Tuesdays are, of course, by repute days when grain markets reverse a strong trend of the first session of the week.
Meaning that this time prices should gain.
And there was some fundamental reason too for prices to perform a bit of a Turnaround Tuesday this time, after US Department of Agriculture data overnight showed row crop condition holding firm, rather than showing the increase that some investors had expected.
The proportion of US corn rated “good” or “excellent” held at 69%, although there was a shift towards the “excellent” category from “good” of 2 points.
The soybean rating was steady at 62% good or excellent.
‘Leans slightly supportive’
While hardly disastrous (albeit below figures of 76% for corn last year and 73% for soybeans), the data did pose a question over whether the price declines of late last week and in the last session had removed enough risk premium for now.
“The condition report leans slightly supportive as the trade seemed to be expecting a slight improvement,” said Nicholas Sax at Benson Quinn Commodities, flagging also that “prices are leaning oversold”.
At Global Commodity Analytics, Mike Zuzolo, commenting ahead of the USDA data, said that price losses running up to the stats suggested that really the “trade is expecting more like a 2-point improvement versus last week for both corn and beans.
“If this improvement doesn’t show up, I’d expect the grains to have some short‐covering potential on Monday night/Tuesday,” he said, flagging too better-than-expected weekly US export data for both row crops, and wheat too, on Monday.
Ahead of target
Thinking of the export data, CHS Hedging said that for corn they “were better than expected at 1.161m tonnes, a little more than needed per week to meet USDA projections”.
For soybeans, shipments “were above trade expectations at 306,379 tonnes. With less than three months left in the marketing year, 97% of the projected sales have been shipped”.
That said, of course, there is a big question mark hanging over 2015-16, with advance orders of both US corn and soybeans for next season lagging big time.
‘Favourable outlook’
And there was other cause for prices rises to remain restrained, with the US weather outlook good, even if conditions in Ukraine, another major corn-producing country, are proving unduly dry, prompting talk of a potential downgrade to the official forecast of 26.4m tonnes, already below the 2014 result of 28.5m tonnes.
Terry Reilly at broker Futures International said that the “two-week outlook, with little changes to that of late last week’s forecast, appears to be favourable for US corn” in what, in July, is a key month for the crop, in bringing the heat-sensitive pollination period.
“Weather forecasters continue to expect a better turn in the weather for much of the US Corn Belt in the next week or so,” said Tobin Gorey at Commonwealth Bank of Australia.
Corn futures for September stood 0.4% higher at $4.06 ½ a bushel as of 09:45 UK time (03:45 Chicago time), while new crop December futures added 0.4% to $4.17 ½ a bushel.
China import boom
Soybeans, while having fallen less far in the last session, and so potentially less deserving of a rebound, did gain extra support from Chinese data, which showed the top importer of the oilseed buying in 8.09m tonnes last month, a figure second only to December’s record of 8.5m tonnes, and up 27% year on year.
That said, the soybeans were sourced from Brazil (6.66m tonnes, up 23% year on year) and Argentina (1.17m tonnes, up 68% year on year) rather than the US, just 2,771 tonnes, with the South American countries taking seasonal ascendancy in world trade.
Still, the figure eased one of the background concerns in the soy market, of Chinese demand slowing hard amid times of slower economic growth.
Chicago soybeans for August gained 0.5% to $10.12 ½ a bushel, while the new crop November lot added 0.6% to $10.03 ¾ a bushel.
‘Dismal quality’
As for wheat, it had the modest support of a harvest which, at 75% complete as of Sunday, was 1 point behind market expectations, according to the overnight USDA data.
And there is continued talk of wetness damage to the soft red winter wheat crop, potentially supporting the price of crop able to meet Chicago exchange delivery specifications, although some others have a different interpretation.
At RJ O’Brien, Richard Feltes flagged “reports of dismal soft red winter wheat quality across Illinois, Indiana, Ohio and portions of the Delta”, a factor which could mean more of the crop going into feed rather than food – and potentially a negative for prices in that “the wheat market will be forced to track even lower to buy feed demand away from corn”.
There is also the negative of talk of rains for some dry wheat producing areas, with CBA’s Tobin Gorey noting that “western European crop areas are now forecast to get some relieving rainfall this week”, and that “Canada’s Prairies will get modest rainfall”.
‘Premiums eliminated’
Still, “all remaining weather premiums have now been eliminated from prices”, he added, implying limited scope for further price falls.
And Egypt’s Gasc is back in with a further wheat tender, indicating demand is still around, albeit with the tender likely to underline the cheapness of Black Sea supplies to US ones.
Whether the orders go Russia’s way will also be closely watched, given the uncertainties surrounding shipments from that country following the imposition this month of an export tax.
Wheat for September gained 0.8% to $5.36 ¾ a bushel in Chicago, although Kansas City hard red winter wheat outperformed in gaining 1.0% to $5.30 ¾ a bushel, closing some of its, unusual, discount to its soft red winter wheat peer.
This despite conditions of hefty selling off the combine.
“With hard red winter wheat harvest quickly moving north there are reports of space problems in the better producing areas,” CHS Hedging said.
“With a stocks to use ratio of 43% for last year and projected to be 45% this year, space will continue to be a problem and carries will remain in the market.”
