Will the start of August bring some recovery to grain markets?
There was some feeling that the curse of month ends, which are associated with fund selling, had a role in the extent of price falls in the last session, when corn, soybeans and wheat all dropped to two-month closing lows.
“Month ends matter, especially at the end of a month that has had a big move,” said Benson Quinn Commodities.
“Getting through month end isn’t going to hurt the chances of these markets finding support.”
And there is a question why prices of, say, corn have fallen so far.
Richard Feltes at RJ O’Brien, for instance, pondered how December corn futures can be trading more than $0.50 a bushel “off mid-July highs if end 2019-20 corn stocks are indeed the lowest in seven years,” as the US Department of Agriculture currently forecast.
He said he suspected that investors were “reluctant to embrace” ideas of the USDA, in the August 12 Wasde crop briefing, cutting by more than 3m acres their estimate for corn sowings, even though many commentators have issued larger figures.
Furthermore, the “corn market is legitimately concerned over poor export demand”, with demand from the ethanol market flagging too.
Also, “trade may be plugging in trend or higher corn yields in western [Corn Belt] states, with less pronounced planting delays, that mitigate steep yield cuts in central and eastern states”.
‘Vulnerability rests with bears’
That said, he added that, as regards the Wasde, which is being much anticipated, he suspected that the “greatest vulnerability rests on shoulders of bears”, in terms of the threat of where the briefing could move prices.
“An 8.72% corn stocks-to-use ratio, if realised, would imply an average 2019-20 on farm corn price of $4.80 a bushel - well above level currently reflected in [Chicago] board pricing.”
And for soybeans too, for which RJ O’Brien analysis suggests in 2019-20 “an on-farm price of $9.25 a bushel - modestly above USDA’s $8.40 forecast,” based on a forecast of a 14$ stocks-to-use ratio, “market action suggests that trade is unwilling to embrace larger cuts in soybean production and stocks.
“Thus, similar to corn, the greater risk on August 12 crop report day will lie on the shoulders of the bears.”
And there are some other bullish ideas circling markets too, such as the threat of a late-planted, and so developing, crop being stopped early by autumn frost.
From a weather perspective, while near-term prospects are viewed as benign, CHS Hedging noted “a real concern about quality, yield and worries about the possibility of a September freeze, which could delay or halt maturity of the crop.”
Mike Mawdsley at First Choice Commodities said that in Iowa, where he is based, “I’ve never seen so many corn acres that will tassel post August 1.
A late frost/freeze is a must” for the crop to fulfil its potential, with Mr Mawdsley adding that farmers “might as well book your gas to dry corn - you’ll need it”, assuming harvest is delayed to times when natural drying is not on the cards.
‘No story without corn’
Not that a recovery theme was exactly rife in early trading.
Corn futures for December added 0.2% to $4.12 a bushel as of 09:30 UK time, (03:30 Chicago time), recovering only a small portion of ground lost in the last session.
The November soybean contract eased, if by a modest 0.1% to $8.80 ½ a bushel.
Chicago wheat futures fared worse, dropping 0.4% to $4.85 ¼ a bushel for September, albeit still $0.02 above the lot’s two-month intraday low set early last week.
“Wheat has no story without corn, as discretionary demand for US wheat is the feed market, or at least that’s what US wheat needs,” said Benson Quinn Commodities.
“Yes, the global wheat crop has come down from prior expectations of production being up by 30m-35m tonnes from the prior year. No, there aren’t any major voids in the available supply.”
Still, movement later may depend on US export sales data for last week, expected for wheat to come in at 300,000-600,000 tonnes, compared with 659,720 tonnes last time.
For corn, sales are expected at 150,000-400,000 tonnes for this season (which ends this month in the US, as it does for soybeans) and 150,000-450,000 tonnes for 2019-20.
Last time, figures were 121,196 tonnes and 386,614 tonnes respectively.
For soybeans, US export sales are expected at up to 250,000 tonnes for this season and, like corn, 150,000-450,000 for next.
Last time, the numbers were a negative 78,173tonnes (ie net cancellations) and a positive 223,705 tonnes respectively.
There also remains much talk of what fund strategy may be.
“It’s a matter of the fund length in corn being flushed out and the added shorts in soybeans and wheat growing to levels that limit selling,” said Benson Quinn Commodities.
“Wednesday definitely had the feel of month-end selling, so at least that part is over.”
ADM Investor Services said that in corn “managed funds longs may be liquidating, feeling that it is a bad bet this time of the year to be long and bet against that US farmer will grow a good crop”.
It was notable that open interest for all three crops rose, rather than fell, in the last session, suggesting fresh short bets as a dominant force.