Might two corn market conundrums help resolve each other?
A puzzle for corn investors amid the plethora of data that has been released this week is why officials are not more upbeat on Brazilian corn exports.
The US Department of Agriculture on Wednesday, in its benchmark Wasde crop report, raised by 3.0m tonnes to 81.0m tonnes its forecast for Brazil’s corn production in 2014-15, reflecting an improved estimate for the safrinha crop, of which harvest has just begun.
Yet the estimate for corn exports from Brazil for the season was kept at 23.5m tonnes (and the forecast for 2015-16 shipments held as well, at 22.0m tones), with the extra production seen swelling carryout stocks instead.
Exports vs carryout
Similarly, when Brazil’s own crop bureau, Conab, on Thursday raised its estimate for domestic corn production this season by 1.6m tonnes to 80.2m tonnes, it also held its 2014-15 export forecast, at 21.0m tonnes.
This despite the production upgrade, again, pertaining mainly to the safrinha harvest, which is of particular significance in that it is this crop, rather than the so-called main crop, which drives the country’s corn exports.
At Chicago broker RJ O’Brien, Richard Feltes noted that the USDA “placed the entire 3m-tonne gain in the Brazil corn crop [estimate] into carryover at a time when new port loading capacity is pushing out cargoes at a record pace.”
This is an assumption that he found hard to swallow.
“We suspect that Brazilians, amid a deteriorating economic backdrop… will be more interested in aggressively offering record corn stocks to world buyers than in swelling carryover reserves,” he said, a dynamic he reckoned would apply to soybeans too.
(Conab also raised, by nearly 1.0m tonnes to 96.0m tonnes its estimate of domestic soybean output in 2014-15, but failed to lift the export forecast from 46.877m tonnes.)
‘Buyers reviewing their options’
Extra Brazilian shipments would, in turn, pressure exports from rival origins, such as the US.
And, indeed, surprisingly lower actual forward US export sales of corn and soybeans for 2015-16 are another dynamic which is puzzling, and worrying, the market.
The US has sold forward for 2015-16, which starts in September, 2.33m tonnes of corn so far, and 5.28m tonnes of soybeans.
These figures are far lower than those a year ago, when US forward sales for 2014-15 were for 3.09m tonnes for corn and 10.0m tonnes for soybeans.
“World buyers are clearly reviewing their options as exemplified” by new crop sales data, Mr Feltes said.
And with Brazil’s supplies swelling, importers might feel pretty comfortable.
‘Too much of a good thing’
Still, they have the next harvests to worry about too, and whether these might spoil the picture of ample supplies.
And excess rains in the US have certainly eroded somewhat the optimism over many crops.
“The five-day accumulation map hasn’t changed, with an expected 4-5 inches of rain expected from southern Wisconsin to Northern Texas,” said Nicholas Sax at Benson Quinn Commodities.
“The consensus continues to lean towards, ‘this is too much of a good thing’.
“Harvest and planting is expected to be stalled out as the moisture appears to be consistent through the end of the week.”
But, with nearly all US corn already in the ground, and so with the rain not such an issue for now, futures for July fell 0.7% to $3.54 a bushel.
It is soybeans for which more sowings remain, so that the rain represents more of a mixed blessing.
“The US Corn Belt will see rain over the next week, benefiting recently emerged and young crops, but could also prevent some producers in planting across the central western Corn Belt states of Kansas and Missouri,” said Terry Reilly at Futures International.
Still, with worries about US new crop exports of the oilseed particularly intense, soybeans for July were not far behind corn, down 0.6% at $9.34 ѕ a bushel.
Wheat falls again
Wheat was down in line, by 0.6% to $5.01 ј a bushel, suffering its own export headaches.
Forward US export sales for 2015-16, which in the US started on Monday, are at 3.61m tonnes, down from 4.83m tonnes a year ago in forward sales for 2014-15.
And of course Wednesday’s bigger-than-expected upgrade by the USDA to its wheat production hopes this year continues to weigh on values too, although there are doubts that the figure will be achieved.
“It may simply be that the USDA’s estimation processes will not yet have caught up with the impact of the more recent rain events,” said Tobin Gorey at Commonwealth Bank of Australia, noting the excessive rains which have slowed harvest, dented quality and flooded out some crops.
‘Weather worries continue’
“Wheat weather worries continue,” he added.
In the US, “hard red winter wheat country will see more than wanted rainfall today through Tuesday of next week,” with the rains slowing harvesting and potentially causing more quality damage.
And Kansas City hard red winter wheat actually a more modest 0.2% lower for July delivery to $5.22 ј a bushel.
Mr Gorey also noted that “weather forecasters expect parts Canada’s dry prairies to get a little rain shortly, but the amounts are still unlikely to do more than shift a potential problem a few days forward”.
Still, on the more negative side for prices, closer to home, he also clocked more substantial help from rain to dry Australian crops.
“Weather forecasters continue to expect useful rainfall through Australia’s southern and eastern grain regions over the weekend and into next week,” he said.
“Weather models are projecting quite heavy rain in some Queensland grain areas,” although he added that “forecasters are sceptical the rain will be that heavy”.
“Weather models are also now projecting some useful rain in the next work week for Western grain regions but, again, weather forecasters are sceptical and will likely remain so unless the event persists in subsequent projections.”
Still, Sydney wheat for January 2016 settled at Aus$306.00 a tonne, down 3.2%, also feeling pressure from weakness in Chicago prices.
‘Dryness concerns starting to rise’
One crop over which talk of dryness appears to be growing rather than waning is rapeseed, with parts of the European Union, the top producer, now seen as needing rain, besides the Prairies in Canada, the top exporter of the canola variant.
“Dryness concerns are starting to rise across Europe’s three largest rapeseed producing countries of France, Germany, and Poland,” Mr Reilly said.
CHS Hedging said: “Europe’s rapeseed yields are decreasing due to dry weather.”
“This comes after a frost last month on the Canadian prairies that destroyed much of their crop.
“Rains are forecasted for the French growing region, but they coming too late to salvage any of the damage.”
Still, with rain on its way for Canada, canola for November eased 0.2% to Can$486.60 a tonne in Winnipeg.
Exports vs export sales
In New York, cotton for July recovered a little, adding 0.2% to 63.64 cents a pound, after its 2.1% drubbing in the last session, on an announcement of Chinese sales from state inventories, and on disappointing US export sales data for last week, down some 50% at 55,600 running bales.
Also on the negative side for prices, “weather forecasters expect wetter conditions to evolve now on the US southern Plains that might delay the modest amounts of remaining planting,” Mr Gorey noted.
Still, back on the trade front, actual US exports of cotton last week were, at 342,000 running bales “very strong” and “ahead of the pace required” to meet the USDA forecast of 10.7m running bales for this season.
(Source – http://www.agrimoney.com/marketreport/am-markets-corn-leads-grains-lower-amid-brazil-data-puzzle–3174.html)