The countdown has begun to a highpoint of the agricultural commodity traders’ calendar.
The US Department of Agriculture next Thursday will unveil its monthly Wasde global crop supply and demand report, whose data are taken as benchmarks by investors worldwide.
And key numbers, including at this time of year US corn and soybean yield estimates, are the subject of a series of pre-report forecasts, that have a certain ritual, in terms of INTL FCStone issuing the first (widely reported) estimate, followed by Informa Economics, expected to report later on Thursday.
(A couple of notes here. The first is that there are many other estimates out there which are not so high profile, but could be well informed too.
The second is to be aware that there can forecasts for what the forthcoming Wasde will say, and estimates for the actual final US yields [which the USDA typically sets in January]. These figures are often a bit apart.)
FCStone overnight pegged the US corn harvest at 14.434bn bushels, on a yield of 173.7 bushels per acre.
For soybeans, the yield was pegged at 49.9 bushels per acre, giving a harvest of 4.467bn bushels.
Both numbers imply upgrades next week by the USDA, which is currently using a corn yield number of 171.8 bushels per acre, and soybean figure of 49.5 bushels per acre.
Indeed, on the face of it, both estimates were negative for prices, in signalling bigger supplies.
‘Surprisingly good yields’
Still, Chicago corn futures for December rose by 0.1% to $3.48 ½ a bushel as of 09:30 UK time (04:30 Chicago time) nonetheless.
After all, FCStone’s forecast for a yield upgrade chimed with market talk that US corn yields have remained elevated this year.
Benson Quinn Commodities, for instance, noted that there was “still talk of surprisingly good yields in western Iowa and southern Minnesota”.
And there are ideas that a fair amount of bearish talk is already baked in to prices at current levels, which remain not far from contract lows.
‘Slightly supportive for futures’
There are some demand signs around after all, with US ethanol data on Wednesday showing production last week at 1.056m barrels a day, up 17,000 barrels a day, and the highest of 2017-18.
“The report was seen as slightly supportive for US corn futures,” said Terry Reilly at Futures International.
And ethanol prices may have scope for gains, widening production margin prospects, with Benson Quinn Commodities noting that “the premium of RBOB gasoline futures over ethanol futures is the widest in 27 months”.
There is also hope for the US winning orders from South Kora, which is looking for 320,000 tonnes of the grain for February-March delivery, and with Argentine offers said to be limited.
Furthermore, there is an increasing likelihood that the extensive nature of the US harvest may begin to attract a bit of risk premium.
It is not many years ago that much crop was not left for harvesting until the spring, at a cost in quality, besides the knock-on effect of delaying fieldwork for spring seedings.
FCStone’s raised soybean yield estimate, however, did not tally with market expectations.
Indeed, Benson Quinn Commodities cautioned that “with Stone’s bean estimate bigger, overnight session could run into early selling”, although flagging the dischord with trader thinking.
“Despite the possibility of analysts showing higher bean yields going forward, there is a rather large camp that believes that the USDA will have to lower the bean yield,” Benson Quinn Commodities said.
And soybean futures in fact extended their gentle upward run of this week, adding 0.5% to $9.96 a bushel for January delivery.
Another set of figures on investors’ radar is the US export sales data for last week due later, expected to come in at 1.45m-1.85m tonnes for soybeans, but with the potential for a bigger number given talk of Chinese buyers on the prowl.
(For corn, export sales are expected at 800,000-1.10m tonnes.)
Furthermore, there remain worries over dryness in Brazil delaying sowings, or hampering germination, for crop to be harvested early in 2018.
Futures International’s Terry Reilly said: “Brazil’s Mato Grosso saw rain over the past couple of days, but more precipitation is needed to replenish subsoil moisture levels.
“Traders should keep a close eye on the subsoil moisture levels as a few high temperature days could quickly reverse conditions back to crop stress.”
‘Support for prices is growing’
At Commonwealth Bank of Australia, Tobin Gorey said that Mato Grosso, Brazil’s top soy-growing sate, “remains on the dry side.
“Forecasters expect the region to receive some rain in the next week or so but the amounts are not enough to definitively increase moisture. The market is not going to relinquish its concerns until that happens.
“Some analysts though are already cutting their Brazilian soybean crop forecasts because planting had been delayed in Mato Grosso and other regions,” Mr Gorey said.
“The support for prices at these levels is growing.”
‘Demand was decent last time’
That is not a phrase, however, that has been heard applied of late to wheat values, which in Chicago have set December contract closing lows in every session of the week so far.
But the contract made a brighter start to Thursday, rising by 0.5% to $4.20 a bushel, amid some idea that weaker prices might spur orders.
“Demand was decent last time we were near these levels,” Benson Quinn Commodities said.
And CHS Hedging noted that “Iraq is seeking 50,000 tonnes of wheat in an international tender that seeks wheat of US, Australian or Canadian origin”, with the final amount likely to be a multiple of that.
The likes of Jordan and Morocco are bidding for wheat too.
‘Proximity of winter’
More on the state of demand for wheat will be known later, with weekly data on EU exports and US export sales, the latter expected to come in at 250,000-450,000 tonnes.
And there are ideas that, with winter and impediments to logistics approaching, Russia may see a slowdown in its pace of shipments, allowing demand to spread elsewhere.
“The market is focusing its attention on how long Black Sea exports can maintain the pace before the winter arrives,” CRM AgriCommodities said.
Furthermore, Agritel said current prices, “below producing costs in most of countries, should push buyers to increase their purchases as the proximity of winter is often generating climatic risks”.