Grain futures consolidated their gains on Thursday, at least in early deals, with at least two significant factors likely to determine if they end that way.
One is the latest monthly Wasde report from the US Department of Agriculture, giving closely-watched estimates of world crop supply and demand.
This report is expected to trim the estimate for US corn stocks at the close of 2013-14 by some 50m bushes to 1.90bn bushels, reflecting reduced yield prospects.
Even if potentially-damaging hot weather for the US Midwest is still forecast rather than arrived there is reason for investors to cut expectations for yield, with the 97.4m acres that farmers have planted slightly more titled towards lower-productivity states, such as Texas, than had been thought.
Not that everyone agrees, with one broker saying that “there is a chance to see a higher yield since the crop ratings have been improving”.
For soybeans, the US stocks figure for the close of 2013-14 it seen coming in little changed, at 266m bushels, with the wheat number trimmed by 27m bushels to 632m bushel, after a decent start to the season for exports and slightly diminished harvest prospects.
The hard red winter wheat crop is seen coming in a touch below previous expectations, at 773m bushels.
World wheat numbers will be in the spotlight too, with some anticipation over the Russian crop number, which the USDA currently sees at 54.0m tonnes, but which some domestic analysts have downgraded following undue dryness in the Central and Volga regions.
On demand, there is likely to be some focus on Chinese demand, with concerns that the USDA has been too generous on the soybean import number, at 69m tonnes, a jump of 10.0m tonnes year on year, but has underestimated wheat needs (of which more later).
The other factor that the market will focus on are the latest rounds of the US weather outlook, whose turn hotter has been behind the revival in Chicago corn and wheat prices from multi-year lows.
In fact, “early summer Wasde estimates of new crop US corn and soybean production are secondary to updated weather forecasts”, Richard Feltes at RJ O’Brien said.
And there are still some concerns over heat – at a threatening time of year for corn especially, given the US crop’s increasing development into the heat-sensitive pollination phase – even if the threat is not seen as large as it was.
“The European model again has followed the GFS model in weakening the heat dome over the western Corn Belt /Plains early next week into a heat ridge,” WxRisk.com said.
“This weakening keeps temperatures from getting hot over the Midwest and allows for some rains over the eastern Corn Belt, the western Great Lakes into northern Minnesota, North Dakota and south central Canada,” although is not as enthusiastic on this score as the GFS.
In fact, not all commentators are quite so concerned about the heat, with one US broker saying that while “the forecast is still calling for ridge next week, although the south west section of the Corn Belt is looking at potentially crop damaging conditions the rest of the Belt should be rather favourable”.
The broker added: “We still have to get through pollination with average weather but as we get closer to harvest the market should be working out more risk premium as it shifts its focus back to demand.”
Whatever, the outlook has focused attention on some of the more troubled US areas, including the Delta where Mr Feltes reported talk of a “flash drought” across much of the region, parts of which have not seen significant rainfall for five or six weeks at a time of rising temperatures
In Kansas, heat has left the western quarter of the state under “severe stress”, causing some abandonment already in dry areas.
Furthermore, ags used as biofuels, notably corn, are getting some support from energy markets.
Brent crude continued its recovery to approach $109 a barrel in early deals, despite the International Energy Agency saying on Thursday that the rise of US shale gas offered oil bulls “cause for alarm”.
Mr Feltes said that the “impressive” crude oil rally was “another reason to approach the post-Independence Day row crop price strength with respect and caution”.
US ethanol data on Wednesday showed production bouncing 18,000 barrels a day to 881,000 barrels a day, meaning more corn consumption on this score.
More on demand from importers will be seen later with weekly US export sales numbers expected to come in at 300,000-600,000 tonnes for corn old crop and new, a figure which will exclude 120,000 tonnes revealed on Wednesday as sold to China (and too late for today’s export sales report).
Corn for December added 0.4% to $5.23 ¾ a bushel as of 09:50 UK time (03:50 Chicago time).
New crop November soybeans rose 0.2% to $12.87 ¾ a bushel, also helped by the weather concerns, at a time when many investors are already questioning the USDA’s estimate of a 44.5 bushels-per-acre domestic soybean yield.
“Prospects for the US harvest were questioned as the soybeans crops were developing slower than usual,” Joyce Liu at Phillip Futures said.
“Worsening the situation were the showers that stalled the harvesting of the eastern Midwest’s soft red wheat, which in turn slowed down the planting of soybeans,” at least the sowing of double-crop soybeans seeded on land vacated by the wheat harvest.
These have been expected to account for an unusually large 10% of total US soybean plantings this year, a size approaching 8m acres.
The old crop July contact, up 0.3% at $15.97 bushel, recouped some of the last session’s losses, blamed on a weakening US cash market after elevated values teased out producer selling.
“Producer pricing of old crop beans has certainly accelerated in recent days with many northern elevators telling me that producers who told them last week they had no old crop beans were ‘finding’ and selling them,” Kim Rugel at Benson Quinn Commodities said.
And wheat gained too, helped not just by the rise in its fellow grain corn, an alternative for some uses such as animal feed, but on its own score, amid a renewed focus on demand.
Some of this has been spurred by Chinese purchases, after a rain-disrupted harvest, which affected the quality, if not quantity, of the crop.
Indeed, China’s CNGOIC official crop bureau forecast the country’s wheat imports in 2013-14 at 5m tonnes, up from 2.89m tonnes last season, and well above the 3.5m tonnes that the USDA has the figure at.
It kept the harvest estimate at 120.6m tonnes, above a 118m-tonne figure from USDA staff in Beijing last week.
… and other buyers too
However, Iran has also been on a wheat-buying spree, buying 450,000 tonnes for August shipment, after 800,000 tonnes purchased last month.
Egypt, the top wheat importer, this month made its first purchase since February, after a gap blamed on the country’s poor finances, with Jordan, Syria and Tunisia among other recent buyers, and Pakistan said to be importing after a poor domestic harvest.
As for what part the US is playing in this, more will be known with the weekly US export sales data, expected at 600,000-900,000 tonnes, and released at 12:30 GMT, 3.5 hours ahead of the Wasde.
Wheat for September added 0.6% to $6.82 ¾ a bushel in Chicago.
Among soft commodities, raw sugar managed some bounce, adding 0.2% to 16.289 cents a pound in New York for October delivery, as traders took a less downbeat view of Brazil cane crushing data released late on Wednesday.
The data showed Brazilian Centre South sugar producing down 16% year on year, thanks to rain interruptions and a switch by mills to producing more ethanol from cane, although the figure had been largely discounted by investors.