- HEADLINES: Stats Canada surprises to the downside, summer drought was harshest since 2002. The need for corn imports.
- Chicago futures are sharply higher at midday with corn/wheat leading the upward charge. Soybean futures have lagged with soymeal acting as an anchor. It has taken greater volume to push the market down than rally it. December corn has exceeded a prior day’s high helping to confirm Friday’s key reversal on the chart. Soybeans are still caught in a range, and a rise above Friday’s high at $13.00 is needed to turn the trend upwards. Wheat futures have confirmed a resumption of the bullish price trend, but a close above the 50-day moving average at $6.90 is desired basis December KC futures. The tone in Chicago is more bullish than any day since late August, but we need to remember that seasonal lows often occur over weeks, while summer highs can occur in a day.
- Chicago brokers estimate that funds have bought 4,200 contracts of wheat, 6,000 corn and 1,400 contracts of soybeans. In soy products, funds have bought 3,200 contracts of soyoil while selling 1,900 contracts of soymeal.
- Statistics Canada estimated their 2021 crops to be down sharply following an acute summer drought with production losses of 28-70% when compared to 2020.
- Stats Canada dropped their 2021 all wheat estimates to 21.7 million mt compared to early season estimates of 32-33 million, and last year’s harvest of 35.2 million. The 2021 canola crop was knifed to 12.8 million mt compared to early seasonal estimates of 20-21 million mt and 19.5 million last year. While their oats estimate fell to just 2.6 million mt, down from early season estimates of 4.5 million and last year’s harvest of 4.6 million mt. Dec Chicago oat futures are trading at a just 5 cent discount to December Chicago corn. The US is Canada’s (and the world’s) largest oat importer, and its shortfall could cause Chicago oats to trade at a premium to corn during the harvest period.
- We look for further falls in Canadian crop production as actual harvest yield data is counted. A final wheat crop of 20-21 million mt and canola crop of 11.5-12.3 million mt appears correct. And the Canadian oat crop could decline to 2.3-2.5 million mt. There is no doubt that Canada will have an acute shortage of feed this winter and likely will import a record 5-6 million mt of US corn based on the shortage of feed barley and wheat. The USDA has Canada taking 3.0 million mt, which is far too low inn our opinion. A bump of 2.5 million mt of US corn imports would add 100 million bu to the US 2021/22 corn export forecast.
- The US CPI for August came in at 5.3%, at the lower end of expectations. The so-called core index which excludes the more volatile food and energy sector climbed 4% year on year in August compared to 4.3% in July. US gasoline prices were up 2.8% in August, but the tamer inflationary outlook could have the US Central Bank wanting to taper its bond purchases until early 2022.
- Early combine yield reports are disappointing on corn, and too limited on soybeans to make any comment. Corn suffered acute disease pressure which has caused stalks to be cannibalised/compromised without fungicide treatments. Additional combine reports are needed, but early corn yields are not matching producer or field check expectations. It is early days, but disappointing corn yield is a trend to monitor. And it will be next week before the Midwest soybean harvest shifts into a higher gear with yield comments to be offered.
- A smaller French wheat crop, a smaller Canadian wheat (and canola, oats, barley, and pea) crop, and early US corn yield trends that are disappointing relative to field checks and producer expectations has lifted Chicago prices. World wheat/corn exporter stock/use ratios are record low. The question is whether falling supplies will push key end users to take forward coverage. We note that Gulf CIF bids are rising and refilling domestic pipeline will take longer than expected. The world is counting on the US corn /soybean crop to pressure fob valuations. Anything less than NASS corn/soy yields from Friday ignite a rally and forge early seasonal lows. The downside price risk is limited.