- Chicago ag futures have extended their overnight declines as spot WTI crude falls to losses of $2.50/barrel and as funds generally are reducing commodity exposure. Saudi Arabian officials suggest Saudi oil output will return to normal in the next 2-3 weeks, faster than anticipated. Saudi oil exports will continue amid large stocks.
- Other breaking news is lacking. Corn, wheat and soybean futures were unable to trade through major chart-based resistance, including $9.00, Nov beans, $3.75, Dec corn, and $4.90. Dec Chicago wheat.
- It is the lack of any meaningful demand story that has kept new money on the sidelines despite ongoing US production uncertainty. World grain markets are simply too cheap to provide much of a bullish catalyst in the near term.
- Early yield reports have been variable but generally decent, though corn harvested in September will be largely made up of crops planted in Apr/May.
- FAS reported that China secured another 250,000 mt of US soybeans this morning. This brings China’s total purchases since last Friday to 720,000 mt. Ultimately, the trade expects China to buy 2-3 million mt of beans from the US as both a goodwill gesture and a way to bridge the gap between late 2019 and the beginning of S America’s next harvest. Additional sales announcements are expected into next week.
- However, we would mention that Gulf soybean basis has been little changed since the beginning of China’s buying spree. Gulf soy basis for Oct-Dec is quoted at $0.23-0.30/bu over futures. This compares to $0.72/bu over in late July. The US soy cash market is well supplied.
- US ethanol margins remain supported at $0.40/gallon, basis spot, vs. near-zero 30 days ago. US ethanol production seasonally ramps up beginning in October. Key will be whether US export demand can be sustained amid falling Brazilian prices. Brazilian ethanol’s premium this week is just $0.25/gallon over Gulf origin. A rise in Brazilian prices is needed to boost export demand in the next 2-3 months.
- Improved rainfall is still offered to South Australia and New South Wales in the East.
- The S American forecast at midday is wetter in Central Brazil beyond Sep 26 as high pressure loses its dominance on the climate pattern there. Cumulative totals of 0.50-1.00″ are offered to most of Brazil’s soy belt. This will be enough to trigger accelerated planting.
- The midday GFS weather forecast is drier than the morning release, but still advertises the return of moderate to heavy Midwest rainfall in the next 10 days. A tropical storm will make landfall in TX/LA in the next 24 hours. Moderate rainfall will impact the Plains and Midwest every 2-3 days into Sep 29. Early harvesting will be slowed, but a nice boost in soil moisture is offered to HRW areas of TX, OK and E KS. No frost is indicated into Oct 3.
- Neutral outlooks are advised until clarity over actual US yields emerge in October. However, it remains that rallies will struggle amid cheap and plentiful world supplies. And a S American drought in Dec-Jan is needed to materially alter the current structure of world ag markets.