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Corn Slumps as Abundant Supply Stays in Focus

07/02/2020 | 01:56pm

By Kirk Maltais

 

--Corn for December delivery fell 2.1%, to $3.53 a bushel, on the Chicago Board of Trade Thursday, with grain traders' attention shifting back to expectations of an abundant 2020/21 corn supply even if planted acreage is down.

--Wheat for September delivery fell 1.4%, to $4.92 a bushel.

--Soybeans for November delivery fell 0.2%, to $8.97 1/4 a bushel.

 

HIGHLIGHTS

 

Hitting a Wall: Corn futures Thursday ended a three-day 10% rally after the USDA's Tuesday acreage report showed that planted corn acreage were 5 million acres lower than previously estimated. The reason is that while the report was a bullish surprise, supplies of corn are likely to remain onerous. "Corn has had a 3-day moon shot with the USDA acre drop driving the gains," said Doug Bergman of RCM Alternatives. "With that said, we've still got a pretty good crop growing in most areas, which will likely keep supplies elevated moving forward."

Getting Into Position: Trading of grains futures on the CBOT stayed light, focusing more on positioning ahead of next week's monthly WASDE report from the USDA in lieu of reacting to any new developments in the market. Grains traders have been holding large short positions in grains, mainly in corn. However, this week's unexpectedly bullish acreage report has traders rethinking their positioning, which will likely continue until the WASDE is released next Friday.

 

INSIGHTS

 

China's Appetite: China continues to be a big buyer of U.S. new crop soybean exports--soybeans being grown in the 2020/21 marketing year. Of the 841,700 metric tons of new crop sold for the week ending June 25, 594,000 tons were sold to China, according to the USDA's weekly export sales report. Meanwhile, China bought no old crop soybeans. However, today's report didn't have a strong effect to futures trading on the CBOT. "USDA export sales were seen neutral for the soybean complex," said Terry Reilly of Futures International.

Trickling Out: The USDA said roughly $4.9 billion in payments have been paid out through the $16 billion allocated to the Coronavirus Food Assistance Program. Of that $4.9 billion, $2.4 billion has been paid to livestock producers, $1.3 billion has been paid to non-specialty crop producers, $1 billion has been paid to dairy producers and $113 million has been paid to specialty crop producers, according to the American Farm Bureau. Grain futures have rebounded as states attempt to reopen following the worst of the coronavirus pandemic, but reports of cases have ticked higher in recent days.

Real Attractive: The Brazilian real is "at its most attractive level since the turn of the global commodity cycle in 2011," UBS said. The currency has underperformed its peers since 2017, as the country emerged from a two-year recession with falling borrowing costs and weak economic growth. The Covid-19 crisis weakened the currency even more. The BRL trades at 5.30 per dollar, after weakening to as much as 5.90 in May. Before the pandemic it was closer to 4 per dollar. UBS says the devaluation is way off historical patterns. While risks remain, UBS sees "potential for a BRL relief rally in the weeks ahead."

 

AHEAD:

 

--The Chicago Board of Trade will be closed Friday in observance of Independence Day, reopening on Monday.

--The USDA releases its weekly grain export inspections data at 11 a.m. ET Monday.

--The CFTC will release its weekly commitment of traders report at 3 p.m. ET Monday.

--The USDA releases its weekly crop progress report for the 2020/21 crop at 4 p.m. ET Monday.

 

--Paulo Trevisani contributed to this article.

 

Write to Kirk Maltais at kirk.maltais@wsj.com

 

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