- Last week, UK prices were supported by a sharp drop in £Stg with the Pound weakening from a current month high against the €uro of 1.12784 to a low of 1.0761. The drop was a result of a deterioration in sentiment surrounding Brexit negotiations and fears of a no deal outcome. £Stg has since recovered some of its losses to circa 1.09 against the €uro. This, together with a lack of fresh bullish news to feed the market has led to London’s LIFFE futures easing back by about £4/mt.
- A big part of the recent strength in prices has come from Chinese buying of US corn and soybeans and the resultant fund buying to cover short positions. For the time being, the pace of Chinese buying appears to have slowed and the markets have cooled.
- In Europe, attention is turning to new crop planting. Estimates for this season’s wheat crop are relatively stable at around 128 million mt. With current high prices, it is anticipated that we will see strong plantings with EU production rebounding to 140 million mt plus (assuming trend yields are achieved). Currently, some parts of Europe are experiencing dry conditions which could hamper plantings if it persists. For the time being though, this is just something to keep an eye on as there remains plenty of time.
- Chicago futures have reversed overnight losses as China continues to secure US soybeans and funds add to their length in corn/wheat. Soybean futures have reversed overnight losses on the ongoing demand from China (COFCO/Sinograin). China has been a buyer of US soybeans on nearly every day since mid-August. By our estimates, China has bought nearly 22.5-23.5 million mt of US soybeans on a known and unknown basis. China is also reported to have secured a few Brazilian cargoes for November this morning.
- The almost insatiable China demand for soybeans has some raising the total amount of US soybeans that China will secure to 30-32 million mt. By working the numbers backwards, we calculate that the USDA has China taking 27-29 million mt comparing year on year demand. China is quickly nearing this target causing the discussion on whether annual imports could be larger.
- China always seems to take some US soybeans in July-August as the Brazilian export program seasonally slows. Yet, this is State Government buying and these purchases could slow/stop at any time. When that timeframe evolves, a top will most likely be forged in the US soybean market. It is a guess, but commercials argue that China’s purchase book will be complete by early October.
- Chicago brokers report that funds have bought 16-18,000 contracts of soybeans, 12,000 contracts of corn, and 5,500 contracts of wheat. In soy products, funds have bought 6,400 contracts of soyoil and 5,900 contracts of soymeal. Fund managers have been active on the buy side of the marketplace.
- US Gulf export sources indicate that China has booked 5-12 cargoes of soybeans. The purchase pace was active on the overnight decline. FAS announced 327,000 mt of US soybeans to China this morning. Rumours have additional sales to be announced Thursday/Friday mornings. US soybean export sales are estimated to be large on Thursday morning at 2.3-3.1 million mt.
- European sources indicate that a key French wheat importer, Algeria, has decided to allow its wheat import insect damage restrictions decline to .05%. The phytosanitary change would permit Algeria to secure wheat from Ukraine/Russia. The French market depends on Algerian demand, and its loss to the Black Sea will hurt French farmers longer term.
- US ethanol production fell to 272 million gallons, down 5 million from the prior week and below the 290 million needed to reach the 2020/21 USDA forecast. The US annual corn grind is on a pace to achieve 4,900 million bu or another 200 million bu below the existing USDA 2020/21 forecast.
- US ethanol stocks declined 1% to 832 million gallons, almost a 4-year low. 36,000 barrels showed up as ethanol imports (likely to CA). The weekly EIA data was viewed as slightly bearish with US ethanol demand/production stagnant.
- The midday weather forecast is little changed with dry/warm weather across the Central US for the next 10-14 days. The remains of hurricane Sally will push northeast across AL, GA and into the Carolina’s with heavy rains of 1-5.00″. The Midwest stays dry with warming temperatures. Highs will range from the 70′s to the mid-80′s with lower 90′s in the far west. The heat/dryness will combine to produce favourable harvest weather into October. Farmers are likely to actively start cutting corn next week with the next chance of rain Sept 30.
- Chinese soybean demand keeps coming to the US which along with macro purchases of commodities has Chicago values pushing upwards at midday. The US farmer is a seller of the rally, but not in size. Big US soybean sales are expected in Thursday’s Weekly Export Sales Report. This is mostly known and could produce a short-term Chicago top, ahead of a harvest weekend. The US harvest is at hand, but Chinese demand rules the marketplace (until it slows/stops). The US Central Bank is expected to maintain a 0-0.25% interest rate policy well into 2022. Low rates have some funds shopping commodities for an investment.