Commodities May be Forecasting Lower Inflation

by Greg Harmon

Inflation expectations impact Commodities. After recent runs higher some of these high flying commodities have been getting hit a bit lately. Some of this would be expected with the run up in US Treasury prices, dropping yields, acting similarly to squelching some inflation expectations. But that aspect may have run its course as Treasuries stall this week. So what do the charts say now about Coffee ($KC_F), Corn ($ZC_F), and Sugar ($SB_F)? And do they give a clue about inflation expectations? Let’s take a look.

Coffee, $KC_F

Coffee, $KC_F, had a massive run higher from June 2010 until May of this year. Since it has pulled back and then attempted to move higher again. The weekly chart above shows it now pulling back to the 20 week Simple Moving Average (SMA) at 2.61 as of Thursday close and it is dropping further Friday, at 2.58 as I write this. The Relative Strength Index (RSI) sloping lower and the Moving Average Convergence Divergence (MACD) crossing negative support more downside. Look for a continuation lower that may find support at the rising 50 week SMA, but if not then a target on the Measured Move (MM) to 2.13. Coffee has been inversely correlated to Coffee stock like $GMCR, $CBOU, $SBUX and $PEET so watch them for more upside if the decline continues.

Corn, $ZC_F

Corn, $ZC_F, had the same run higher that Coffee saw complete with the pullback and push higher again. It also has the acceleration to the downside now, under the 20 week SMA and moving lower Friday at 698 as I write. A push back over the 20 week SMA would help but with the RSI heading lower and the MACD crossing negative it is set up for more downside. A continued fall sees support near the rising 50 week SMA at 663 and below that it has a MM to 556. This same pattern is being played out in the Teucrium Commodity Trust Corn Fund, $CORN, and can be played that way.

Sugar, $SB_F

Sugar, $SB_F, had the same run higher from mid 2010 to early 2011 and the pullback and advance, but has been in a tighter symmetrical triangle the last few months. As I write this it is trading at 0.28 which would be close to triggering a break down from the pattern, ad is below the 50 week SMA. The RSI has stalled in the move lower near the mid line and is turning higher for now, but the MACD is fading lower. All the SMA’s are rising though. This looks to go either way. A continued move below 28 triggering the pattern break would see a target of 0.23, under the 20 week SMA but where there is support from April. If the pattern holds the the top rail at 0.30 is resistance and a break above that triggers a target of 0.35, near the previous high from February. This pattern is playing out with the iPath Dow Jones-UBS Sugar Subindex Total Return ETN, $SGG, so it can be played via the equity market as well. In fact, $SGG looks a bit weaker.

Each of these commodities is set up to continue lower, despite the stall and now move lower in US Treasuries. This could be a signal that inflation expectations are moderating. Only time will tell.

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US corn woes to lift futures 'to record highs'

by Agrimoney.com

Corn prices are to challenge record highs set in June, boosted by the downgrade of the US crop which has left the world facing its tightest supplies of coarse grains on record.

The US Department of Agriculture's 556m-bushel downgrade on Thursday to its estimate of the American corn harvest this year made it "increasingly likely that Chicago corn prices could test" their June 10 record, when the spot contract hit $7.99 ¾ a bushel, Rabobank analysts said.

"Although farmers have clearly responded to record-high prices through increased corn plantings, the adverse weather is likely to extend the current elevated prices," the bank said.

The USDA, explaining its corn crop downgrade, said that "unusually high temperatures and below average precipitation during July across much of the Corn Belt sharply reduced yield prospects", with drought in the South raising expectations for abandoned crops.

'Critically tight'

At Commonwealth Bank of Australia, Luke Mathews said that "extremely tight" supplies of the grain highlighted by the revision meant corn futures "are likely to test, if not exceed, the June record high"

The cut to 714m bushels in the USDA estimate of domestic corn stocks at the close of 2011-12 "should continue to support near-record corn prices", he added.

Furthermore, with estimates for US barley and sorghum harvests also cut, the country's level of feed grains looked "critically tight", putting a squeeze on global supplies too.

The ratio of global carryout stocks of coarse grains, as a proportion of use, implied by the data was – at 12.8% - "the tightest on record".

Ethanol factor

Rabobank added that, while the USDA also cut estimates for domestic corn consumption and exports, as high prices ration demand, futures may have to go higher still to deter the bioethanol plants who consume nearly 40% of American production.

"[It] would require corn prices in excess of $7.50 a bushel to make ethanol production unprofitable at current ethanol prices," the bank said.

Chicago's December corn contract stood at $7.12 ¼ a bushel in early trade on Friday, down 0.3% on the day.

Ethanol for December delivery closed up 2.2% at $2.591 per gallon on Thursday.

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Soybeans jump after 'blowtorch heat' wilts US crop

by Agrimoney.com

Soybean futures jumped in early deals after the US cut its production estimate by considerably more than the market had expected, signalling a squeeze on supplies which looks set to have global repercussions.

The US Department of Agriculture cut its estimate for the US soybean yield this year by 2.0 bushels per acre to 41.4 bushels per acre – a downgrade twice as big as analysts had expected.

Furthermore, it reduced its estimate for harvested acres by 500,000 acres to a four-year low of 73.8m acres, reflecting a trim to estimates for sowings, after a rain-hampered spring planting season, and damage caused by heat to crops in Texas and Oklahoma.

"The early wetness and then the blowtorch heat took a toll," broker US Commodities said.

'Rationing needs to occur'

The data implied a US crop of 3.06bn bushels (83.2m tonnes), nearly 130m bushels short of trade expectations, and signalling that prices would rise to slow demand accordingly.

USDA US soybean data, diff. from last, and from (market forecast) Harvested area: 73.8m hectares, -0.5m acres Yield: 41.4 bushels per acre, -2.0 bushels per acre, (-1.4 bushels per acre) Production: 3.06bn bushels, -169m bushels, (-131m bushels) Year-end stocks: 3.15bn bushels, -118m bushels Estimates for 2011-12. Market estimates from ThomsonReuters

"Rationing needs to occur on soybeans," US Commodities said.

Farmers could expect to receive up to a record $14.50 a bushel for their soybeans in 2011-12, up $0.50 a bushel from the previous upper estimate, the USDA said.

In Chicago, soybeans for November, the best traded contract delivery soared more than 4% in early deals before easing to $13.34 ½ a bushel at 17:30 GMT, up 2.5% on the day.

'Going to affect China'

The USDA foresaw the reduction in supplies being felt in part by domestic crushers, who looked set for a second successive season of reduced activity in 2011-12.

Selected USDA soybean forecasts, change on last, and (year on year) Brazilian production: 73.5m tonnes, +1.0m tonnes, (-2.6%) Brazilian exports: 36.5m tonnes, +2.5m tonnes, (+22%) Chinese production: 14.0m tonnes, -0.3m tonnes, (-7.3%) World production: 257.5m tonnes, -4.0m tonnes, (-2.5%) Year-end stocks to use ratio: 23.2%, (-0.4 percentage points), -3.8 percent points Estimates for 2011-12

However, importers are to take a bigger hit, with the forecast for soybean exports from the US –the world's biggest shipper - downgraded by 95m bushels to 1.40bn bushels (38.1m tonnes).

Although prospects for exports from Brazil looked brighter, buyers, including top-ranked importer China, faced paying up for supplies, analysts said.

"It is going to affect China the most," Sal Gilbertie, head of Teucrium Trading, told Agrimoney.com.

"China has been importing quite a few soybeans again, to feed its growing hog herd and meet consumers' growing demand for protein."

Date on Wednesday showed China's soybean importers rising by nearly one-quarter in July, from June.

"China is going to feel the impact of the tighter soybean supplies."

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Big cut needed to US corn estimate to lift prices

by Agrimoney.com

US farm officials need, in one of the key crop reports of the year, to cut their estimate for the domestic corn yield by well over 3 bushels an acre to restart the rally in prices of the grain.

Traders - who have for weeks been speculating over the corn yield estimate in Thursday's US Department of Agriculture monthly Wasde crop report - believe on average that the forecast will be cut by 3.1 bushels per acre to 155.6 bushels per acre to reflect damage from July's heatwave.

Official meteorologists this week confirmed that July bought Oklahoma and Texas their warmest months on record and, crucially, in the US as a whole the "heatwave was characterised by unusually warm minimum temperatures, during nights and early mornings" – a particularly negative feature for pollinating corn.

The proportion of US corn rated in "good" or "excellent" condition has, over the last four weeks, fallen from 69% to 60%, with some of the big growing states seeing even bigger declines. In Illinois, the figure has dropped from 67% to 50%.

However, a downgrade in the USDA yield estimate at least as large as the market consensus suggests has already been factored into prices, analysts believe.

Trigger points

"We have dialled in a yield of about 155 bushels an acre," Don Roose, the president of Iowa-based broker US Commodities told Agrimoney.com.

"A yield figure of 153 or less and we would be up the limit," meaning a rise of the maximum $0.30 a bushel that the Chicago exchange (currently) allows on corn.

"A figure of 160 bushels per acre, and we would be down the limit."

Jerry Gidel, at North America Risk Management, estimated that a figure of 152 bushels an acre below "means we would not trade for two days" – meaning two sessions of limit-up prices.

Likely to be underwhelmed

At Australia & New Zealand Bank, Paul Deane estimated that a figure of 155-156 bushels per acre had been accounted for, saying that it would take a cut of at least 6 bushels an acre to foster a jump in prices.

"We think this is unlikely at this stage in the season, and so maintain the view that the market is likely to be underwhelmed by any [yield] changes," he added.

US Commodities believes that the estimate could easily be kept at 158.7 bushels per acre, noting that the majority of the crop, situated above a line represented by Interstate 80, had fared significantly better than that below.

"The question is did the better conditions to the north make up for the problems in the south?" Mr Roose said.

Data doubts

The impact of the yield figure on prices will also be complicated by a review the USDA is undertaking of its acreage forecasts in some states which suffered a particularly wet spring, with Mr Roose estimating a potential cut of 200,000 acres to corn plantings, and 300,000 acres to the soybean figure.

However, it also clouded by doubt over the likely accuracy of the USDA data, following a series of estimates which have been deeply questioned by traders.

"Industry believes that corn is in real trouble on yields due to a too wet spring planting season and the fourth hottest July in history," Tim Hannagan at PFGBest said.

"But the trade also believes the USDA is behind on its crop condition surveys and may not give a accurate yield estimates on corn, and that it may take until September or even harvest results on the October report for the true story."

Bearish risk

Sure, the report is the first of the growing season to be based largely on field observations, rather than estimates drawn from surveys and projections - but this does not necessarily mean it will give an accurate figure.

"This is not really the time of year that you get good yield estimates," Mr Gidel said, noting that they can still drop dramatically by harvest, as last year, when it fell from an estimate of 164.7 bushels an acre to a final figure of 152.8 bushels per acre.

Furthermore, the USDA will be using average data on issues such as ear weights to form its yield forecast, an issue some traders believe may end encourage a yield overestimate, given that is the potential for ear formation, rather than the density of plants, which is seen as the issue.

"If the USDA does end up using the five-year average ear weight, rather than what may actually be out in the field, it's possible the numbers could be construed as bearish as plant population was most likely on the heavy side for the majority of the Corn Belt," Jon Michalscheck at Benson Quinn Commodities said.

'Intolerable for the balance sheet'

Thursday's report will also be scoured for its estimate on the soybean yield, with traders, on average, expecting the USDA to trim its estimate for the figure by some 0.6 bushels per acre to 42.8 bushels per acre.

"A 42.8 bushels per acre yield, coupled with a 400,000 decrease in planted acres which could eventuate from the resurveyed states is probably intolerable for the balance sheet," signalling higher prices needed to ration demand, Victor Thianpiriya at ANZ said.

However, some analysts believe that the USDA may even raise the yield estimate, with the critical period for soybeans ongoing, and the crop heading into it without the damage suffered by corn.

The proportion of US soybean rated good or excellent is, at 61%, down a more modest three points over the past four weeks.

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Wheat, rice lead rebound in farm commodity futures

by Agrimoney.com

Wheat and rice led a revival in agricultural commodities as buyers stepped back into risk markets, taking advantage of the post-liquidation sale in assets such as shares and raw materials.

The revival highlighted by a rebound in the FTSE 100 index of leading London shares, which recovered from intraday losses of 4.5% to close up 1.9%, was mirrored in crop markets, where all but a handful of contracts stood in positive territory in late deals.

"Overall traders are still directly dependent on outside markets for momentum," Matthew Pierce at PitGuru said.

At Chicago-based grains broker North America Risk Management Services, Jerry Gidel said: "

"All we are is a whipping boy for the stock market. Our fundamentals are secondary to whatever is going on outside."

'Some pullback justified'

Mr Gidel added that "the better weather we have had probably justified some pullback".

Crop prices as of 18:00 GMT Chicago wheat (September): $6.71 ¾ a bushel, +2.3% Chicago corn (December): $6.87 ½ a bushel, +0.3% Chicago soy: $13.02 a bushel, -0.7% New York sugar (October): 27.49 cents a pound, +1.4% (closed) London wheat: £160.70 a tonne, +2.2% (closed) Paris wheat: E193.50 a tonne, +1.7% (closed) Contracts for November delivery, unless otherwise stated

Soybeans, which face better weather for the important August pod-filling period - and for which official data overnight showed the condition of the US crop improving - remained among Chicago's losers.

The benchmark November contract stood 0.7% lower at $13.03 a bushel with half an hour's trading to go.

Corn, which also stands to benefit from better weather, nonetheless received support from its crop condition shown to be continuing to deteriorate, downgraded by two points week-on-week to 60% in the "good" or "excellent" categories. A year ago, the figure was 71%.

Chicago's December contract stood 1.7% higher at one point.

US vs Russian

But that was overshadowed by gains in wheat which, at its high, was nearly 5% higher in Chicago for September delivery.

The grain was helped by continued concerns over prospects for the quality of spring wheat in the US, and of a German crop threatened by rain.

Meanwhile, an Egyptian tender showed US wheat was nearing parity on export markets with Russian supplies renowned for their price competitiveness.

Rice gained the exchange maximum of $0.50, or 2.6%, to 17.085 cents a hundredweight for the best-traded November lot, boosted by growing concerns for the impact of heat on the US crop, and of radiation damage forcing Japan to hike imports of the grain.

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Morning markets: farm commodity futures down, but not out

by Agrimoney.com

The question was not whether agricultural commodities were going to fall on Monday. All risk assets looked in for a pounding after Standard & Poor's downgrade of America's sovereign credit rating.

The real question was by how much the decline would be.

And some markets indeed showed notable drops. Tokyo shares closed down 2.2% at its lowest level since the aftermath of the tsunami, while Shanghai stocks stood 3.8% lower in late deals.

Oil dipped 2.8% to $84.44 a barrel as of 07:15 GMT (08:15 UK time) – if failing yet to crack its lowest point reached Friday, before the late recovery. Copper fell 2.0% in Shanghai.

"No one is sure what the week will bring, but if funds/traders/investors decide to continue to liquidate, this action could come over into the grains pits as well," Mike Mawdsley at Market 1 said.

Grains vs energy

But farm commodities showed some composure, and proved better able to draw some support from a dollar which dipped 0.8% against a basket of currencies, improving the competitiveness of dollar-denominated assets on export markets.

OK, that did not mean that many were in positive ground, although sugar and corn were showing small gains on the Dalian exchange in China.

Crops' - relative – strength "may be a sign of traders finding value in these markets regardless of what is happening to the outside markets what is happening to the outside markets", Brian Henry at Benson Quinn Commodities said.

"It may also be a case of traditional commodity funds not having to raise capital by selling net long positions.

"One could make the case that funds heavily involved in energies are reallocating capital from those markets to the grains given the concerns about the economy."

Report worries

There were also ideas of a reluctance to sell ahead of a US Department of Agriculture monthly Wasde report due on Thursday which looks like being one of the most important of the year, among a series which is always closely watched by crop traders anyway.

The estimates for the US corn yield, following the July heatwave, and acreage, tested by a poor sowing season and spring floods, will be most closely watched.

Investors appear "unwilling to give up too much of the additional risk premium" added into corn last week "on ideas that the upcoming USDA report could see the corn crop production being reduced", Jon Michalscheck at Benson Quinn said.

Nonetheless, analysis of trading positions released by US watchdogs late on Friday showed that there was space for fast money to move back into corn, if the USDA data indeed prove bullish.

"Net longs in corn are still a long way below the highs seen over the last 12 months, leaving plenty of room for speculators to jump back into corn over the next week if we get a shock from the report," Paul Deane at Australia & New Zealand Bank said.

Chicago corn for December delivery, the best traded contract, fell 0.8% to $6.87 ½ a bushel.

Lots of shorts already

The limited drop was some help to other grains, with wheat also getting fundamental support from the dryness and heat which looks set to continue to dog southern US winter wheat regions, posing a challenge to sowings.

In the 11-to-15 day outlook "the Lower Plains and deep South regions looks above normal with respect to temperatures", WxRisk.com, although other areas look less threatened.

"Some models show some heat -91-95 degrees Fahrenheit - getting into Kansas, Nebraska, Missouri southern Illinois and Indiana and Kentucky, but not all the data agrees with this."

Furthermore, as far as fund positions go, they have already got a net short of 53,200 positions in Chicago wheat, according to the latest regulatory data, meaning there may be some reluctance to add too many more.

Indeed, this position is the biggest since July 2010, just as Russia's drought sent prices soaring and caught many funds out.

Chicago wheat for September fell 0.9% to $6.73 a bushel, with its Kansas hard red winter wheat equivalent falling 0.7% to $7.74 ¾ a bushel and Minneapolis spring wheat down 0.4% at $8.24 a bushel.

Worst headlines

The worst headlines were posted in the oilseeds complex, where soybeans dropped to a one-month low, but here again the declines were not so dreadful (yet), considering that weather forecasts for this month, crucial for the crop in the US, are looking better as well.

The November contract fell 1.0% to $13.23 a bushel, after touching $13.16 a bushel earlier.

That said, technically, "the longer we stay under $13.50 a bushel, the more $12.90, $13.00 a bushel is likely," Mr Mawdsley said.

In Kuala Lumpur, palm oil fell 1.2% to 3,015 ringgit a tonne, the lowest since October, with a lift to exchange margin requirements added to investor caution.

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Soy crushers struggle, while canola peers thrive

by Agrimoney.com

Oilseed crushers should choose their crop carefully.

Just look at the difference in the fortunes of North American processors handling canola, Canada's most popular oilseed, and the soybeans prevalent south of the border.

Crushing canola, the rapeseed variant, last year earned margins of $129 a tonne, compared with $28 a tonne for soybeans, according to Rabobank.

And, without a nudge from China, the dynamics look unlikely to reverse any time soon.

Importance of oil

Part of the difference is down to seed characteristics.

Canola's yield of vegetable oil is, at 42-44%, more than twice that of soybeans. And oil, largely used in human consumption, is typically three-to-four times more valuable than meal, the other product of oilseed, an important ingredient in livestock feed.

Furthermore, canola oil is viewed on health grounds as superior to soyoil, higher in so-called trans-fats linked to cholesterol fears. California and New York city have imposed trans-fat bans, with Illinois considering one.

"With a 12% compound annual growth rate since 2001, Canada's canola producers have demonstrated that they are willing and able to continue displacing US-produced soyoil for food use," Rabobank analyst David Nelson said.

Margin pressures

However, knock-on market dynamics have put soybean crushers at a disadvantage too.

The decision by China to fill its huge deficit in soymeal and soyoil by importing the oilseed itself, to keep its crushers in business, rather than buying in the products has curtailed prospects.

"China's surge in soybean imports means that US processors must pay higher prices for soybeans relative to the domestic price for soymeal, which has contributed to processor margin contraction," Mr Nelson said.

Indeed, US soymeal prices have proven especially restrained by growing supplies of distillers' grains, a byproduct of America's booming corn-ethanol industry, and an alternative protein source for livestock feeders.

"The distillers' grains discount has dissipated as animal protein producers have done a better job at incorporating the [product].

"Clearly, the entrance of a major new competitor has tempered soymeal demand, as well as crushing margins."

Hope ahead?

At least the prospect of a slowdown in growth in the US corn ethanol industry, as tax fillips are withdrawn, provides hope for soybean crushers, in curbing growth in distillers' grains supplies.

However, the main hope for the industry may be a turn by China to importing meat - probably largely from the US - to fulfil burgeoning demand for protein, rather than the feed needed to stimulate its own livestock production.

Even the outsourcing of 2% of China's pork production to the US would lift America's output by 10%, with a consequent boost to soymeal demand.

"There is a certain logic to China importing some of its pork supplies," Mr Nelson said, noting that the country often has the most expensive corn, a major feed component, and has witnessed increasing concerns over food safety in the livestock industry.

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Goldman hikes corn, wheat, soybean price forecasts

by Agrimoney.com

Goldman Sachs hiked its forecast for corn, soybean and wheat futures despite warning that an official US report next week could publish a higher yield estimates than investors expect and prompt a temporary plunge in prices.

The bank raised its estimate for the price of Chicago's near-term corn lot in three months' time by $1.45 a bushel to $7.35 a bushel, and its forecast for wheat by $1.60 to $7.50 a bushel, citing damage to yield prospects caused by a "remarkably hot" July.

The US corn yield now looked set to average only 154.0 bushels per acre, 4.7 bushels per acre below the current US Department of Agriculture average.

And, with the wet spring set to limit harvested acreage below the USDA's current expectations, the total crop would come in at less than 13bn bushels, and more than 500m bushels below the official estimate.

"On net, we now forecast that the 2011-12 US corn stocks-to-use ratio will decline to 5.5% and that corn prices will need to rally further to achieve demand destruction," the bank said.

The stocks-to-use ratio is a key measure of the availability of a crop's supplies, and therefore of the price it is likely to command, with 5.5% a historically low figure, representing less than three weeks' supplies.

'Good entry point'

However, the bank cautioned investors against anticipating that the compromised US corn yield prospects would be factored into official data when USDA officials next Thursday release their latest monthly Wasde crop report.

A Goldman model factoring in the reasonable condition of the US crop so far, as revealed in weekly USDA data, coupled with underlying yield expectations and early-May planting statistics calculated that the Wasde yield figure could come out as high as 160 bushels per acre.

With some analysts talking of figures 10 bushels per acre lower, such an estimate would signal far looser supplies than the market has factored in, and likely send corn prices tumbling.

"A high US yield estimate by the USDA next week may provide a good entry point to enter long Chicago corn positions," Goldman said.

'Strong increase in feeding'

The particularly steep lift to the estimate for wheat futures represented an expectation that the grain is being used in place of expensive corn to a far greater degree than has so far been appreciated.

"With wheat cash prices trading below corn cash prices in the US since June, we expect a strong increase in wheat feeding" during the July-to-September quarter, Goldman said.

With the bank also a little more gloomy than USDA statisticians on American wheat yields, it forecast that wheat consumption and exports would exceed production by some 380m bushels, bigger than the official estimate for the deficit.

Although Goldman said that prospects for the US soybean deficit in 2011-12 looked less strong, given weaker-than-expected paces of crushing and exports, prices of the oilseed would be underpinned by spillover strength from corn.

The bank raised its price forecast for Chicago's near-term soybean lot in three months' time to $13.75 a bushel, from $13.00 a bushel.

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Corn, Soybeans Trading Weather Now until Augu

By: University News Release

Market volatility is a regular feature of the grain and oilseed market this growing season and according to an Ohio State agricultural economist it will remain so until at least the next USDA production reports due in mid-August.

 

"Since the July reports, we've been in a straightforward weather market," said Matt Roberts , Ohio State University Extension economist and associate professor in the Department of Agricultural, Environmental and Development Economics. "We know planting progress was very slow this spring, which created a lot of concern about progress of development. Then the second and third week of July turned extremely hot across the country."

 

Concerns about heat- and moisture-related stress across the Corn Belt have traders as mindful as ever of Mother Nature, particularly because from a supply and demand standpoint, the markets are extremely tight.

Roberts said any major hiccup in production would likely mean higher prices for corn.

 

"Most of the country had adequate moisture because of the wet spring, but it turned extremely hot and humid during pollination so there was a lot of concern for the corn crop," he said. "We saw poor root structure, poor stands, and very patchy fields, especially in the Eastern Corn Belt."

 

With the variability of planting dates for Ohio corn, pollination has already occurred in some fields, and yet to occur in others, meaning weather will remain a factor for several weeks to come. For soybeans, August is a critical month to monitor weather-related plant stress.

 

"As crop conditions have continued to slowly deteriorate over the past few weeks, it's really focused a lot attention on the August reports," Roberts said. "Those reports will be the first that USDA attempts to actually forecast yield for the upcoming crop, based on a survey of over 1,000 sites across the country. Because of the tightness in the market, any shortfall in yield will be reflected by sharply higher process."

 

He noted that winter wheat has largely held with corn in recent weeks, while spring wheat has traded at a historical premium due to lower plantings resulting from the wet spring weather. In terms of soybeans, while the market has traded alongside corn to this point, it should move into a weather market of its own through August.

 

Corn traders are eagerly awaiting August 11, when USDA releases its latest World Ag Supply Demand Estimates, based on the first field survey data of the year.

 

"I think the market is beginning to expect that we're not going to hit that 158-bushel number," Roberts said. "If that's the case, then prices need to be at a level to ration out consumption. We do not have excess inventories, so if we don't hit 158, consumption will have to decline and prices will have to ration out the available inventory."

 

He recommended that farmers look at their new crop marketing plans and take advantage of opportunities where they exist. For the most part, he said old crop stores should already be sold.

 

"The first thing is on corn, if you can, leave basis open," Roberts advised. "I think we're going to have great basis opportunities next year just like we did this year. Basis improvements could be significant."

 

He also suspects the market will facilitate a "nice run-up" going into the August reports, which could present an opportunity to market some of the new crop. Given the production challenges facing Ohio farmers, however, he noted that many producers likely will wait to learn more about the crop in the field before being overly active in the marketplace.

 

"After those reports we'll likely see some weakness moving into harvest," Roberts said. "When we start getting harvest data in, that's when the market will start to pick a direction as we get an indication of how big the crop is, actually."

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High corn prices may put brakes on 'soy surge'

by Agrimoney.com

Corn may make a fightback in the battle of the acres against soybeans in South America, as high prices – which have risen above even Chicago levels – encourage farmers to rethink the "soy surge".

Soybeans have been on a winning streak in South America for decades, overtaking corn for sown area in Argentina in the 1980s and now accounting for five times as much land, driving the country to third place among exporters of the oilseeds.

In Brazil, the region's top grower of both crops, soybeans took the lead 14 years ago, and now take up roughly twice the area.

Brazil-based crop consultant Kory Melby said that this "soy surge", which has encompassed 1.9m hectares nationally over the last three years, was "related to cost of production and risk management strategies".

Soybeans vs corn and wheat

However, Mr Melby also noted that "corn prices domestically are very strong", trading at a premium to Chicago futures, with the Brazilian market lifted by a disappointing safrinha crop, besides srong international values.

Oil World, the analysis group, said that the "sharp" increase in prices was likely to spur extra sowings of the grain in southern and central areas, "as farmers are responding to the improved profitability of corn production".

Indeed, in South America as a whole "further growth of soybean plantings in 2011-12 will be threatened by increased competition from corn and wheat", the group said.

China factor

In Argentina, sowings faced a longer-term impetus too, assuming talks with Beijing over opening corn exports to China bear fruit.

"It is expected that Argentina will benefit considerably from rising Chinese corn import requirements in the years ahead," Oil World said.

"This is likely to improve the attractiveness of corn growing and thus implies increased acreage competition for soybeans in Argentina."

Fight for dirt

The prospect of an intense so-called "battle for acres" between the grain and the oilseed echoes that witnessed in North America earlier in the year – a fight won by corn, despite a poor early spring seeding period.

US corn sowings are currently estimated up 4.1m acres year on year to their second-highest since World War II, in part at the expense of soybean, whose plantings are believed to have dropped by 2.2m acres.

See the original article >>

Volatility may drive soy futures near record high

by Agrimoney.com

Soybean futures are to lose the stability which has marked the first half of 2011, and potentially approach record highs, as buyers compete for diminishing supplies.

Rabobank analysts, while saying it was likely that Chicago soybean futures would follow grains lower in the rest of 2011, lifted by $0.50 a bushel to $13.25 a bushel its forecast for prices of the oilseed in the last quarter of the year.

And higher volatility, fostered by a second year of falling world production at a time of buoyant demand, could yet see prices come close to the all-time high of $16.63 a bushel reached three years ago.

"The type of price movements we expect to see are in stark contrast to the narrow trading range of less than $2.00 a bushel witnessed during the first half of 2011," the bank said.

"In a worse-case [sic] scenario for US soybean production, we not the potential upside in excess of $16.00 a bushel should the US crop conditions continue their rapid descent."

'Signs of stress'

The proportion of the US soybean crop – the world's biggest - rated as in "poor" or "very poor" health has already reached 10%, the highest for this time of year since 2008-09, when the yield ended up at just below 40 bushels per acre.

The US Department of Agriculture is, for this year's harvest, forecasting a domestic yield of 43.4 bushels per acre.

"The late-planted crop is already showing signs of stress", the bank said, highlighting risks of disappointing production in Argentina, China and India too.

'Demand-rationing mode'

Meanwhile, demand is being spurred by record-high margins for manufacturers of biodiesel from soyoil, and by a return to positive margins for soybean crushers in China, the top soybean importer.

"Already more than 20% of the expected US soybean export volume for 2011-12 has been sold - a record-large amount for this time of year," Rabobank said.

This implied an export programme 30% above the USDA's current estimate of 40.7m tonnes – in contrast to a downgrade the department made two weeks ago to its forecast for shipments.

"This pace of both domestic and export demand will not be sustainable for a rapidly-shrinking US soybean crop.

"Soybean prices must transition into demand-rationing mode."

'Large speculative inflows'

The comments come as speculators appear to be renewing their interest in the oilseed, with non-commercial investors – a grouping which include hedge funds – near-doubling to 78,000 contracts their net long position in Chicago soybeans, official data late on Friday showed.

This represented the highest net long position for three months.

"The soybean complex saw large speculative inflows," Australia & New Zealand Bank analysts said.

"Speculative interest in the soybean complex leapt higher on the back of increased spreading and outright longs in soybeans and soyoil."

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Is Corn Being Replaced By Wheat?

By: Greg Vincent

It seems that the market has done its job for at least the time being. Corn prices rose to significant enough levels to curb enough demand this summer that supplies appear to be adequate enough for the remainder of this marketing year. But that brings on a new set of problems and weather remains the determining factor in success or failure.

 

"I think we’ve successfully rolled the problem of tight stocks from old crop to new crop. There is some discussion that we’re below trendline now, and I think we’ve priced in about 157-158/bu. acre national yield. If we keep the heat in here, as good as the crop is in Iowa, Illinois and Nebraska, we could hurt it at night like we did last year."

 

CLICK TO HEAR THE FULL INTERVIEW WITH JERRY GULKE.

 

That concern is dark respiration and the fact that corn essentially get a chance to rest during the night when overnight temperatures remain too high. The plant’s energy is then spent trying to cool itself down rather than producing kernels of corn. That was the case last year and yields were lower than normal, Gulke says. It’s still too early to say if it will be a problem this year or not, but the heat wave of 2011 isn’t doing this crop any favors right now.

 

There is anticipation that crop ratings will drop again on Monday and how much will they drop? They dropped 3% last week before we had that real hot weather this week."

 

Futures for all grains and soybeans moved mostly sideways in futures trading this week. Following rains late in the week, they opened lower on Friday, which would have brought prices for the week lower. The only old crop month remaining on the CBOT for corn did close lower for the week, but new crop closed mostly even on the week as fears over the heat dome mounted throughout trading on Friday, Gulke says.

 

Wheat prices and corn prices are becoming more tied as the limited corn supplies are causing livestock feeders to look at wheat as an alternative feed. "We’re talking to more of our clients recently who are shifting to wheat for feed," he says. "One of our clients who runs a mill in California said recently that we wouldn’t believe how much wheat they are importing for feed. And he says it didn’t start a week ago…it started 2-3 months ago."

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Official corn and soy harvest estimates 'too high'

by Agrimoney.com

Lanworth, the analysis group which draws crop estimates from satellite data, has pegged the US corn harvest 570m bushels below government estimates, warning of weather damage and lower sowings than officials are counting on.

The prominent consultancy, which was also more downbeat that the US Department of Agriculture on prospects for the country's soybean output, said that yields of both the oilseed and corn would come in close to trend in the important agricultural states of Illinois, Iowa and Nebraska.

However, surrounding areas would see losses of 7-9%.

"The largest losses are expected in the eastern Corn Belt, where historically delayed planting under wet conditions has been followed by hot and dry conditions, and in drought-affected Southern areas," Lanworth said.

"Imagery confirms extremely low vegetation density in eastern Indiana, central and southern Kansas, northwest Ohio, and southern Michigan."

Harvest estimates

Corn sowings were, on a harvested basis, pegged at 83.99m acres for corn, some 900,000 acres below the USDA figure.

The data led to a production forecast of 12.90bn bushels, below an official forecast of 13.47bn bushels.

For soybeans, the estimate for harvested acreage was pegged bang in line with the government expectations, although a production figure of 3.07bn bushels was 158m bushels below the USDA forecast.

The estimates, from a consultancy with a solid forecasting reputation, come at a time when supplies of both crops are already expected to be tight, and were attributed for supporting futures prices on a day when forecasts for rainier weather might have been expected to encourage selling.

"It could be why markets have been reluctant to pullback much even with rain falling in Chicago," a US broker told Agrimoney.com.

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Weather isn't the only decider for corn prices

by Agrimoney.com

Has corn's rally run out of steam?

The grain's upswing on forecasts for hot weather, an uptick which brought Chicago's best-traded December contract 7.5% gains last week, has certainly slowed. On Wednesday, the lot fell for the second time in three sessions.

It could be that the contract has peaked for now, and could even be in for a tumble which lasts into harvest if weather forecasts change for the better.

But that doesn't mean that bears hold all the cards.

Losses containable so far?

Sure, weather damage as currently assessed does not look serious enough to warrant a fresh crack at record prices.

Corn's prospects have suffered from a hot weather blow in a sensitive spot – pollination. But the maths suggests that's well covered by current price moves.

Plug in a figure of 156 bushels per acre - the midpoint of the range of between 152 bushels per acre and 161 bushels per acre that Agrimoney.com has heard about – and the harvest comes in at 13.2bn bushels, using the US Department of Agriculture's latest acreage forecast.

While that's 230m bushels fewer than USDA officials are currently expecting, a noteworthy amount when inventories are thin, it is not enough to get the balance sheet back to where prices were in the run up to last month's high.

It's not even enough to reverse even the extra 2011 corn production the USDA factored into its latest crop data, last week, let alone the increased number for stocks left over from last year's harvest.

The acreage question

However, that's not all investors have to factor in.

Further scorching weather might cut yield forecasts nearer to 150 bushels per acre, and lift prices further.

But so would a drop in the number of acres planted - which is still a possibility even if it appears to have dropped off investors' radars for now.

Bulls could have two bites at this cherry.

The first is a cut to the official estimate for US corn sown.

The critics who attacked the USDA's upgraded figure of 92.3m acres may yet be proven right when revised data are released next month. After all, in North Dakota alone, as Rabobank pointed out, a downgrade of only 2.3m acres total sowings appeared conservative when set against separate survey data showing more than 6m acres unplanted.

Lost crop

The second is the estimate for abandonment.

The USDA currently sees 7.4m acres, or 8.0%, of US corn not making it to harvest. That figure may prove optimistic given the flooding which has claimed huge areas around the Mississippi, Missouri and Ohio rivers.

Indeed, larger losses are hardly uncommon. Half the harvests over the last decade have seen abandonment reach at least 9%, with a 10% rate "not out of the question" for this year, Australia & New Zealand Bank said.

Yield x area

Plug more aggressive estimates on these scores into the balance sheet for US corn and it is not difficult to get more worrying ideas of corn supplies.

Using a 10% abandonment rate alone takes the lost production to more than 500m bushels.

Sure, investors need to watch the how productive harvested corn crops will be. But they shouldn't forget the question about how much was sown in the first place, and how much of that will get lost along the way.

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Morning markets: surprise drop in crop ratings lifts prices

by Agrimoney.com

Crops in the US were not expected to have deteriorated yet.

Investors had expected, at worst, a 1% decline in the proportion of corn and soybean crops rated in "good" or "excellent" condition over the last week, with the real danger this week – when some forecasters foresee near-record temperatures - and into August, should the heatwave gain fresh legs.

However, the US Department of Agriculture's weekly crop condition report showed a two-point slide, to 64% in the proportion of soybeans rated in the top two bands, and three-point slip to 66% in the number for corn.

"The percentage of the corn crop rated good or excellent fell for the top five producing states, and this is before the heat hitting the Midwest this week," analysts at Australia & New Zealand Bank said.

"If the current deterioration in crop conditions continues over the next fortnight, the ability for the US to produce a 'trend' yield for the corn crop looks increasingly questionable."

'Large areas of above-normal temperatures'

At Commonwealth Bank of Australia, Luke Mathews said: "US corn crop conditions deteriorated markedly last week. And only 35% of the crop is skilling, behind the normal pace of 47%.

"Crop concerns may support values today, particularly given hot weather forecasts."

And the weather outlook remains poor, from a grower's perspective, with a cold front for later this week expected to stay north of the eastern Corn Belt, and hot weather heading into August still on the agenda.

US corn crop conditions deteriorated markedly last week – 66% of the crop is now rated good‑to‑excellent compared to 69% the week prior. And only 35% of the crop is skilling, behind the normal pace of 47%. Crop concerns may support values today, particularly given hot weather forecasts.

Official US meteorologists foresee "large areas of above-normal temperatures covering all of the Rockies, all of Plains regions, all of the Midwest, the deep South and North East" over the eight-to-14 day timespan, WxRisk.com noted.

"Embedded in that region is an area of much-above-normal temperatures over all of the central and lower Plains, all of the Midwest into the North East and all of the deep South."

Below-normal rainfall is expected over western Texas, western and central Oklahoma, all of Kansas, Nebraska, South Dakota, Iowa and Missouri over this period.

Risk appetite

OK, as many brokers have noted, there is little confidence around in further-ahead weather models which, after all, repeatedly forecast rain for drought-beset Plains winter wheat in the spring, only for the precipitation never to arrive.

"Given the uncertainty in the extended forecast, it seems the market doesn't have a big appetite for additional risk at this point," Brian Henry, at Benson Quinn Commodities, said.

"Expect the trade to continue to favour carrying a little bit of length, as opposed to creating new speculative short positions. But the market is going to have to push above the recent highs on its next opportunity to sustain the current upward momentum."

The near-term September corn contract made progress towards last week's highs, rising 1.3% to $7.05 a bushel as of 07:50 GMT (08:50 UK time).

The better-traded December lot gained 1.3% to $6.98 a bushel.

Wheat pulled higher

That helped fellow grain wheat, which added 1.3% to $6.98 ¼ a bushel in Chicago.

Spring wheat added 1.0% to $8.31 a bushel in Minneapolis for September delivery, despite this being one crop which held its condition in the overnight USDA crop report, with 73% rated in good or excellent health.

Soybeans were the least enthusiastic, continuing a recent pattern of less volatility than the grains, adding 0.3% to $13.90 a bushel for August, and the same rise to the same price for the best-traded November lot.

Rebounding bales

Even cotton did better than that, adding 0.9% to 98.82 cents a pound for October and 2.1% to 98.85 cents a pound for the best-traded December lot, and creating some distance from the 10-month lows hit in the last session.

The condition of the US cotton crop was actually stable, at a miserable 28% good or excellent.

But the fibre gained some support from higher prices on the Zhengzhou exchange, where the best-traded January lot added 0.5%. China is the top cotton producer, importer and consumer.

Furthermore, there were signs of a lessening in the macroeconomic fears which gripped markets in the last session, and to which cotton, as a non-food commodity and an item more dependent on discretionary spending, can be more susceptible.

The dollar, a gauge of investor fear, fell 0.4%, while West Texas Intermediate crude added 0.8%.

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Crop Progress: Excessive Heat Diminishes Crop Conditions

by Colvin & Co

According to today’s USDA weekly progress report of the 18 primary corn producing states, the percentage of crop rated good or excellent fell by three percentage points to 66% over this past week. The percentage of crop rated poor or very poor increased by two percentage point to 11%, while the percentage of crop rated fair increased to 23% from 22% the previous week. Condition ratings still remain behind the 2010 crop, as 72% of the corn crop was in good or excellent condition, 19% was in fair condition, and 9% was in poor or very poor condition. Challenges continue to mount for the 2011 corn crop as seasonality hot weather and limited amounts of precipitation are anticipated over much of the corn belt for the next 7-10n days.

The USDA estimates that for the week ending July 17th, 35% of the 2011 corn crop has silked compared to estimates of 62% and 47% for the 2010 crop and 5 year historical average respectively. Of the 18 primary producing states, this past week saw the last three remaining states report silking progress. Missouri is the only state whose corn crop is ahead of its five year average and 2010 pace at 74% silked.

For the 18 primary soybean producing states, crop conditions worsen over the past week. The percentage of crop rated good or excellent decreased two percentage points to 64%. The percentage of crop rated fair remained unchanged at 26%, and the percent rated poor or very poor increased two percentage points to 10%. Compared to last year 67% was rated good or excellent, 24% was rated fair, and 9% was rated poor or very poor.

The USDA estimates that 40% of the soybean crop has bloomed, compared to 58% last year, and a 5 year historical average of 52%. For the week ending July 17th, only Missouri and Louisiana are ahead of their five year average and 2010 blooming pace.

Progress in the winter wheat harvest continued over the past week, with harvest concluding in Texas, beginning in Oregon, South Dakota, and Washington, but harvests in Idaho and Montana yet to start. The USDA reports harvested winter wheat estimates for the week ending July 17th, at 68% of the total crop, compared to a 5 year average and 2010 estimate of 72% and 70% respectively.

The USDA estimates that 73% of the spring wheat crop was rated good or excellent, unchanged from last week, but still below the 82% registered a year ago. Headed spring wheat, is also lagging its five year average and 2010 performance. The USDA reported that 60% of the crop has headed compared to 84% for the same period in 2010 and a 5 year historical average of 88%.

Bullish trend-lines in both old and new crop contracts appear to be forming in corn, soybeans, and wheat after last week’s WASDE Report. We expect this to continue as weather patterns conducive to high yields appear to be nonexistent across most major growing regions. Corn prices rebounded from two weeks ago and were $0.18 higher over the past week closing at $6.97 per bushel, soybeans increased $0.37 to close at $13.83 per bushel, and wheat jumped $0.49 to $6.88. Corn, soybean, and wheat prices all remain higher year-over-year up, 83%, 37%, and 18% respectively.

Next week we will have our first look at the USDA corn crop dough and soybean pod setting estimates, along with the usual estimates provided in this report.

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Corn Market Waiting on August Production Report

by Darrel Good

Corn prices have made a modest recovery following the sharp declines stemming from the USDA reports released on June 30. The recovery has reflected a combination of continued strong corn demand and a few concerns about yield potential.

 

July 2011 corn futures reached a high just below $8.00 on June 10 and declined to a low of $6.15 on June 30. The price of that contract moved about $.55 higher in the first week of July.

Similarly, December 2011 futures reached a high near $7.23 on June 9, declined to $5.75 on July 1, and then moved about $.60 higher by the close on July 8.

 

Corn prices continue to react to a number of factors, including general economic and financial developments. Much of the price strength in July, however, has been associated with indications of continued strong demand and some ongoing concerns about potential yield and production.

 

Based on weekly estimates of ethanol production, it appears that ethanol production in June 2011 was 4.7 percent larger than in June 2010. To reach the level of production for the 2010-11 marketing year implied by the USDA’s projection of 5 billion bushels of corn used for ethanol and by-product production, ethanol production in July and August needs to be only 0.3 percent larger than production of a year ago. While there is some threat that the tax credit for blending ethanol could be eliminated at the end of July, current blending economics suggests that ethanol production would not be immediately reduced in the absence of the tax credit.

 

There is some ongoing disagreement above the amount of corn used for ethanol production. For the 2009-10 marketing year, USDA estimates of corn use imply a conversion rate of 2.74 gallons of ethanol per bushel of corn. Trade associations indicate that the correct conversion rate is 2.8 gallons per bushel and suggest that less corn has been used for ethanol production than implied by the USDA. The USDA’s Feed Outlook report to be released on July 14 will contain an estimate of corn used for ethanol production during the third quarter of the 2010-11 marketing year. That estimate will indicate if any change has been made in the estimate of the conversion rate.

 

Corn export prospects, particularly for the 2011-12 marketing year, have improved with recent purchases by China. For the current year, the USDA reported that China had imported about 22 million bushels of U.S. corn as of June 30. No outstanding sales to China were reported as of that date. However, unshipped sales of 103.5 million bushels to unknown destinations may have included some sales to China. On July 7, the USDA announced sales of 21 million bushels of corn to China for delivery during the 2011-12 marketing year. In addition, announcements on July 1 and July 7 reported sales to unknown destinations totaling 14 million bushels for the current marketing year and 42.5 million bushels for the 2011-12 marketing year. Some of those sales may be to China.

 

Corn production prospects were boosted by the USDA’s June Acreage report that projected area harvested for grain at 84.888 million acres, 3.44 million more than harvested in 2010. Using the calculation of expected yield of 158.7 bushels in the USDA’s June 9 WASDE report, the acreage forecast points to a record 2011 U.S. corn crop of 13.472 billion bushels, 1.025 billion larger than the 2010 crop. There is some uncertainty about the harvested acreage forecast due to late planting and extreme weather conditions (flooding and drought) in some areas.

 

That forecast may be revised in the August Crop Production report. In addition to late planting and extreme weather in some areas, corn yield concerns increased with dryness that developed in late June and early July in parts of Illinois, Indiana, Iowa, Ohio, and Wisconsin. However, some precipitation was being received in parts of those dry areas today (July 11).

 

Widespread high temperatures in the first half of July remain an issue. Crop condition ratings remain generally high. As of July 3, 69 percent of the crop in the 18 largest corn producing states was rated in good or excellent condition in the USDA’s weekly Crop Progress report. A year ago, 71 percent of the crop was rated in good or excellent condition. Without considering the potential impact of late planting, current crop condition ratings point to a 2011 U.S. average corn yield well above the current USDA calculation of 158.7. As learned the past two years, however, condition ratings in early July are not always a good indicator of actual yield.

The USDA’s July WASDE report to be released tomorrow (July 12) will provide additional information about the likely level of stocks at the end of the 2010 and 2011 marketing years. As usual, the USDA’s August 11 Crop Production report will be highly anticipated. Expect pre-report expectations about the size of the 2011 crop to be in a wide range. Until then, corn prices may remain in a relatively tight range compared to that of the past 5 weeks.

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