- HEADLINES: Wheat reverses overnight rally; Corn, soy lack conviction; Ethanol production still below last year.
- Chicago grains are again steady to weaker at midday, with wheat reversing overnight gains and spot crude well below session highs. Flooding rainfall in Australia is this week’s only new supply threat as Argentine forecasts improve and export sales on Thursday morning are fully expected to show ho-hum interest for US supply on behalf of even traditional importers. Wheat’s inability to build upon Tuesday’s recovery noteworthy amid Putin declaring martial law in Ukrainian territories recently annexed by Russia and following a flood of diplomats leaving Ukraine in recent weeks. The corridor works until it doesn’t. There has so far been no change in aggressive Ukrainian corn and Russian wheat offers. The US$ is sharply higher at midday. Trade volume and enthusiasm is lacking.
- Egypt’s GASC this week was in talks to secure additional supply for winter arrival, but no deal was made. This has pulled Paris milling futures from morning highs. Recall Egypt is no longer releasing public tenders. Close attention will be paid to whether Pakistan opts to pass on its tender announced this morning. Wheat importers are short-bought but wheat trade to date is down sharply year on year.
- US ethanol production through the week ending Oct 14 totalled 299 million gallons, up 25 million from the previous week as maintenance season ends and plants have increasing access to new crop production. However, output last week was down 7% from the previous year and it remains that there has been no material/lasting improvement in gasoline consumption. Gasoline disappearance totalled 8.7 million barrels per day, down 10% year on year. Ethanol stocks are relatively abundant at 917 million gallons. Margins have turned highly profitable as Midwest cash corn prices erode, but there is just not the urgency to boost grind rates.
- Similar to grain and soy, the energy market’s fears over future supply tightness has diminished despite OPEC’s late 2022 production cut and as total US crude stocks continue to retreat. The US has sold 160 million barrels of crude reserve stocks since April, with another 15 million barrels of reserve sales planned between now and Dec 31. We doubt crude can break below $80 in the near term, but key is whether supply and demand is balanced in late winter amid weak petroleum demand.
- US soybean export sales through the week ending Oct 13 are estimated in a range of 40-50 million bu, enough to justify the USDA’s current annual forecast. Corn sales are pegged in a meagre range of 10-15 million bu, with sales projected at 7-12 million.
- The US midday GFS weather forecast is wetter in the Delta and southern Midwest, with totals in the 6–10-day period of 1-3” offered to LA, AR, MO and IL. The location of this rain will work to aid Mississippi river levels slightly, but there remains debate over the amount and coverage. Midday Canadian model output keeps heavy rainfall Oct next Tues-Thurs further west and favours E KS, E NE and IA. There is general agreement that rain will miss the heart of the HRW Belt into Nov 1.
- The S American GFS weather forecast is consistent in S America. Needed rainfall of 0.50-1.50” impacts key areas of Cordoba and Buenos Aires next week. Showers expand into Mato Grosso do Sul and Mato Grosso beyond the weekend. The S American weather outlook is non-threatening .
- Wheat futures worldwide await clarity over Black Sea grain flows, which will be unavailable until the early part of November. Volatility continues. Row crops lack conviction as bullish seasonal trends and profitable domestic end user margins battle against a likely recession in 2023.