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Morning markets: Will wheat futures lead corn out of a hole?

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How long can corn futures keep on falling?

 

Chicago’s best-traded December lot fell for a fourth consecutive session last time to end $0.01 a bushel from its contract closing low, with the September contract actually doing so, at $3.15 ½ a bushel.

 

Technical analysis suggest that some further decline is in the offing, said Mike Mawdsley at First Choice Commodities, saying that “barring a miracle I would expect September corn to make a new contract low” this session.

 

“It would appear,” from Fibonacci analysis of the weekly continuous chart, “that $3.13 ½ a bushel is a given.”

 

From there, “it’s a matter of will we stay above it to end this week. If not $3.00 ¼ a bushel is likely sometime in the next few weeks”.

 

However, in fact, corn futures were in early trading looking to break their losing streak – although early strength has given way to losses before, of course, as in the last session.

 

‘Record yield possible’

The cause of the pressure on prices is pretty easy to fathom, in terms of the improved US weather boosting yield prospects, ideas supported by weekly US Department of Agriculture crop condition ratings.

 

“In just 10 short days the US corn crop has improved to the point that now a record yield is possible,” said Steve Freed at ADM Investor Services, reporting that “field observation in southern Illinois suggests a corn yield near 280 bushels per acre versus 215 last year”.

 

Benson Quinn Commodities reported that the USDA’s upgraded corn condition ratings “have the private trade jacking up yield estimates in multiples over the past couple weeks”.

 

While the USDA is currently pegging this year’s US corn yield at 178.5 bushels per acre, analysts “are forecasting potential as high as a rumoured 187.0 178.5 bushels per acre with 182-184 178.5 bushels per acre common”.

 

‘Fastest pace in seven years’

“If there is a market that is in search of demand it is this one,” Benson Quinn Commodities added, with the weaker prices an enticement to buyers.

 

And indeed, US exports of corn and actual shipments “are on pace to reach the USDA estimate at 1.775bn bushels” for 2019-20, as ends next month, “while new crop sales are off to fastest pace in seven years”.

 

But one setback is that these “numbers aren’t making a dent in US supplies”, given the demand loss from corn consumers.

 

Data on Wednesday showed US ethanol output last week up increased 50,000 barrels per day week on week to 958,000 barrels per day, the highest is four months.

 

However, that still remained down 7% year on year.

 

“US corn crop year to date ethanol production is running 10.3% below the same period a year earlier,” Terry Reilly at Futures International noted.

Data later

Still, whether weekly US corn export sales data due later can change any attitudes…

 

Data are expected at 200,000-550,000 tonnes for 2019-20, and 400,000-1.00m tonnes for new crop.

 

That compares with figures last time of, respectively, 220,585 tonnes and 2.33m tonnes (boosted a splurge of Chinese buying).

 

Not that this is bulls’ only hope, with the potential too for month-end closing of fund short positions, as Agrimoney discussed on Wednesday.

 

‘Stronger price month’

… and there is some hope for support next month too, according to Mike Zuzolo at Global Commodity Analytics.

 

“August tends to be a stronger price month for corn in the past five years, so why wouldn’t it be again this year?” he asked, adding that this was particularly so “if my analysis is correct and the futures market is [already] trading a 3.1bn-bushel new-crop carryover [inventory] at current prices”.

 

He also said that “while we may be awash with corn in this country, I would argue that we are not globally”, noting for instance the downgrade by the USDA’s Buenos Aires bureau to its forecast for Argentina’s harvest.

 

Wheat leads?

Furthermore, wheat futures, which bottomed out in late June, may be blazing a trail for corn.

 

“We can see that in the last 35 years, wheat has tended rather strongly to lead the lows in the corn market,” Mr Zuzolo said.

 

“Generally-speaking, the low in wheat comes around 30-45 days ahead of the low in corn,” which would put corn on track to set lows pretty much now.

 

Wheat retreat

Certainly, corn futures seem to have reached something of a maximum in terms of their discount to wheat, with the gap not finding that traction at current levels around $2.00-2.10 a bushel, September basis.

 

However, while the discount was on the wane in early deals on Thursday, that was in the main thanks to a retreat in wheat, which in Chicago shed 1.4% to $$5.25 ¼ a bushel for September delivery.

 

That returned most, but not all, gains made in the last session on factors including the USDA bureau’s cut to 2020-21 wheat hopes, and a 400,000-tonne reduction by SovEcon to 79.3m tonnes in its forecast for this year’s Russian harvest (including Crimea).

 

With SovEcon among the more upbeat commentators this time, that looks to have ruled out an 80m-tonne crop (although 79.3m tonnes is still strong).

 

Mr Freed noted too “talk that Brazil may have bought 2-3 cargos of US hard red winter wheat”, although this would not show up in the weekly USDA export sales data due later, expected at 250,000-650,000 tonnes for all US wheat.

 

‘Looking better all the time’

Soybean futures for September, meanwhile, edged 0.1% lower to $8.83 ¼ a bushel, remaining under pressure themselves from strong US yield ideas, and by an absence of late in daily announcements by the USDA of US export sales of the oilseed to China.

 

The November contract stood 0.2% lower at $8.83 ¼ a bushel.

 

“Thoughts are that the crops are looking better all the time now as the temperatures have retreated slightly and there has been pop-up showers about the US Midwest,” CHS Hedging said.

 

Data later are expected to show US export sales last week of 300,000-500,000 tonnes for old crop, and 1.50m-2.00m tonnes for 2020-21.

 

That compares with 365,169 tonnes and 2.30m tonnes respectively last time.

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