- HEADLINES: Low volume Chicago morning with all eyes on China’s Evergrande for economic contagion; China August trade data calls for 101 million mt in 2020/21.
- It is an Evergrande (China’s second largest property developer by sales value) and a macro-Monday. Chicago futures are trading weaker at midday with soybeans/soy products showing the biggest losses tied to the uncertain viability of China’s Evergrande, with estimated loan/interest rate payments amounting to $669 million by the end of the year. Corn and wheat futures are following, but the losses are being limited by strong world cash markets.
- The initial Evergrande bond interest rate payment was to be made today with a larger tranche due Thursday. Evergrande has already told banks not to expect payment today, but it is far less certain what will happen Thursday. China injected liquidity into its banking system on Friday/Saturday to prevent any financial contagion. And China is on their Autumn Festival which concludes Tuesday. Although the financial struggles of Evergrande are sizeable (estimating holdings in real estate equal 2% of China GDP), we doubt that it represents a threat to China’s banking system. This is key since China should be able to control the financial damage beyond Evergrande. Yet, amid all the uncertainty, a host of world asset prices are lower awaiting fresh news.
- Chicago brokers estimate that funds have sold 4,300 contracts of wheat, 6,000 contracts of corn, and 7,400 contracts of soybeans. In soy products, funds have sold 3,400 contracts of soyoil and 2,100 contracts of soymeal. It has all been on the sell side from funds with end users buying the early break.
- US weekly exports for the week ending September 16 were 15.9 million bu of corn, 10.1 million bu of soybeans, and 20.7 million bu of wheat. The export inspections were above trade estimates with more than half of the Gulf just getting back to operation. Slowly and surely, the impact from Hurricane Ida will wane in coming weeks as Gulf CIF/FOB and barge trade returns to normal.
- Chinese August trade data indicates that the USDA is still too low by 2 million mt in soybeans and as much as 3-4 million mt on corn imports for the 2020/21 international crop year that ends on October 1. We estimate that China will import 101 million mt of soybeans and 29-30 million mt of corn in 2020/21, both are record large and reflect that China’s feed/soybean import demand is record large.
- Soybean cutting started on the weekend which followed corn with disappointing yield results. Early soybean yield data is running 2-6 bushels/acre below field checks and producer expectations. Disease pressures are also noted, but it is too early to confirm a yield trend. Many more E Midwest producers will switch over to cutting soybeans later this week and allow their corn to dry down. Propane costs are through the roof which is causing more Midwest farmers to await drying corn, even amid poor corn stalk quality.
- The forecast is dry across the Plains and the W Midwest with limited rainfall for the next 10-12 days. Warm temperatures and the dry weather conditions should promote active harvest progress. Expansive high-pressure ridging holds across the West Central US which maintains a warm/dry upper air flow. The E Midwest will see showers/storms in the coming days which will slow the harvest. Harvest rolls along smoothly well into the first week of October. Maximum highs temperatures range from the mid 70′s to the lower 90′s. We note that La Niña is coming on strong and much be carefully watched during the 2021/22 S American growing season.
- First it was Hurricane Ida and now it’s China’s Evergrande Property Group that are masking bullish Chicago grain/soy fundamentals. Next week’s Sept Stocks report for corn/wheat should confirm tightening US supplies. China will be back from holiday late Tuesday (US time) with new buying for US soybeans. A turnaround Tuesday is expected following steady/1% decline in NASS corn/soy condition ratings this afternoon. Russian wheat export taxes will keep rising with farmers holding stored supply. Our view stays bullish of Chicago corn, wheat, and soybeans. Key support for November beans rests at $12.50-12.60.