- Fresh rally highs in corn, soymeal and KC wheat have underpinned Chicago this morning. Fund flows remain to the buy side with new demand noted across the floor. Yet, the volume of Chicago trade has declined from the opening. The tone of Chicago is becoming apprehensive as demand led bull markets need to be fed. End users/importers are looking at current prices as extreme. Gulf Dec corn is offered at $5.80, Gulf December HRW wheat at $7.95/bu with Gulf December soybeans at $12.40/bu. Such prices are not cheap, and as recent day purchases have shown, large new US daily sales are slowing. The USDA/FAS did not announce any new sales today. China interest for US soybeans is in seasonal decline with China crushers worried by record imports and storage availability. With S American rainfall improving, one must be careful with any new net new long positions.
- Chicago brokers estimate that funds have bought 8,900 contracts of corn, 300 contracts of Chicago wheat, and 6,600 contracts of soybeans. In soy products, funds have bought 1,800 contracts of soymeal and sellers of 2,900 contracts of soyoil. The funds are adding to their massive long position amid the new rally highs in corn.
- Bloomberg news is reporting that China has no plan to intervene in its domestic surge in corn values. China stated that their corn harvest is 80% finished under favourable weather conditions and will be completed by the end of the month. The Government makes no mention of corn imports and it is uncertain whether their statement of “not intervening” means to the issuance of TRQ’s for corn imports. The China corn intervention comment leads to fresh uncertainty as WASDE’s China corn import estimate of 7.0 million mt.
- The price of domestic China corn is so high that Chinese sources indicate that livestock feeders are incorporating wheat in the ration. Both conventional and feed wheat work into China’s feed ration for hogs/poultry. Record corn prices are causing end users to seek economic alternatives.
- Indian wheat prices are always above the world marketplace due to their domestic support program. But, amid rising world wheat prices, it is possible that India could export wheat for milling/feed purposes in 2020/21. The problem is one of Indian wheat quality that tends to be so varied. Yet for EU feed compounders, Indian wheat could be a GMO free alternative to Ukraine corn
- Turkey has removed is grain import tariffs to ease the recent price spike of Black Sea wheat. Turkey has missed the world rally and has only modest forward coverage. Look for the Turks to use any modest correction to be a buyer.
- US weekly gasoline consumption fell to 8.29 million barrels, down 14% from 2019. US weekly ethanol production was down 8% to 268 million barrels with US ethanol stocks at 829 million gallons, down 13 million gallons. The current pace of US ethanol demand argues for a further 100 million bu cut in the US corn ethanol grind to 4,950 million bu. US ethanol blender margins are at their worst level since April at minus $0.04/gallon. A drop in crude oil below $38/barrel would push US ethanol margins into the red. Ethanol margins make March corn futures look rich above $4.20.
- Gulf March-April corn premiums continue to rise which has some exporters talking of new forward business for US corn. Whether the buyer is China, Japan or another SE Asian feed producer, there is a bid on the Gulf corn market for late winter/spring.
- A daily chance of rain exists across Brazil into early November. The showers start a day earlier than expected on Friday and continue for the next 2 weeks. 10-day rainfall totals are estimated in a range of 1.50-3.50″ with the heaviest totals falling across Minas Gerais and throughout Argentina. Temperatures cool to the 80′s to 90′s. Brazilian farmers and their big equipment can seed crops quickly. The 2020 seeding campaign is the latest in a decade, but the seeding pace is increasing.
- Uncertainty aplenty. A US election in less than 2 weeks, increases in US/EU Covid-19 cases, and when will a vaccine be available that has efficacy against Covid-19. China interest for US soy is in seasonal decline with funds holding a combined record long in US ag futures. Amid improving S American weather, this is no place to chase a rally. We await a correction. If a bearish shock develops, it is likely to be related to a coming macro-economic event.