- Tuesday saw an interesting start as markets digested Monday’s USDA data and raw materials saw a sea of red as the higher than expected yield estimates encouraged long liquidation, particularly in soybeans whilst the stronger US$ and sharply weaker energies added further pressure. Even wheat participated following better than anticipated Australian output figures from ABARES overnight.
- China is reported to be more active in sourcing soybeans on the break and we would expect to see further activity on these lower prices. Energy pricing is expected to remain weak into 2017 according to the US’s EIA due to a large global supply glut.US crude stocks remain high despite a decline in August yet gasoline stocks are 6% up year on year and ethanol is up just over 10%. The next report is expected to show further stock build underlining the position still further.
- Many are pointing to potential enlargement of corn and soybean acres via Monday’s FSA (Farm Service Agency) loan programme enrolment update. We can assume a normal amount of acres will be added (600-800,000) in October and November and we would anticipate 100-400,000 in the upcoming release. However, more important to overall yield will be a function of pod counts/ear weight rather than acres in our view.
- Tuesday saw soybeans weaker with liquidation featuring throughout, new crop export programmes are off to a very strong start and look to accelerate in coming weeks, potentially cushioning cash basis declines into harvest. Corn was plagued by the stronger US$ and falling energies, which if our comment above holds true, looks likely to keep prices capped. Wheat fell in sympathy with corn despite firm global cash prices despite the fact that there is no shortage of wheat in the world and ABARES latest figures (a touch over 28 million mt vs. USDA’s 27.5 million) attest to that very point. Weaker European currencies may account for the firming cash basis and seasonal global price trends rarely show weakness beyond mid-September.
- It remains that if prices are to see a strong recovery demand has to be found otherwise the more than ample supply position will continue to dominate although we struggle to see major bearish price action at current levels.