There’s nothing like the release of a long-awaited announcement for clearing the air in ag markets.
Take China, where the much-anticipated unveiling of an end to the country’s corn stockpiling programme, and less generous subsidies for growers, has actually seen futures rebound a little from the six-year low they fell too on Tuesday amid jitters over the reforms.
The spot May contract stood 1.5% higher at 1,721 renminbi per tonne in late deals, on track for its first winning session in seven, with the best-traded January 2017 lot up 0.6% at 1,435 renminbi per tonne.
So how will grain markets react to one the biggest data events of the year, on Thursday, when the US Department of Agriculture unveils quarterly data on domestic grain inventories, and expectations for US crop sowings following a survey of farmers?
These reports have a history of causing big market moves.
‘Revered for their volatility’
That said, the stocks briefings have lost some of their potency for moving futures – simply because, with so much inventory around, having a bit more or less grain around than thought does not matter so much in pricing terms.
“Quarterly stocks reports have been revered for their volatility in recent years, producing limit moves on many occasions because of huge differences in USDA official data and trade expectations,” said Tregg Cronin at broker Halo Commodity Company.
“That volatility has gradually waned the past year and a half as supplies grew and the pipeline became fully stocked.
“While deviations still occur and likely will on Thursday, our well-supplied old crop markets aren’t likely to be the attention grabbers.”
‘Tumbled staggeringly’
Mr Cronin added: “Much attention will be paid to the prospective plantings report based on farmer surveys, although even that data is subject to change once farmers actually go to the field.
“There are already rumblings occurring about a wet Delta and eastern Corn Belt which could push more acres towards soybeans from corn.”
There is also contrary talk about farmers prioritising corn even more than had been expected.
“There is more and more talk that producers will be planting more corn acres this year, rotating away from beans on better yields and away from spring wheat on better returns,” said Benson Quinn Commodities.
“This is keeping corn [futures] in check versus beans and wheat and has corn taking the short side of intercommodity spreads.”
The broker flagged “one rumour suggesting we could see a near repeat of 2006-07 to 2007-08 when bean acres tumbled staggeringly under the weight of an excess US soybean carryout of 547m bushels”.
US farmers sowing 64.7m acres of soybeans in 2007 – a drop of 10.8m acres year on year.
Broker estimates
Amid such uncertainty, broker forecasts of what the USDA will say offer investors something vaguely solid to cling too.
Investors surveyed by Reuters expect Thursday’s report to show a corn sowings number of 89.972m acres, up 2.0m acres year on year (and in line with the figure of 90.0m acres the USDA produced at last month’s Outlook forum, based on theory rather than farmer survey evidence).
For soybeans, the sowings number is forecast at 83.057m acres, up from last year’s figure of 82.65m acres, and an Outlook forum forecast of 82.5m acres.
Wheat acres are expected at 51.7m, well down on last season’s 54.64m acres, but above the 51.0m acres the USDA suggested at its Outlook event.
Lessons from history
That said, the broker forecasts have a habit of being wrong.
Richard Feltes at RJ O’Brien noted that, in soybeans, investors have overestimated the actual sowings number in the Prospective Plantings report in seven of the last nine years – including a 1.3m-acre overestimate last year.
For corn, since 1988 the trade has guessed too high on acres more than twice as often as it has come in below the USDA figure.
On a somewhat upbeat note on prices, Mr Feltes said: “I suspect that potentially bearish row crop stocks updates on Thursday will be unable to outweigh potentially bullish acreage updates – especially with bearish Chinese [corn subsidy reform] news finally out on the table.”
Prices ease
Still, heading into all this statistical fog, it was perhaps hardly surprising that investors were unwilling in early deals to bet too hard on grain futures either way, albeit with a slight bias towards cashing in profits on recent gains, putting a bit of pressure on prices.
Corn futures for May stood 0.1% down at $3.72 ½ a bushel as of 08:50 UK time (02:50 Chicago time) – but well above the 100-day moving average the contract closed above in the last session for the first time in five months.
Soybeans for May eased 0.1% to $9.14 ¾ a bushel, getting no help this time from the vegetable oils market, with soyoil for May dropping 0.3% to 33.96 cents a pound, in turn under pressure from rival palm oil, which fell by 1.0% to 2,751 ringgit a tonne in Kuala Lumpur.
The drop in palm oil was attributed to profit-taking, after the contract in the last session hit a two-year high.
‘Market remains worried’
Wheat represented perhaps the best chance for early volatility, with the market having an eye on US weather, besides on Thursday’s stocks and acreage data.
Tobin Gorey at Commonwealth Bank of Australia said: “The market remains worried about weather conditions for US winter crops.
“Weather forecasters continue expect another cold snap later this week. Traders also remained concerned about the persistence of dry soils in the western half of the US’s hard red winter wheat region.”
While some rain is expected, the forecast amount is “still not enough for the market to cross the issue off its watchlist”, Mr Gorey said, adding that “dryness in the region will matter more as temperatures rise and the crops needs more water”.
‘Cold snap on its way’
At Futures International, Terry Reilly stressed market fears that “the cold snap on its way for US soft red winter wheat country later this week could impact soft red winter wheat crop conditions”.
(It is cold in the US Plains, where hard red winter wheat is grown, which was of more concern to investors last week.)
Still, there are not so many weather concerns elsewhere.
“Given the reportedly ideal state of the European Union crops,” and some in the former Soviet Union too, “we probably still need a more serious turn of events in US weather to hold these prices long term,” Benson Quinn Commodities said.
Kansas City-traded hard red winter wheat for May gained, but by the minimum 0.25 cents to $4.82 a bushel.
Chicago-traded soft red winter wheat for May was unchanged at $4.76 ¾ a bushel, holding just below its 100-day moving average.
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