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AM markets: grain futures recover, as talk turns to demand, 02.08.17

Grain futures started on a brighter note.

But can the gains stick?

The cause of the recovery in prices appeared to be something of a timeout on the negative story of improved US weather, and the idea of improvement in the country's corn and soybean yield prospects, with some debate about whether enough risk premium has now been removed.

After all, INTL FCStone overnight pegged the final US corn harvest at 13.59bn bushels, on a yield of 162.8 bushels per acre.

"These numbers are friendly for corn futures," said Terry Reilly at Futures International, noting that the US Department of Agriculture is currently working on a production figure of 14.255bn bushels, on a yield of 170.7 bushels per acre.

Soy estimates

FCStone's soybean figures, it has to be said were less bullish, in showing a harvest of 4.235bn bushels, on a yield of 47.7 bushels per acre.

That is only modestly below the USDA's figures of 4.260bn bushels and 48.0 bushels per acre respectively.

Still, there were some somewhat upbeat data overnight nonetheless for soy bulls to cling on to, with USDA data overnight showing the domestic soybean crush in June at 154.1m bushels.

That was 16m bushels above an industry figure from Nopa, a bigger-than-normal gap, besides ahead of market expectations of a 146.9m-bushel result.

'Much higher than expected'

For soyoil, stocks, at 2.143m pounds, were down 126m pounds month on month, and 97m pounds below investors' expectations, besides the bigger-than-forecast soybean crush.

"Implied soyoil use was much higher than expected," Futures International's Terry Reilly said.

And indeed, soyoil futures added 0.6% for December delivery to hit 34.48 cents a pound as of 09:15 UK time (03:15 Chicago time), and might have fared even better were it not for a 0.8% retreat to 2,633 ringgit a tonne in values of rival vegetable oil palm oil in Kuala Lumpur.

Palm was viewed as taking more of a lead from mineral oils, with Brent crude down 0.6% at $51.49 a barrel. (Vegetable oils are used largely in making biodiesel.)

'Good for demand'

Indeed, the conversation as to whether prices have fallen far enough has moved on a touch to the demand side of the balance sheet – which weaker values are, after all, designed to stimulate.

In corn, for instance, Tobin Gorey at Commonwealth Bank of Australia said that "prices are now low in recent experience and will be even cheaper to non-dollar customers", given that the greenback is trading close to 13-month lows.

The trouble is that the boost to demand may lag.

"The market might yet need to some proof of this, though, in export numbers before arresting the decline in prices."

Benson Quinn Commodities flagged that "the break in futures values is good for the demand picture.

"But it is going to take some time, and probably lower prices, to see measurable improvement."

Prices recover

Still, there will be some data on consumption later, when the US unveils weekly statistics on ethanol production, although Thursday's export sales report will likely be of broader significance on the demand.

For now, corn futures for December gained 0.8% to $3.79 ½ a bushel, rebounding a little from a close to the last session which was one of the lowest in the past 10 months – despite the weakened expectations for US production this year.

Soybean futures for November bounced 0.5% to $9.76 ¼ a bushel, climbing back over their 40-day moving average, with restatement too that US crop condition remains below par.

CHS Hedging reminded that the official 59% "good" or "excellent" reading for the US crop is the "second lowest rating for this week of the last 10 years, with only the disaster summer of 2012 being lower".

'Doesn't need to get cheaper'

Winter wheat futures, meanwhile, for September added 0.8% to $4.64 ¾ a bushel in Chicago, reviving from their lowest since mid-June, again boosted by demand ideas.

To restate comments by Tregg Cronin at Halo Commodity Company, "the decline in futures and weak basis levels have pushed US wheat back into the export grids for major importers, undercutting European wheat by a noticeable margin.

"Now we just have to connect on said business, but the point is US wheat doesn't need to get cheaper at the moment."

CBA's Tobin Gorey said on Wednesday that current price levels "should make US wheat more attractive to a range of buyers.

"The market will need some verification of competitive in export data before stabilising."

Australian, Canadian, Russian prospects

Indeed, this time, winter wheat outperformed drought-hit spring wheat, which gained 0.2% to $7.19 ¾ a bushel in Minneapolis for September delivery.

Still, price moves may depend on non-US prospects too, with crops in the likes of Australia and Canada (for dryness) and Germany (for harvest rains), besides Russia (for rising yield ideas) also under the microscope.

"The heat and dryness in Canada hasn't caused an epic disaster, but it has stolen some production potential," Benson Quinn Commodities said.

"The Aussies have also lost production potential, but their crop could stabilise with better weather."

As for Russia, "it looks like 75m tonnes is doable. Some would take it to 77m tonnes".

In fact, Ikar on Tuesday raised its forecast for Russia's wheat harvest to a new record of 74m-77m tonnes.

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