- HEADLINES: Chicago steady/higher at midday; Wheat leads rally; US ethanol production begins seasonal expansion.
- Chicago ag markets are mostly higher at midday in still-thin volume. Wheat has led the way so far, with spot Paris milling wheat up €4.00/mt and testing highs scored in mid and late September. A specific catalyst is lacking but this week has highlighted the developing US export demand story amid competitive prices and China’s recent buying spree. Additionally, Australia’s season will end amid heat and a complete lack of rain into early Nov, which on balance trims yield potential south of Queensland, where peak harvest is still a few weeks off. Soybeans have reversed overnight gains. Raw material market rallies as a whole continue to be challenged by strength in the US$ and rising treasury yields. The Dow at midday is down 220 points.
- US exporters sold two cargoes of soybeans to China, which likely reflect confirmation of early-week rumours. We do note that Brazilian origin isn’t quoted for Nov-Jan arrival, and key is whether Brazilian soy becomes available in early Feb or early March. This will be determined by seeding dates. CONAB late Monday pegged national Brazilian soy seeding progress at 19% complete, vs. 22% last year. We estimate progress as of Oct 22 to be no better than 28-29% complete, vs. 35% in 2022.
- US ethanol production is beginning to rise as plant maintenance season draws to a close, and importantly ethanol stocks are not abundant. US ethanol output in the week ending Oct 13 totalled 304 million gallons, vs. 295 million the prior week and the largest since early September. Seasonally, weekly grind reaches its peak in Nov/early Dec. Additional boosts in domestic corn consumption occur over the next 6-8 weeks.
- Ethanol stocks last Friday were 887 million gallons, vs. 904 million the prior week and down 3% year on year. Residual disappearance, probable exports, have fared well in the face of Brazilian competition, with residual ethanol disappearance in the last 4 weeks of 157 million gallons three times that of last year. This along with profitable margins supports the need for enlarged industrial corn use. Crude stocks less strategic reserves on Oct 13 totalled 420 million gallons, down 4 million from the previous week and 4% below last year. The US energy market is tight.
- The midday GFS weather forecast is slightly drier in Northern Brazil into Oct 28. A few scattered showers will slide into W Mato Grosso and pockets of Goias, but otherwise meaningful S American rainfall into late month stays relegated to far Southern Brazil and NE Argentina. This rain will be welcomed in Argentina but is unwanted in Rio Grande do Sul, where rainfall since Oct 1 has been recorded at 10.0-15.5”. Our primary concern remains cantered across the Northern two thirds of Brazil. Extreme heat is exacerbating issues this week, with max temperatures on Monday in Mato Grosso reaching 103-104. Similar readings are projected into the weekend.
- Breaking news is absent, but our work suggests markets are embarking on seasonal moves higher into winter/early spring. The intensity of recoveries hinges upon S American crop potential, with weather increasing in importance considerably in November. CONAB/Mato Grosso soy seeding progress is data is key in the next two weeks.