11 October 2021

Posted on October 12, 2021 by simon

• Looks like a quiet start to the week.

•  What is important:

1. USDA out on Tuesday
2. Brazil soy planting progressing ahead of average.
3. US harvest moving mostly ahead of normal
4. Waiting for rain in E EU and Russia.
5. Waiting for the rain to stop in China
6. Outside markets – momentum trades.

• HEADLINES: Chicago grains stay firm; Soybeans weaken amid profit taking in EU rapeseed, ahead of USDA Report.

• Fob Black Sea feed wheat for spot delivery is quoted this evening at $303 per tonne. Feed wheat for Dec-Jan is quoted at $308-310 per tonne. Feed wheat prices have followed the surge in milling wheat values, and despite lower than expected wheat quality in western Europe, it is clear the feed wheat market is on a path to slow down forward sales.

• US Gulf corn is marginally the Northern Hemisphere’s cheapest feed supply. Black Sea and US corn are both offered $35-40 per tonne below feed wheat for late autumn/winter arrival. Feed wheat’s current premium to corn is the largest since early March and feed wheat’s substantial premium has developed much faster than in previous years. The message is that the US and Ukraine will dominate world feedgrain trade into late spring 2022. This is bullish cash fob prices in both countries.

• Spot Chicago oats on Monday rallied $0.20 per bushel to score yet another all-time high at $6.73. This is an incredible flat price, as well as a new high in oats premium to corn, which on a metric tonne basis now rests at $253, the price of oats is more than double the price of corn. The US oat market has quietly been a modestly bullish trend since the spring of 2020, but rather quickly the US and global markets must outright eliminate consumption over the next 8 months.

• The loss of Canadian production this year is most significant, but Canada’s production shortage has triggered a new record low in global oat stocks and stocks/use. The USDA in September WASDE forecast 2021/22 global oat stocks 2.2 million tons, with stocks/use at a record low 9.1%. Our stocks to fall another 400,000 tons as Canadian yields are lowered further. Global oat stocks of just 1.7 million tons will reflect just 26 days of use, vs. 43 days in 2020/21. Demand rationing is required.

• Oat and canola/rapeseed price action this summer/early autumn highlights the world’s heavy reliance on Canadian exports as well at a time of vegoil and grain demand growth. Canadian oat exports account for some 65-70% of global oat trade. Importantly, Sources suggest Canadian crop production will be lowered further as actual yields become known. We peg final Canadian oat production at 2.4 million tons, vs. USDA’s estimate in early Sep of 2.9 million. Canadian oat exports will likely be no larger than 1.0 million tons, vs. 2.0 million last year.

• The Canadian oat market is working to keep supplies in the domestic market while the US market is working to encourage Canadian exports. It is a bullish battle for supply that will only get resolved once enlarged production is confirmed in summer 2022. We also note that EU (Scandinavian) production in 2021 was down 290,000 tons year on year, which along with soaring freight has raised the cost of importing EU oats into the US. US oat imports from Sweden and Finland account for a small but important 5% of total US oat imports on an annual basis.

• The story in the world oat market is that record low global and Canadian stocks/use is raising the need to recapture all area lost in 2021. The story in the US market centres on the lack of access to imports, which in turn raises the need to boost US planted area to balance supply and demand in 2022/23. US oat seedings of 3.2 million, a 13-year high, are needed to boost 2022/23 US oat end stocks to a more comfortable 36 million bushels. And even then, supply issues are only resolved if Canadian yields are at/above trend next summer.

• The recent oat rally is due in part to panic buying. But the panic is logical as oats are competing with highly profitable canola and spring wheat prices for arable land. A test of $7.00, basis spot Chicago, is probable before a lasting high is scored. July 2022 oats stay perched above $5.85 until acreage expansion can be confirmed.

• Limited news and liquidation ahead of the October Crop Report had soybeans down 13-14 cents on Monday.

• Export inspections and the Crop Progress reports are delayed until Tuesday due to the Columbus Day holiday, while the Export Sales report will be rolled back to Friday.

• While soybean prices in Chicago continue to erode, other world oilseed futures are holding historic premiums to Chicago. At the start of the week, Canadian canola futures are trading at a record $2.54/bu premium to soybeans, while Matif rapeseed is $2.74/bu over Chicago soybeans. The overall global oilseed supply and demand balance is very tight, with the next major harvest still 4-5 months out. Chicago trade is waiting on the USDA’s October yield projections, but after the report, we expect that the overall tightness in world stocks will support both cash and futures markets.

• The first target for spot Chicago soybeans holds at a chart gap left at the August expiration at $13.95.

• December Chicago corn rallied 2.5 cents amid soaring oat futures and as another round of contract highs were scored in the European market on Monday. It is becoming difficult to find bearish trends in global corn/feedgrain markets and any lasting decline in US prices hinges exclusively on NASS’S yield update on Tuesday. We continue to advise customers to again use post-USDA weakness to add to supply coverage. Export demand is brightening. Ethanol margins are incredibly profitable nationwide.

• Northern hemisphere production will be defined by early November, but exporter supply risks remain intact. Argentine corn seeding has just started but lasting dryness there in the face of rapidly developing La Niña is a concern. Near complete dryness is offered to some 70% of Argentina’s corn belt into October 25. The extended range Argentine forecast will be monitored closely as there is zero room for additional supply dislocation.

• Barring a bearish US yield surprise, we reiterate that normal seasonal price trends place December Chicago at $5.80 prior to expiration.

• US and world wheat futures ended mixed but very close to unchanged. The USDA in its Oct report Tuesday will lower US end stocks to 575-580 million bushels. The exporter balance sheet will tighten slightly. These changes have largely been digested, but upside risk remains intact.

• Russia’s interior wheat market is little changed in Rubles, but in US$ cash wheat in Southern Russia has scored a new seasonal high of $221 per tonne. Brent crude at $84 will keep downside in the Ruble limited.

• A Russian wheat export tax of $60 per tonne is imminent, and we maintain that Russian fob prices test $325-330 by late October. Spot Russian fob this evening is quoted at $315.

• Close attention will be paid to whether Brazil’s phytosanitary body allows for the import of GMO Argentine wheat in at some point in November. The world has already lost an incredible tonnage of its exportable wheat supply. Millers unwilling to take Argentine origin further complicates the world trade matrix.

• Strong chart-based support lies at $7.20 basis December KC/Chicago. A larger break must be used to add to Q1 2022 supply coverage. The wheat outlook remains bullish.