- It has been a mixed trading session in Chicago with the grains weaker, while the soy complex is firmer. The rally in soymeal/soybeans surprised some traders, with China tariff talk still deeply entrenched. The volume of trade has been moderate with funds on the sell side of the grains as cooler temperatures favour corn, and historically high spring wheat condition ratings could produce a bearish supply surprise on Thursday. Traders are starting to understand that world soy demand is likely to rise at current depressed prices. Moreover, if China is willing to return their 25% tariffs to those impacted by US tariffs, China soybean demand could hold at USDA’s projected 103 million mt. Subsidising Chinese soybean importers/crushers and livestock feeders is not going to result in less demand. And China using its tariffs to subsidise its impacted ag industries is likely to prod the US Government to keep its promises and do the same for its farmers. Soymeal futures are rising as S American fob offers rise as their supply of old crop soybeans is in fast retreat due to strong export demand. The world has a shortage of soy crush capacity amid this year’s Argentine crop loss. And Brazil is unlikely to import large supplies of US soybeans amid big tax rates if the crush meal and oil is used internally.
- Brazil truck freight rates remain extremely high and there are only 4 Brazilian crush plants at port that can import US soybeans and re-export the products. Thus, some 200-250,000 mt of US soybeans can be imported in October/November or December, but larger totals are unlikely. CONAB slightly raised their estimate of 2018 soybean crop to a record 118.9 million mt while they lowered their total corn crop to 82.9 million mt. CONAB is expected to keep cutting its winter corn crop to 54-55 million mt amid the early poor yield trend due to persistent dryness. We anticipate final Brazilian corn production will reach 80-81 million mt which compares to the WASDE forecast of 85 million. We look for Brazil to export 25-26 million mt of corn in 2017/18 which is down 6 million from last year.
- Egypt’s GASC purchased 175,000 mt of Russian wheat in an overnight tender. GASC bought the wheat at fob prices ranging from $203.65-204.75. Freight ranged from $15.70-16.50/mt which equated back to $220.45-221.00 basis C&F. Other offers of Russian and Eastern European wheat were considerably higher. The Black Sea wheat markets do not appear to be following Chicago lower.
- There has been lots of discussion on CCC and what is their authority is to secure US soy/grain in the open market to counter tariffs imposed by China. CCC’s authority is to stabilise ag markets in extreme events. There is no doubt that this is an extreme event. But debate continues as to whether legislators need to get involved, discussions on this issue are ongoing.
- The midday GFS weather forecast is slightly drier through the weekend as a strong cold front pulls through the Plains and Midwest on Monday. The frontal pass breaks out showers/storms with rains of .25-2.50”. A low pressure trough across Manitoba compresses the ridge of high pressure southward, with some migration to the west. The best rains would fall across NE/IA and S MN early next week with totals to exceed 2.00”. Temperatures cool after Sunday in the west and all areas by Wednesday. The rains and cooler temperatures would be favourable for crops that have suffered through weeks of dry/hot weather. The rain ends late Tuesday with a drier weather profile offered into the end of the week. The extended range holds a trough across Central Canada that keeps any high pressure ridging across the Southern and Western US.
- The Central US weather forecast is improved with traders fearing a bearish USDA report on Thursday. The wheat market is suffering from rising US spring wheat production (expectations). President Trump is off to the EU/Russia and no one is expecting any change in US trade battles. It’s the market reaction post Thursday’s USDA report that will be key. However, rallies will be limited until US trade battles are settled.