- HEADLINES: US$ collapse supports Chicago; US energy stocks stay tight.
- Chicago markets are firm at midday, with wheat recovering morning losses on rising Black Sea tension. Modest premium has been added to corn and soy markets amid strong interior basis levels, elevated domestic end user margins and firm energy prices, but enthusiasm remains lacking. We would reiterate that current prices seem to be well aligned with USDA US and global stocks/use projections. Markets await new input. Long-term direction hinges upon S American surpluses in early/mid-2023 and Argentine and Brazilian weather in Oct doesn’t quite yet correlate strongly with final yield.
- The Dow, too, has reversed early weakness and at midday is up 115 points. Crude oil has extended overnight strength, with spot WTI up $2.90/barrel at $88.20. Energy prices worldwide provide a pillar of support to biofuel-based crops and there is no indication that crude stocks build in the near term.
- US crude stocks minus strategic reserves on Oct 21 totalled 440 million barrels, vs. 437 million the previous week and up 2% year on year. 163 million barrels have been shed from the strategic crude reserve since April 1, and total US crude stocks of 842 million barrels are down 19% from last year. Motor gasoline stocks last Friday were 208 million barrels, down 4% from the previous year and the lowest for late Oct since 2014. Energy supplies are tight.
- The US ethanol industry has benefited, from ethanol’s exposure to gasoline consumption (not stocks) which has buffered against total corn grind. Ethanol production in the week ending Oct 21 totalled a season-high 304 million gallons, vs. 298 million the previous week but down 7% from the same week in 2021. Recall ethanol stocks last year were abnormally low and plant revenue was an incredible $1.00-1.20/Bu above all costs. Margins are currently decent, but not overly exciting.
- The US$ is down a full 1%, and key is whether the index can hold major chart-based support at 109.5 this week. It is tough to be bearish the dollar given at least one more rate hike lies in the offing, but chart reversal confirmation will attract speculative raw material investment.
- The Australian weather forecast lacks additional soaking rain, but the GFS hints at unwanted totals of 0.50-1.50” across already waterlogged areas of Victoria and New South Wales Oct 31-Nov 2. Widespread crop damage is being reported from important areas of north-eastern NSW.
- The S American GFS weather forecast remains drier than the overnight EU solution as it has eliminated the chance of follow-up showers in eastern Argentine crop areas early next week. A lengthy period of dryness resumes in Argentina, with little/no rain indicated into Nov 10. The midday GFS forecast is also drier in Mato Grosso and Goias in Central Brazil. This will be monitored, but intermittent dryness for now is favourable to the completion of soybean seeding.