- World fob wheat prices have been moving higher, even amid record large production and growing world stocks. Argentina is currently the cheapest wheat in the world, but it is expected that of exports of 9-10 million mt, that Brazil will take 6.5-7.5 million, leaving others to seek 1.5-2.5 million mt. Argentine wheat should score a seasonal bottom in the next three weeks, leaving Russia and the US to fight for future world wheat export demand.
- Wednesday was an exceptionally quiet day of trading ahead of the October crop report. The October soybean yield estimate is typically much more accurate than previous reports as some actual harvest data is incorporated. Yield reports have been highly variable across the Midwest, ranging from record large to 15 bushels/acre less than a year ago. There is a yield drag on soybeans seeded after May 19. Preliminary Chinese trade data for September will be released overnight. Based on August shipments from N and S America, we estimate that imports could be record large for the month at 8-9 million mt. The US exported just over 1.3 million mt to China in August, while Brazil shipped close to 6 million. Another 1.5 plus million mt were also shipped from Argentina and other S American countries. The seasonal outlook for soybean prices is now bullish into the end of the year. We would expect strong demand to be uncovered on any post report price break under $9.60 basis January.
- December corn is again testing its contract low, and via the trade’s average guess on US corn yield and ending stocks the market is gearing up for looser US and world balance sheets on Thursday. The trade’s guess on US corn production rests at 14,170 million bu, virtually unchanged from the USDA’s September estimate. We do acknowledge that NASS’s yield in September will likely be close to the final number, and that corn lacks a meaningful story, but funds this evening are very short. We estimate managed funds net short position this week at 155,000 contracts, which is actually a record for the week, and compares to 131,000 just ahead of the October report in 2016. The US farmer certainly is not selling cash corn at this price. Crude has recovered from early week losses, as have ethanol futures, and we note Brazilian ethanol prices are now bid $.40/gallon (27%) above US origin, which on paper offsets Brazil’s tariff on US imports. There is also talk of China importing ethanol amid rising prices and a need to fight winter smog. Fundamentally, a neutral outlook is advised.
- US wheat futures have fallen to test chart-based support, and price action through the remainder of the week will in large part hinge upon NASS’s updated corn yield on Thursday. Otherwise, little has changed and following this break Gulf HRW is again offered fractionally below Russian origin for Nov/Dec arrival, and as such we caution against turning bearish here. World cash wheat markets this week have followed futures lower, but only slightly. We maintain that downside risk in fob offers is limited. Interior prices in Russia are steady this week amid strength in the Ruble, and the coming pattern shift to wetter weather in eastern Australia is too late to have a material impact on yield potential. The USDA’s world wheat balance sheet is expected to be near unchanged, as any hike in Russian production will be offset by losses in Australia. Like corn, funds are short an estimated 70,000 contracts this evening, and new selling requires fresh, significant bearish input. An ongoing sideways trade is expected in US wheat.