- HEADLINES: Market drop from session highs; US grain export demand stays lacklustre; US$ continues recovery.
- Chicago ag markets are firm but well off session highs, with wheat contracts at midday up only 15-30 cents, corn up 5-7 and soybeans near unchanged. We anticipated a dramatic initial reaction to Russia’s exit from the Black Sea corridor deal, with price determination in the days and weeks ahead becoming more measured. It has been learned since February that Russian wheat will drop to a price that finds some measure of demand, while the impact on the USDA’s global corn trade matrix will be muted given the low bar already set for Ukrainian exports. Recall Ukrainian corn exports in 2022/23 are pegged at 15.5 million mt, implying shipments of 1.3 million mt/month, which can be all but achieved if interior movement is allowed to continue. It is S American weather that will determine the world’s exportable row crop surpluses into summer/early autumn 2023.
- We doubt risk premium in corn and wheat can be fully extracted. Major vessel insurer Ascot has paused issuing coverage to Black Sea-bound vessels, thereby limiting Russian shipments to companies who own their own vessels for an indefinite time period. Ukrainian fob corn offers for Nov-Dec have disappeared. War in Ukraine remains a complex and disruptive issue, but the market remembers the lack of US corn and wheat export demand seen last spring and summer despite logistical issues in the Black Sea. High Gulf basis levels continue to work against maximising export sales and shipments.
- US export inspections through the week ending Oct 27 included 17 million bu of corn, vs. 19 million the previous week, 5 million bu of wheat, unchanged from the previous week, and 95 million bu of soybeans, vs. 107 million the prior week.
- For their respective crop years to date, the US has inspected for export 165 million bu of corn, down 23% from last year, 354 million bu of wheat, unchanged, and 375 million bu of soybeans, down 23%. Corn shipment data, like sales, points to a downward revision to annual US exports of 100 million bu in USDA’s Nov WASDE. We also expect the difference between official Census and FGIS exports to narrow amid this year’s lack of Canadian demand.
- The US dollar index has extended its overnight rally and has retraced 67% of last week’s collapse. It is almost assured that the Fed will hike benchmark US rates another 0.75% this week, but it is the US’s relative position in the world economy that is most supportive the US$.
- Weakness in currencies in Argentina, India, Turkey, and Egypt is unrelenting. Corn and wheat prices in domestic importer currencies continue to rise, and already corn and wheat trade is down noticeably from last year as of mid-October. Chicago wheat valued in Egyptian pounds is up 72% from Jan 1, which is comparable to $13.00/bu.
- The midday S American GFS weather forecast is slightly drier in West-Centre Brazil in the 11-15 day period than previously. Otherwise, near complete dryness lies ahead for Argentina into Nov 10, with only scattered showers offered to northern and western crop areas thereafter. Showers resume in Central Brazil beyond Nov 7-8, but closer attention will be paid to extended range guidance. Short-term dryness in Brazil is favourable following excessive rain in Parana and Mato Grosso do Sul, but regular showers will be needed in all areas in the second half of the month. Frost in S Brazil this week will trigger the need to replant soy, but this should not materially impact crop potential. Additionally, soy seeding dates in S Brazil are less important amid the lack of safrinha corn production there.
- This weekend’s disruption to the export corridor leans bullish grains, but coming wheat tender results and cash markets will determine upside potential. Unlike a year ago, bullish sentiment is tempered by global economic concerns, rising interest rates, and so far a lack of major crop threats in Brazil.