- HEADLINES: Back and forth Chicago trade persists as soymeal rejects key resistance; Amazon River shipping to slow on flow; US weekly ethanol production up 1%.
- Chicago grains have moved lower at midday on the prospect of rain across parched Northern Brazil and a further fall in energy values. Israel is reporting that it is holding back on its Gaza invasion until the US can set up missile defence systems across the Middle East. This sparked selling in crude oil.
- Yesterday, soybean/soymeal futures rallied sharply while soyoil enduring selling. Today, it is soyoil that is posting strong gains while soybeans/meal decline. Chicago is in a wide-ranging choppy trade that is frustrating. It does not take much volume to shove Chicago in one direction or the other. The market’s back and forth is causing fits to fund managers with end of year strategies in play. Index funds will be rebalancing their portfolios with the cheapness of grain (vs. last year) causing them to be significant buyers.
- One cannot underplay the importance of S American weather in world grain pricing. The USDA is forecasting that S American will produce an additional 50 million mt of corn/soybeans in 2024, which if correct, would maintain bearish market trends. However, if there is any adversity, a significant upward adjustment in price will occur with world exporter stocks/use ratios so tight. US corn and soybean exports for the crop year to date are keeping pace with last year. This is why we continue our mantra, “Don’t chase rallies or breaks.” The time for a more sustainable rally will likely emerge in early November.
- The USDA/FAS reported that China secured 126,000 mt of US soybeans for delivery in the 2023/24 crop year. Cash wheat traders are discussing the potential that China could secure additional US SRW wheat if December Chicago wheat futures fell to $5.60 or below.
- Chicago brokers estimate that funds have sold 5,400 contracts of corn, 5,900 contracts of soybeans, and 4,500 contracts of wheat. In the products’, managed money has sold 5,400 contracts of soymeal and bought 3,200 contracts of oil.
- EIA reported that US produced 306 million gallons of ethanol, up 2 million gallons or up 1% on last year. US ethanol stocks rose 12 million gallons to 899 million gallons, which is down 4% from last year. The US consumed 8.86 million barrels of gasoline/day which is steady from last year. US ethanol production margins are at their best levels in 9 years at $0.67/bushel. We believe that WASDE will raise their annual US ethanol grind estimate by 25-50 million bu in coming monthly reports.
- The Brazilian Amazon drought continues to worsen with shipping and barge companies warning about draft restrictions and slowed movement of grain due to record low water levels. Corn is the Brazilian grain that is most at risk to rising costs and supply chain delays.
- The GFS weather forecast is as dry as the overnight run with limited rain across North Central Brazil for the next 10 days with regular heavy rainfall to batter Southern Brazil. This is the same “stuck” weather pattern that has persisted since early August and shows no sign of change. Showers of 0.2-1.50” will fall across 50-60% of North Central Brazil over the next 4 days. The rain will help seed germination where totals are greater than 0.75”. Across RGDS, Santa Caterina and Parana, frequent heavy rainfall will tally 3.50-8.00” which will add to flooding woes.
- High temperatures will hold in the 90’s/lower 100’s across North Central Brazil with highs in the 70’s/80’s across the cloudy south. The S American weather pattern is abnormal and our drought worry for N Brazil stays elevated.
- S American weather during November and December will key longer term Chicago price direction. Our worry about Brazilian weather is growing and elevated. Our market stance stays one of a bottoming of price and a further firming of cash basis. However, whether you are a bear or a bull, price action since late August has been back and forth and frustrating. Research shows that soyoil and soybeans are undervalued relative to the weather and demand risks ahead.