Harvest pressure tells on grain prices, despite rain worries

23.09.2016

There is 1.5% of the Midwest that is in drought, apparently.

So the US Department of Agriculture's latest Drought Monitor says (the area affected being in north east Ohio).

But a Dampness Monitor might be more instructive at the moment, as farmers in some parts of the Corn Belt battle with inundations, and the aftermath thereof, in their attempt to harvest corn and soybean crops.

"Minnesota, Wisconsin and northern Iowa have received heavy rains over the past two days with localised amounts reported from 8-10 inches," said Minneapolis-based Benson Quinn Commodities, adding that Waseca, Minnesota had received "near 14 inches" since Tuesday.

(That is equivalent to roughly 40% of the 35.8 inches of average rainfall that Waseca gets in a year, on official US data.)

'Snowploughs to clear water'

At CHS Hedging, Joe Lardy, echoing the estimate of 8-10 inches of rain in parts of Minnesota and Iowa, said that "southern Minnesota was hit with flash floods.

"In the Twin Cities," that is Minneapolis and St Paul, "they brought out the snowploughs to clear water from the highway.

"Most of this area was already plenty wet and this will keep harvest at bay for at least a week."

'Uninterrupted'

However, some US farmers are managing to make decent harvest progress.

"Harvest has been able to run fairly uninterrupted though in North Dakota, South Dakota, Nebraska and the eastern half of the Corn Belt," Benson Quinn Commodities said.

(The eastern half would include Ohio, and the 17.2% of the state in drought.)

And conditions are improving in some parts, with Terry Reilly at Chicago-based Futures International saying that the "best US drying and fieldwork potential occurs into Saturday from eastern Kansas to the Ohio River Basin, Delta and interior south eastern states".

Certainly, there remains enough crop coming in to keep the, um, dampeners on Chicago futures prices on Friday, albeit with markets seeing nothing like the dip to seasonal harvest lows often seen, as soaring supplies and the withdrawal of risk premium weight on values.

"Processor basis levels look to remain weak in areas of strong harvest pressure," Benson Quinn noted.

'Very good yields'

Soybean futures fell most, by 0.9% to $9.67 Ѕ a bushel for November delivery as of 09:30 UK time (03:30 Chicago time), undermined by two particular factors.

The first is talk that farmers are prioritising the crop in harvesting plans, where possible, given that soybeans are often seen as more prone to condition loss in wet conditions, besides the risk of shedding in ripe crops (ie of pods shattering and spilling seed onto the ground).

The second is that soybean yield results appear to be holding up better.

"Yield reports continue to point to very good soybean yields with very few, if any, areas indicating subpar soybean yields," Benson Quinn Commodities said.

"Based on what I have heard the corn yields, while still very good, are less consistent."

Furthermore, Thursday's weekly export sales data for soybeans, at 875,700 tonnes, softened a little the story of bumper demand – albeit coming for a period when top importer China was in national holiday mode.

Palm down

It was little help too to the oilseeds complex that vegetable oil markets lost their resilience after a decent performance in the last session, when as CHS Hedging's Joe Lardy noted "soyoil posted a nice 55-point gain", and closed above 34 cents a pound for the first time in a month.

This time, Chicago soyoil futures for December shed 0.9% to 33.92 cents a pound, while in Kuala Lumpur, rival palm oil dropped 1.2% to 2,694 ringgit a tonne, falling from a five-month closing high achieved in the last session.

Palm oil's decline matched a turn bearish in comments coming from a vegetables oil conference in india, where leading analyst Dorab Mistry said that prices would drop to 2,200 ringgit a tonne over the next two months, hurt by the prospect of a revival in global output.

After falling by more than 6m tonnes in 2015-16, hurt by South East Asian dryness blamed on the El Nino, output will recover by approaching 6.5m tonnes in the new marketing year, he said.

Corn eases

Back in Chicago, corn futures fell by a slightly more modest 0.8% to $3.34 a bushel for December, not feeling quite the pressure of soybeans, thanks to the questions over yields, and decent US export sales data for last week.

This came in at 921,903 tonnes, the highest figure in a month for 2016-17 delivery (and the best on a current-marketing-year basis in more than three months).

The price decline took the December contract below its 50-day moving average, to a battle with its 40-day moving average at just under $3.34 a bushel, and which did provide bounce in the last session.

Wheat quality fears reach Canada

Corn's decline weighed on wheat futures, which fell by 1.0% to $4.01 Ѕ a bushel in Chicago for December delivery.

While Egypt did return to purchases, buying 240,000 tonnes of wheat at its latest tender, all the custom went to Russian supplies.

Still, it is worth noting that Minneapolis hard red spring wheat futures for December fell by a relatively weak 0.5% to $4.98 ѕ a bushel, having in the last session closed above $5.00 a bushel for the first time this month.

And the premium of Minneapolis wheat to Chicago soft red winter wheat touched $0.98 ѕ a bushel earlier, contract high December basis, having soared $0.10 a bushel in the last session, and reflecting worries that the US rains might hurt Canada's late wheat harvest (of spring-sown varieties) too.

"With rains forecast for many portions of Canada, concern about the quality of their crop continues to be a feature," Benson Quinn Commodities said.

This at a time, of course, when there are already worries about the small proportion of the world's huge wheat harvest deemed of high quality.

'Weather concerns'

In New York, cotton futures for December fell 1.0% to 71.03 cents a pound, outdoing the decline seen overnight in peers on China's Zhengzhou exchange, which for January delivery settled down 0.4% at 14,855 yuan a tonne.

Weakness in fellow row crops corn and soybeans did not help, while a touch of vertigo was seen as settling in with prices helped back above 70 cents a pound this week by US worries, and strong results from auctions of cotton from Chinese state stocks.

"Support for the market continues to be drawn from weather concerns in the US, where more rain is expected over west Texas over the weekend, and strong Chinese markets", said traders at Ecom's Sydney office, also flagging a 45% jump in US exports sales of upland cotton last week.

At Commonwealth Bank of Australia, Tobin Gorey said that "rain will return to Texas [the top US cotton growing state] and surrounds this weekend.

"Forecasters say west Texas, the most cotton dense region, is likely to miss out on the heaviest of that rain.

"Even so, the prospect of further harvest setbacks could still play into trading mentality today - a lot can change over a weekend."


agrimoney

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