- Chicago trade is mixed at midday with corn futures lower while soybeans are higher with wheat caught in between. The volume of trade has been moderate to active as traders adjust positions ahead of the USDA October Crop Report and US/China trade negotiations that will start on Thursday. And traders await details of China’s offer to secure US ag goods and the response of the Trump Administration. Few, if any, have confidence on what President Trump will do.
- The uncertainty of Trump and USDA is causing traders to reduce trade risk and get to the sidelines. We agree with this risk reduction thinking but hope for a post report rally. Beyond S American weather woes, it is difficult to see how Chicago can sustain a recovery beyond the current fund short covering. US corn and wheat are not competitive in world markets and US 2019/20 exports need to be adjusted downwards. We see little or no evidence of a new demand driver that would create a bullish trend outside of loss of S American crop supplies due to weather.
- Chicago brokers estimate that funds have bought 6,300 contracts of soybeans, 3,200 contracts of corn and 1,200 contracts of wheat. In soy products, funds have bought 1,400 soymeal and sold 3,100 contracts of soyoil. If there is a supply worry over N Midwest cold weather, soyoil would be rising amid the reduced oil content and number of green beans in the crush mix. The overall loss of supply is due to Dakota snows, not the ending of the growing season that appears to be the driving fundamental force in recent days.
- Private estimates surrounding the coming cold/snowy weather has a crop loss range of; 10-25 million bu soybeans and 75-240 million bu of corn. The difficult aspect of assessing the N Plains and NW Midwest crop losses is will the extended growing season in the Central and E Midwest make up for some of the N Plains US yield reduction. No one will ever know, but the point is that the coming cold will not reduce the US crop enough to ignite a new bullish trend. And the loss estimates depend on the longevity of the snows and when combines can get back to harvesting.
- US weekly ethanol production was 963,000 barrels per day or 283 million gallons for the week. This compares to 282 million gallons for last week. The production is the lowest of the past 3 years and below WASDE average needed for the first 5 weeks of the crop year. However, US ethanol stocks fell 891 million gallons vs 975 million gallons in the week prior, down 12%. The data is viewed as mixed, but we are concerned by the overall meagre grind rate for US ethanol producers.
- The midday GFS weather forecast is like the morning run but has lowered projected snowfall in ND and parts of SD to over 4-18”. Based on ground temperatures when the snows fall, we suspect that totals will be even less. A strong cold frontal pass will drop temperatures to 28-34 degrees across much of the Northern Plains and the NW Midwest. The growing season will end here, but unless temperatures decline to 24 degrees or below, crops will keep maturing for another 6-10 days. A drying and warmer weather pattern follows in the 8-15 day period that should allow for snowmelt and the harvest to resume. The rest of the Midwest will be frost free into October 18.
- This would not appear to be a point at which to turn bullish of corn and soybeans. We would see any post report rally as selling opportunities. December corn will struggle on rallies to $4.00-4.10 while November soybeans struggle on rallies above $9.40. If one wants to be more bullish it must be based on a S American drought in November or December. We see this Chicago rally as corrective.