This Wasde report is one of those which could draw a line in the sand for grain markets.
Up to now, the monthly series of flagship US Department of Agriculture briefings on world crop supply and demand has “all been about burdensome oversupply of everything”, as Benson Quinn Commodities.
With the Wasde due later on Friday, “that may change”.
After all, on the production side, downgrades are expected signally to US forecasts for US corn and soybean crops, thanks to dry and stormy Midwest weather (with the cotton harvest seen taking a cut too).
And then there are some demand uncertainties to factor in – notably that from China which has developed from being seen as a huge buyer of soybeans to one of corn and wheat, and maybe distillers’ grains (DDGs) too.
This depending, of course, on what market rumour turns out to be based on fact.
‘Buying to be substantially larger’
Most speculation at the moment concerns corn imports, with reports that China could be set for corn imports of 30m tonnes in 2021 and 2022 (and even 50m tonnes).
“China was already on a path to replenish/refresh reserves. Now, after flooding rains in China’s corn growing regions, that buying is likely to be substantially larger,” said Tobin Gorey at Commonwealth Bank of Australia
“Adding to that is reports China’s next five-year plan (yes, China still has them) will include measures to significantly scale up their commodity reserves.
“That includes agri commodities like corn,” which on the Dalian exchange added a further 1.1% on Friday for the January contract to close at 2,383 yuan a tonne, up 5.3% so far this month.
“Knock another 300m-400m bushels out” of the US balance sheet to account for extra Chinese imports “and even corn numbers look interesting”, Benson Quinn Commodities said.
And this before getting to other issues which fate has put on investors’ plate in the last few days.
For example, the African swine fever outbreak in Germany which, through its potential for switching export demand the way of the US, was seen as behind a limit-up close to lean hog futures in the last session, and as helping the gain in corn futures too.
That said, futures in soymeal – another key hog feed ingredient - closed the last session lower, although did correct that in early deals on Friday by adding 0.9% to $320.50 a short ton for December as of 10:15 UK time (04:15 Chicago time), the contract’s highest in 10 months.
Brazil sowings outlook
Another concern to factor in is that of a lack of rain in some parts of Brazil as the soybean sowing window opens (although there is plenty of time yet for plantings).
“Dry conditions are lingering in Brazil, possibly a precursor to a delayed planting season,” Benson Quinn Commodities said.
“In general, the weather in Brazil continues to be hot and dry in central Brazil,” said Dr Michael Cordonnier at Soybean and Corn Advisor, although adding that it was wet in southern Brazil with warming temperatures”.
That is, decent conditions for sowings in the second-ranked growing state of Parana, but not so for top producer Mato Grosso at the moment.
“Agronomists and meteorologists are advising farmers in Mato Grosso and in other areas of central Brazil not to plant ‘in the dust’ because it too risky.”
‘Preventing producers from planting’
Dryness is a worry too in parts of Europe and the former Soviet Union for sowings of winter crops ahead of the 2020-21.
“The continuing dryness in the Black Sea region is preventing producers from planting,” said Agritel, although adding that “in Ukraine, farmers in the centre and south of the country continue to sow in very dry soil
“Rainfall is not expected for the next two weeks, which will deepen the lack of moisture in the soil,” and potentially spur a switch too from the likes of wheat to more dryness-tolerant crops, such as rye or sorghum.
Fund selling ahead?
Not, it has to be said, that the newsflow is all bullish
“Rains have finally fallen across parts of the US hard red winter wheat growing areas. This should helping planting conditions there,” said Steve Freed at ADM Investor Services.
He reminded too of a sobering precedent, in terms of the elevated net long position that hedge funds have bought in soybeans.
“The only time since 2006 funds have been this long now futures traded lower from here into November.”
And as for the Wasde, he flagged that for wheat, “if anything they could increase production in Australia, Russia and Canada”.
‘Prices have rallied’
Still, soymeal was not alone in positive territory in early trading, with soybeans themselves adding 0.9% to $9.86 a bushel for November.
That more than recouped the losses of Thursday – which witnessed the lot’s first decline in 13 sessions - to set a fresh two-year high for a nearest-but-one contract.
Corn futures gained 0.8% to $3.67 ¾ a bushel for December, the highest for nigh on six months for a nearest-but-one lot.
Chicago wheat gained too, by 0.3% to $5.50 a bushel, helped up by rival grain corn, but also by the sowings worries in the Black Sea, where rising prices are also attracting investors’ attention.
“This week Russia fob export prices have rallied,” Mr Freed said,” attributing the increase to a “lack of farmer selling.
“Over the last 30 days prices are up $23 per tonne. This has helped support US futures.”
Funds vs trade
The headway did not extend to cotton futures, which eased by 0.1% in New York for December delivery to 64.72 cents a pound, reversing some gains posted in the last session.
“The market is still devoid of any strong selling, as index funds continue to accumulate longs and the trade is probably going to transition to a net buyer of futures once the crops are in,” said Plexus Cotton.
“Most members of the trade still have a bearish view on the market, but they have so far not been able to stop this tide of spec and index fund buying.
“The question is how much more will the trade be able to short, considering that we are now transitioning into the phase where shippers start to dispose of basis-long positions.”
The fibre, and row crops, also face later, besides the Wasde report, US export sales data for last week, expected for corn to come in at 1.00m-1.60m tonnes for last week for 2020-21, compared with 2.39m tonnes the week before.
For soybeans, 2020-21sales are forecast at 1.10m-1.90m tonnes, compared with 1.76m tonnes last time.
For wheat, sales are expected at 250,000-600,000 tonnes, compared with 585,427 tonnes last time.