- HEADLINES: Chicago mixed as soymeal rallies above 200 day moving average; Grain prices sag on ongoing US corn harvest; Northern Brazilian dryness needs to be followed.
- Midday Chicago grain markets are mixed in thinning volume. The grains are under pressure while soybean/soymeal values hold in the green. Soyoil is enduring modest selling pressure on the unwind of oil share spread while Midwest cash basis bids are steady/firm on tightening cash soyoil supplies. Traders are debating historically tight NOPA soyoil stocks amid the rapid buildout/onboarding of additional US renewable diesel production into Q1 2024. It is the tightening of soyoil for food use along with seasonally declining SE Asian palmoil production that should encourage a soyoil rally into early 2024.
- Whether it is the US/EU or S America, farm selling has slowed in recent weeks leaving commercials longer on Chicago than they have been in years. Most US farmers will not make corn/soybean sales until the October revenue insurance price is set, and even then, once the grain is stored on farm, the cash markets will have to pry it away. This is why Chicago breaks will be difficult to sustain.
- Chicago brokers estimate that managed money has sold 2,200 contracts of corn and 900 contracts of wheat while buying 5,400 contracts of soybeans. In the products, funds have sold 3,600 contracts of soyoil while buying 7,100 contracts of soymeal. Soymeal rallied above its 200-day moving average.
- The FAS/USDA daily sales report did not announce any new sales this morning, but there is talk that China has priced 3-5 US soybean cargoes earlier today.
- US soybean products (soyoil/soymeal) have bullish demand stories into 2024. Brazilian hi pro meal is catching a bid this morning on increasing export demand while US soymeal export sales continue to gather steam and are near record large. US NOPA soyoil stocks itemised that domestic demand is record large and likely to grow substantially as Phillps 66 brings their massive renewable diesel plant online later this year or early in 2024 in Rodeo, California. Demand for US soymeal stays elevated until new crop Brazilian soymeal is available in March. Soy product demand limits the downside in spot soybean futures to $12.65 through year end. Note that new US crush capacity does not come online until Q3 2024, or mid to late summer in preparation for the US 2024 harvest. October Chicago soyoil futures did not have any soyoil tendered for delivery, something that has not happened in over a decade. There are only 67 contracts of soyoil registered for delivery today.
- November soybeans have rallied above $13.00/bu on speculative buying. The US farmer is not a large seller at $13.00. The old crop soy/corn ratio sits at 2.65:1 with the new crop ratio at 2.42:1. The new crop soybean/corn ratio is too low to encourage US farmers to seed 87.5 million acres in 2024. We estimate that based on the new crush capacity coming online that the US will need at least 87.5 million acres, which will drop corn seeding back to 90-91 million acres. US farmers are not excited about expanding seedings due to negative margins.
- The midday GFS weather forecast maintains an arid trend across North Central Brazil into October 27. There will be widely scattered showers of 0.25-1.00 from October 25-27, but the coverage of the rain will be less than 40% of NC Brazil. Rain will become more regular for Argentina, while S Brazil holds in an overall wet trend that is causing first crop corn to yellow and further harming HRW wheat crop quality. The drying trend across N Brazil is becoming historic and should the dryness last through early November, it will push back the start of soy harvest until February. Our concern for Brazilian weather is increasing amid the pesky/persistent high-pressure ridge that holds across Northern Brazil.
- Frustration… a word that we hear more often regarding Chicago. The bears are frustrated that Chicago won’t break while the bulls are frustrated that grain rallies can’t be sustained. US ethanol and soy crush margins are highly profitable which is raising cash basis bids. Brazilian weather is concerning, but not yet yield threatening. It is the wrong time of the year to be bearish. Paris wheat and Chicago corn have been going nowhere since mid-August. The Chicago bullish stalwart is soy oil while the grains look to chop.