- HEADLINES: Chicago recovers in tandem with financial markets; GFS weather forecast drier in Argentina.
- As goes the financial market, so goes Chicago. Corn and soy futures have reversed overnight weakness amid a plunging US$ and a firming of equity markets, while weak US housing data fuels debate over whether the Fed has reached peak hawkishness. Wheat markets globally can’t quite shake a renewed downtrend in Russia’s interior and fob prices. The Dow is up 280 points at a new monthly high following solid earnings report, and while fear over economic contracts stays extremely high, it is timing of reduced consumer spending/food consumption that remains uncertain. Spot WTI crude oil is up $0.50/barrel at $85. Paris milling wheat is down €3.00/mt at midday. Canadian canola is up $4/mt and remains perched at an 11-week high.
- Strength in meal and oil this week has rallied futures-based soy crush margins to $3.25/bu, vs. $2.50 a week ago and vs. $1.70 a year ago in late October.
- Positive Midwest meal and oil basis places physical cash crush margins at $5.00+/bu. Crush will be maximised once the new crop is fully available to processors. Decent ethanol production margins are also noted, and it is tough to be overly bearish of end user margins nearby given the strength in energy markets. The International Energy Agency this morning reiterated that oil producers cutting production amid tight natural gas supplies will leave fossil fuels in short supply. Total US crude stocks, including strategic reserve stock, on Oct 21 were down 19% year on year at 843 million barrels. Biofuel economics stay positive.
- Wheat, however, continues to reel from Russia’s aggressive sale to Turkey over the weekend, with Russian fob wheat for Nov-Dec this morning quoted at $310-315/mt, vs. $315-320/mt last week and vs. a recent peak of $335 in early October. A weakening Ruble is positive for exporter profitability even at current prices, and until there are signs that Black Sea grain flows are disrupted via an elimination of the corridor deal or new sanctions, cheap/abundant Russian wheat acts as a weight on the marketplace. Russian wheat exports last week were a full million tonnes, the largest of the season to date.
- US export demand in general remains a concern. FAS’s daily reporting system was again void of new sales. We note that spot Gulf corn is quoted just $17/mt below Dalian corn in China, which compares to a discount of $150/mt last year.
- The midday S American GFS weather forecast is drier in Central and Northern Argentina than previously and keeps needed soaking rainfall confined to La Pampa and Buenos Aires. The GFS forecast this week has been a bit drier than the better performing EU solution, and key this afternoon is whether the EU model maintains rainfall of 1-2” in Cordoba and Santa Fe. Otherwise, the GFS forecast is wetter in Southern Brazil and Goias. Brazilian crop threats remain absent. Early vegetation health in Brazil is better than last year and average.
- It appears that neutral price trends stay intact through late autumn. That firm interior basis remains intact through harvest is noteworthy, and US supply pressure will be fading early Nov onward. But markets at current prices are aligned with USDA balance sheets, and we see a slow building of stocks in winter/spring amid lacklustre export disappearance. Lasting rallies require new supply threats.