the modicum of clarity that USDA data on June 28 may give them, with the publication of the annual Acreage report, showing how much ground farmers have actually seeded, with a much-watched quarterly briefing on grain stocks due too.

 

“We are starting to see more positioning in the market for the stocks and acreage reports,” said Mr Setzer said.

 

Methodology focus

Not, it has to pointed out, that investors believe the Acreage report will give the final say on US sowings this year.

 

One factor is how timely the data will be, based largely on surveys taken early this month.

 

“The June Acreage report should show a 10m+ acre loss in corn acres,” said Terry Reilly at Futures International.

 

“But the survey taken during the first two weeks of June may show only a 7m-acre decline amid producers reporting ‘intended’ acres and taking prevent plantings.”

 

‘Stacked up large’

Added confusion over sowings assessments is that it appears that the completion numbers included in the USDA weekly crop progress data include both seeded plantings and area written off for prevent plant insurance, meaning indeed that lost area could be higher than it appears.

 

Still, Tregg Cronin at Halo Commodity Company said that “we are gaining confidence the 10m-12m prevent plant acreage ideas are not going to happen”, although adding that “this says nothing about eventual yield potential”.

 

He flagged reports from “trusted contacts” that Indiana and Illinois plantings were better than had been feared, although “unplanted acres in Ohio stacked up large”.

 

‘One could expect to see limit-down’

Little wonder that many investors are turning to chart factors, and old Chicago adages, to help them chart their path for now.

 

Mike Mawdsley at First Choice Commodities came up with one of the latter, and the idea that “if we can’t go up, funds will take us down”, hinting at another one, “stairs up, escalator down”, too.

 

“Typically if markets move down this time of year, after rallying sharply, one could expect to see limit-down at some point.”

 

However, he added that “it just seems there’s enough unknown data yet to not see a collapse in prices, but there isn’t enough concrete data to take us another leg higher yet either.”

 

Earlier, the July lot eased to test out the $4.38-a-bushel point which had for some years, until last Thursday, represented a price ceiling, but now looks like a price floor.

 

‘Improving weather’

Soybean futures for July, meanwhile, eased by 0.2% to $9.01 ¼ a bushel, forming their own mini doji star, and earlier tested their own price floor too, at $9.00 a bushel, which they temporarily broke through, only to find insufficient sell stops to extend the move.

 

Benson Quinn Commodities flagged “thoughts of improving weather conditions” in the US Midwest, which could see some late catch-up in sowings.

 

It also noted that US soybean “crush margins have pulled back to around $1.05 a bushel from levels closer to $1.30 earlier in the month.

 

“Look for support on beans to come from still uncertain production potential of the current US crop.

 

“Resistance remains from big global stocks and a healthy US carryover from this year of nearly 25% stocks to use.”

 

 

 

Wheat showed modest losses too, of 0.3% to $5.25 ¼ a bushel in Chicago for September delivery, offered support by corn’s resilience against selling encouraged at this time of year by the nascent northern hemisphere harvest, and the prospect of a spike in supplies.

 

“We suspect much of the rally in wheat has been driven by the gains in corn prices,” CBA’s Tobin Gorey said.

 

“And now corn prices seem to have reached some sort of peak, which is affecting wheat prices too.”

 

In the US, CHS Hedging said that “early hard red winter wheat yield estimates are said to be running 30-50 bushels per acre, with test weights from 56-60 pounds per bushel”.

 

That might be considered not bad, given the inundations the crop has faced.

 

Last year’s hard red winter wheat harvest ended up at 39.1 bushels per acre yield, and test weight of about 60 pounds per bushel, according to a mix of USDA and Wheat Associates data.

 

Still, ADM Investor Services noted that “there have been reports of Fusarium head scab disease in Kansas which will need to be monitored”, with Kansas the top wheat growing state, where harvest has yet to begin in earnest.

 

Export competition

Also on investors’ radar is the lack of price competitiveness of US supplies compared with those elsewhere, a factor highlighted by Gasc’s tender on Wednesday.

 

ADM Investor Services, saying that “world wheat offer prices remain well below US hard red and soft red wheat offers,” noted that Egypt’s Gasc “looks to have booked four cargoes of Russian and Romanian wheat on Wednesday, with the lowest offer coming from Russia at $211.21 per tonne” including freight.

 

“This is over $20 per tonne cheaper than US hard red and $30 per tonne cheaper than US soft red offers.”

 

Data later

Exports will also come into focus later on Thursday with USDA US export sales data for last week, expected to come in for wheat at 200,000-500,000 tonnes, compared with 325,355 tonnes last time.

 

For corn, export sales are expected at 100,000-400,000 tonnes for old crop, and 200,000-500,000 tonnes for 2019-20.

 

Last time the data were 168,503 tonnes and 94,107 tonnes respectively.

 

Meanwhile, for soybeans sales for 2018-19 and next season are both expected at 100,000-400,000 tonnes, compared with figures of 255,929 tonnes and 275,163 tonnes last time.

 

‘Tight supplies’

For cotton, Louis Rose at Rose Commodity Group said that “many expect further anaemic sales data to be put forth.

 

“We concur, but we also would note that old crop supplies, especially for quality cotton, are rather tight and, given the uncertainty regarding the 2019 US crop, we believe merchants are cautious in offering large supplies of new crop cotton.”

 

Ie a weak figure could be down to a squeeze on supplies rather than on demand.

 

Strong data on actual “export shipments would likely go a long way in mitigating sales concerns”, Mr Rose said.

 

New York cotton for December stood up 0.2% at 67/26 cents a pound for now – looking for a fourth successive positive session.

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