- HEADLINES: Chicago grains recover on short covering and new month inflows; US farms tight fisted with new harvest; HO-BO spread looks attractive.
- Chicago ag markets are in recovery as the surprise opening of the US government has traders thinking ahead to the October USDA Crop Report and potential US yield reductions based on the ongoing hot/dry Central US weather trends. Funds which were large sellers of wheat, corn, and soybeans on Friday, are covering a portion of that short. Soy futures are trying to follow, but the upside price risk has been in the grains. Note that fund managers are heavily short of wheat/corn while either being flat or a modest net long in soybeans. It is the positioning of funds that is making the difference across Chicago today. Other news is lacking, but there was a purchase of 210,000 mt of US corn by Mexico with 120,000 mt of US soybeans being sold to China. Friday’s Chicago break reached levels that caused end users to step forward and take forward coverage. World wheat millers would like to secure Russian wheat into Q1, but private offers are only available for the next 30-45 days.
- Chicago brokers estimate that funds are buyers of 6,300 contracts of wheat and 8,900 contracts of corn, and 3,200 contracts of soybeans. In soybean products, funds are net buyers of 4,900 contracts of soyoil and while selling a net 3,700 contracts of soymeal.
- The Ukraine Government elevated its 2023 grain crop estimate by 2% to 57.5 million mt vs 56.4 million back in August due to favourable weather. The forecast included 21.7 million mt of wheat, 5.7 million mt of barley, and 28.5 million mt of corn. Ukraine will also harvest 13.0 million mt of sunseeds and 4.6 million mt of soybeans.
- Ukraine has been active in trying to find world buyers for this year’s harvest by offering cheap fob offers. However, Central Ukrainian farmers are estimated to be taking 40% less for their crops due to surging transportation costs associated with the transhipment of grain through the EU. Ukraine farm margins are now negative which could impact the 2023 harvest as farmers leave standing corn, rather than going forward with the harvest. Ukraine is suffering from acute dryness that will lower 2024 winter wheat seeding.
- The HO-BO spread, heating oil vs soybean oil, has been a barometer for bio and renewable diesel profitability. The price of soybean oil is multiplied by 7.37 (pounds in a gallon) which deducted from the price of a gallon of heating oil to calculate the HO-BO margin. US energy prices have been rising on tightening supplies which has pushed the HO-BO spread to its most profitable levels in years. US biodiesel and renewable diesel producers are responding with expanded operations and use of vegoils/tallows and used cooking oil. The expansion of US renewable diesel capacity in recent months means that the imports of used cooking oil can no longer swamp the market as they did in Q1 of 2023. And a massive new Philipps 66 renewable diesel plant will come online in early 2024 that massively adds to US capacity. Unfortunately, most of the US’s new crush capacity won’t come online until Q3 in 2024.
- There are rumours this morning that China is looking for US wheat for December/January from the PNW. We cannot confirm anything but the rumour.
- The midday weather forecast is like the overnight run with limited Central US rainfall over the next 10 days. The best rain looks to drop across the Central and Eastern Midwest from Wednesday through Friday with totals of 0.1-0.8”. Thereafter, an extended period of dry weather follows which should allow the harvest to actively resume. Much cooler temperatures will occur from Thursday onward with highs retreating to the 50’s and 60’s with frost possible across Northern Wisconsin and Northern Minnesota on the weekend. Kansas/Nebraska will stay arid which will delay HRW wheat seeding. More rain is needed for proper seed germination.
- The bears were emboldened by the chance that the US government would close which would cause the flow of information to be diminished leaving traders to focus on the rapidly advancing Midwest harvest. Few newly harvested bushels are being sold across the weighbridge with cash basis bids sharply discounted by the low flow of the Mississippi River and Brazil’s filling of world corn and soybean demand. Farmers are going to store their crop. S American weather is far from favourable, but it is too early for any undue concern. China is expected to return late week with Chicago pricing which should lift the complex. The longer-term bull story is soyoil on renewable diesel demand and expansion of US capacity. Chicago is a trading market until S American weather becomes more important.