- Chicago futures are sharply higher at midday with the US DOW soaring over 400 points on hope that the US/China will sign a truce that includes US agricultural purchases. The corn market has recovered all of Thursday’s losses with November soybeans and Chicago wheat pushing to new seasonal highs. Funds are active on the buy side of the marketplace in the grains as they cover shorts. Rumours abound that China could secure US corn/wheat/ethanol in a mini trade pact, but as with other recent US/China rumours, it is either they secure everything or nothing. Neither view is right, and this is not a final deal, just a side step for China to avoid higher tariffs on Tuesday (October 15).
- We look for a sharply higher close with all eyes on what Trump/He offer in terms of a truce in their (post Chicago close) press briefing in the White House Oval Office. Traders are hopeful of large US purchases of US soybeans and pork, with the potential of including US grain. We would note that CME pork futures are NOT rising sharply, which theoretically should be the most bullish commodity.
- Chicago floor brokers report that funds are net buyers of 10,400 contracts of wheat, 23,000 contracts of corn, and 5,600 contracts of soybeans. In soy products, funds have bought 3,500 contracts of soymeal and are flat in soyoil. The biggest fund buying is in commodities where they are short, corn and wheat. In soybeans, it is estimated that funds are long 23-27,00 contracts including their buying of recent days.
- Brazilian farmers have been big sellers of the Chicago soybean rally as new crop prices reach levels not seen in years. The combination of the fall in the value of the Real (Brazilian currency) and Chicago recovery is enticing Brazilian farmers to step up their 2020 seeding amid fat margins. Brazilian farmers are pricing an increasing percentage of their crop worried that the US/China could do a mini deal that could cause their fob soybean premiums to fall. In the wake of a deal, we look for Brazilian farmers to be active soybean sellers.
- Brazil has confirmed a case of swine fever (not African) that will cause regional problems for their domestic pork production. The move does change their export opportunities to China or to other world importers.
- Snows are falling across the Dakotas with rains slowing harvest elsewhere. The Midwest farmer will concentrate their harvest efforts on soybeans and then pivot to corn. This tells us that cash corn basis will stay strong for the remainder of October, and potentially into early November. We do not see the strong cash basis as telling anything about the 2019 US corn crop size.
- There is no correlation (as far as we can establish) between the amount of crop harvested (ears pulled or pods weighed) for the October NASS report and November or final yield totals in corn or soybeans.
- The midday GFS weather forecast is slightly drier with less snow for the Northern Plains. Snows have been accumulating in the Dakotas with totals of 4-12” so far. Additional totals look to range from 2-8” with the winds helping to lodge crops through the weekend. The cold has ended the growing season in the N Plains and the NW Midwest.
- The S American forecast continues to add rain for Brazil and Argentina over the next two weeks. All signs point to improved S American weather going forward.
- Making sales ahead of a US/China Oval Office Meeting is difficult but we fear the market may well be disappointed by the mini deal. This is about a trade truce, not a completed final US/China deal. If the Chicago rally that continues into early next week, we would see it as a selling opportunity. S American weather forecasts offer better rains, and that is what is important longer term. Don’t chase the Chicago rally would be our advice.