Three grain trader adages to bear in mind, as the market mops up after the latest data slew.The first being, as Benson Quinn Commodities said, that "money flow tends to come in three-day moves".The broker was speaking with reference to soybean futures, the picture for which has become more bullish since the US Department of Agriculture on Thursday, in its monthly Wasde crop report, made an unexpected downgrade to its forecast for the domestic yield in the oilseed this year.The thinking is that in price terms changes in sentiment take more than one session to work through, implying gains on Friday too.'First in five years'Of course, the USDA's US soybean yield downgrade on Friday was hardly huge, of 0.4 bushels per acre to 49.9 bushels per acre.
Wasde US soy forecasts 2017-18, change on previous, and (on market forecast)
Harvested area: 89.471m acres, +740,000 acres, (+454,000 acres)
Yield: 49.5 bushels per acre, -0.4 bushels per acre, (-0.5 bushels per acre)
Production: 4.431bn bushels, unchanged, (-16m bushels)
Year-end stocks: 430m bushels, -45m bushels, (-17m bushels)
World year-end stocks: 96.05m tonnes, -1.48m tonnes, (-430,000 tonnes)
Source: USDA, Reuters, Agrimoney.comBut that is where the second market adage comes in, that "small crops get smaller".That is, there is a certain momentum in crop production revisions, and one downgrade will herald another.Thursday's soy yield downgrade, "the first in five years" for an October Wasde report, "will spawn talk of further cuts from October to November", said Richard Feltes at RJ O'Brien."History suggests potential for another 0.5 bushels-per-acre cut, equivalent to 45m bushels."'Risk is heightened'In turn that "would take end-2017-18 US soy stocks below the 400m-bushel mark", Mr Feltes said, a figure which while still large, would bring a case for higher prices."Shrinking US soy stocks, via either a lower yield or fear of higher 2017-18 demand, will up the importance of favourable South American growing weather."And decent weather is hardly a certainty, especially in Brazil, given the rising chance of a La Nina weather pattern, which as Rabobank noted "typically brings drier conditions for South America.
"This risk is heightened for crops in Brazil, which has already experienced a dry start to the planting season."'Becomes a problem if…'The third market adage to consider is related to the second, but the opposite....MORE