- A push to new highs in nearby corn/soybean futures did not follow through to the upside which has sparked profit taking with Chicago values retreating at midday. Corn/soybean futures are lower while wheat tries to hang in the green. There is an “air” of correction in the marketplace as speculators have trouble buying December corn at $4.20 and November soybeans close to $11.00. The risk vs. reward amid improving S American, US and Black Sea weather forecasts is not there with a major US election in a week. Fund managers are taking risk off the table, not adding it.
- That said, cash basis bids and nearby futures spreads are holding firm. December/March corn spread has traded at even money for most of the morning while November soybeans trade at 19.5 cent premium to March while December Chicago wheat trades at a 1 cent premium to March. Excluding KC wheat, the entire Chicago spread profile is inverted, something that has not been seen for years. Even the often dumped on Dec soyoil futures market (massive deliveries for years) is trading at a premium to March with cash soyoil values well above delivery.
- US end users have been caught short and booked along with the massive Chinese demand which more than absorbed the harvest pressure. The question going forward is whether the acute buying by China and domestic users will continue.
- Chicago brokers estimate that funds have bought 3,600 contracts of wheat, 4,100 contracts of corn, and 2,800 contracts of soybeans. In soybean products, funds have sold 2,100 contracts of soyoil and 3,500 contracts of soymeal. Midwest cash soymeal basis levels are weakening which is likely due to slowing domestic demand and some substitution of other products in the feed ration.
- FAS did not report any new daily sales on Tuesday. US exporters advise that Chinese demand for US corn/soybeans has really slowed down. China may have booked a cargo of US sorghum at $3.00 over ex the Texas Gulf. There has been a rather dramatic slowdown in Chinese demand for US soybeans and corn in the past 6 days.
- Rumours abound that Ukraine farmers are increasingly defaulting on prior cash corn sales contracts. A late season Ukraine drought looks to cut its corn crop to 29-31 million mt amid daily yield data. The smaller crop has rallied Ukraine interior corn prices with nearly 1 million mt of vessels waiting to load the new crop. Ukraine estimates that just over 55% of the corn crop has been harvested. The EU, China and North African nations are the primary buyers, which means that Ukraine cash grain middlemen are on the hook when a cash default occurs. Ukraine corn exports are seen at 24-24.5 million mt via a corn crop of 30 million.
- A daily chance of rain exists across Brazil with the best rains to start Friday and continue across N Brazil into early next week. Rainfall totals are estimated in range of 0.5-3.00″ and locally heavier amounts. The wet trend is maintained throughout next week. Portions of Mato Gross, Goias and Minas Gerais will receive over 4.00″ of rainfall in the next 10 days. Temperatures cool to the 70′s/80′s to 90′s with lows in the 50s/60s. The coming moisture is quickening the pace of corn and soybean planting throughout S America. Argentina and S Brazil received soaking rainfall last weekend.
- Hedge fund risk managers are wanting to reduce their market exposure heading into next Tuesday’s US election. Increasing volatility is expected depending on the US election results. Corn, soy and meal markets are technically overbought and in need of a correction. And China demand for US soybeans/grain has dramatically slowed in recent days. Amid improving S American and SW Russian weather, a correction could befall Chicago. However, until large S American crops are made, it is tough to be overly bearish. Any fund inspired correction in November could set up a buying opportunity.