- HEADLINES: Chicago retreats from higher start as fund buying fades; Chicago soymeal nears upside target as funds flatten short position.
- Chicago grains (corn/wheat/oats) rallied to new contract highs this morning before fund demand faded and prices retreated. At midday, corn/wheat values are lower while December oats hangs in the green. Paris wheat futures scored a new all-time spot futures high at €297/mt before declining. Corn, soybean, and oat markets are extremely overbought by any technical measure. A correction can occur with prices moving sideways over time or with a price break.
- Research argues that Chicago values scored a trading top following the market opening that will produce a sideways to lower price profile into next Tuesday’s USDA November Crop report. Although soybeans are holding in the green, a larger yield and cut in US exports should produce the most bearish aspect of 2021/22 US end stocks. A US soybean end stock total close to 450 million bu is possible with US corn/wheat end stocks offering limited change. A gain in the 2021 US corn yield would help offset ethanol demand gains.
- FAS did not report any new US grain or soybean sales today. It is downright disappointing that China is not securing more US soybeans or sorghum. Chinese importers do not need TRQ/import licenses to book US sorghum. And with Chinese cash corn prices pushing back to $10.50/bu, you would expect that US sorghum would be flying off the shelf. However, the Chinese Government has not produced a “green” light for purchases which is frustrating to US farmers. We see no chance that the US Phase One Trade Agreement will be honoured leaving US ag in a difficult negotiating position on January 1.
- Chicago soymeal is closing in on a spot futures upside price target of $340/ton which was summer support and has now become autumn resistance. As US soybean crushers are ramping up due to the new soybean supply and historically rich crush margins ($2.27/bu), the supply of meal will be rising into the end of the year. Current spot futures at $333.50 is near key chart resistance. We doubt that December soymeal can rise too far above $340/ton unless a weather problem were to develop across Latin America. For now, both soybeans/soymeal look to have limited upside potential. We would currently see any 20-30 cent further rally in January soybean futures as offering a new sales opportunity.
- World ocean freight rates are in sharp decline on decreased demand and increased availability as the world supply chain tries to mend. The fall in ocean freight has some commodity fund managers nervous that peak year end demand has already occurred. Chinese demand for iron ore and steel has helped in breaking world freight rates. This could aid US ag exporters before year end.
- Cash corn movement expanded dramatically on Monday’s rally and continued this morning. End users report being covered up on cash corn into early 2022. We look for cash basis levels to retreat on the increased corn movement.
- Chicago brokers report that funds have sold a net 4,300 contracts of corn and 2,700 contracts of wheat, while buying 4,500 contracts of soybeans. In soy products, funds have bought 4,200 contracts of soymeal while being flat in soyoil. We calculate that fund managers are net flat in soymeal futures.
- Chilly/dry weather will be featured across the Central US into the weekend. A warming trend will start in the Plains on Saturday and push eastward next week. High temperatures will return to the 50’s/60’s which will allow for improved drying conditions. This allows producers to advance harvest and seed SRW wheat in the E Midwest.
- Managed money are diminished buyers who has taken away recent Chicago upside momentum. Our upside price targets have been reached in wheat and nearly so in March corn at $6.00/bu. The post-harvest high in January soybeans is pegged at $12.75-13.25. We would reward this rally with sales and look to reload following a potentially bearish November USDA report. We note that Argentina is back offering March corn at a $0.60/bu discount to the US Gulf during March/April.