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Chicago (US), August 22: CBOT agricultural futures fell in correction on the concern over the Delta variant of COVID-19 and its slowing impact on the world economic outlook, Chicago-based research company AgResource noted.
The U.S. dollar rallied as the U.S. central bank suggested that it could taper its bond purchase program by the end of the year. But AgResource doubts that agricultural futures can shift back into bearish trend amid strong demand.
CBOT corn futures ended sharply lower on the week with December contract having given up all its post-August rally after the U.S. Department of Agriculture (USDA) Crop Report. Plunging energy markets and a continued lack of export demand were cited. AgResource reiterates that the lack of export demand to date keeps the focus exclusively on supply. There will be no shortage of corn at harvest, but U.S. 2021-2022 demand will be record large.
A CBOT low is expected to be forged in late August or early September. The outlook for corn is bullish as the United States is becoming the world's cheapest supply of feed for delivery in October and beyond. Export demand improvement is imminent, but until the market sees and feels this demand.
The CBOT has fallen back to longer term support. Lower biofuel mandates for 2020 and 2021 will not produce less ethanol, and the Environmental Protection Agency (EPA) has said they will increase again in 2022. The Biden administration sees biofuels as a clean carbon steppingstone to electrification. AgResource sees the seasonal low formed back in July at 5.07 dollars with late summer lows to be forged in coming days.
U.S. wheat futures ended lower. The break was partially a function of profit taking as futures worldwide reached technically overbought levels. The spread of COVID-19 and the future tapering of the Fed's 120-billion-dollar per month bond buying program have sustained new buying in the U.S. dollar. However, fundamental input continues to lean bullish as a milling wheat supply problem looms.
EU wheat futures price action validates talk of very low quality in France. This issue will be compounded by a final Russian crop size of 72 million tons. Key to direction over the next 60 days is whether importers begin to slow future purchases. But if demand remains intact, importers must buy.
The Northern Hemisphere needs to expand sowing acreage by 5-7 million acres to prevent another decline in exporter stocks/use in 2022. While expecting wide swings of the market, AgResource maintains an upside target of 8.50 dollars, with highs expected in late autumn and winter.
Soybean futures fell to steep losses on late-week technical liquidation. Cash markets continue to slide at the end of the old crop marketing year as a new harvest is ahead. The USDA again reported another week of large daily sales announcements to China and unknown destinations, but cumulative sales continue to lag compared to a year ago. It's worth noting that the Chinese hog herd is larger than at this time last year, and feed demand is expected to be stronger. China soybean imports will be record large from all origins.
AgResource holds that the CBOT break is overdone. EPA can cut biofuel mandates in 2020 and 2021 to financially aid blenders, but the EPA commented late Friday that the 2022 mandate will be higher.
Seasonal lows are in the making, and Chinese purchases of U.S. soybeans are expected to ramp up next week, AgResource said.
Source: Xinhua