- Chicago values are sharply higher at midday with rumours of fresh Chinese soybean purchases and another round of massive fund buying. The sharp Chicago rally comes as a surprise with the USDA October Crop Report due out on Friday. Normally in the gut slot of harvest, the marketplace would be more passive as cash pipelines are refilled as farmers sell soybeans off the combine. Yet, the record large US soybean open interest at over 1,015,000 contracts has everyone discussing another tranche of soybean demand from Chinese crushers that missed the September rally. These crushers need to cover December/January import needs. This is one reason why we have increased our 2020/21 soybean export estimate to 2,275 million bu.
- A record large US soybean loadout program in the Gulf along with a Cat 3 Hurricane in the Gulf that is targeting LA has the bears nervous. The storm could disrupt loadings for a few days and cause Delta farmers concern on what corn and soybeans remains to be cut. The US Gulf export program is record large and everything needs to work like clockwork to make sure that purchases are fulfilled. Traders will be closely watching the storm for signs that it could target NOLA on the weekend.
- Chicago brokers estimate that funds have bought 14,000 contracts of corn, 10,400 contracts of soybeans, and 7,400 contracts of wheat. In the products, funds have bought 6,200 contracts of soyoil and 6,700 contracts of soymeal. We calculate that funds are close to a 240,000 net long soybean position which is only 12,000 contracts from the 2012 Midwest drought high.
- Spot Chicago wheat futures (December) were able to rise above $6.00/bu for the first time since June of 2015, some 5 years ago. The rally is being spurred by ongoing dryness across European Russia which could cause farmers to slow or halt their winter wheat seeding effort. The world has a record supply of wheat, but the market is concerned about 2021 Black Sea wheat supplies and a shift in world trade to the EU and the US. The USDA is expected to increase their 2020 Russian wheat crop by 3-4 million mt to 81-82 million based on actual harvest data. USDA will not offer an estimate of 2021 Russian wheat production until May of 2021, some months into the future.
- The big unknown is what will Russian farmers do if they cannot plant winter wheat due to drought that extends into mid or late November. Sunseed, corn, and spring wheat appear to be the main options. Russian farmers are ready to give up on winter wheat with a few more weeks before cold temperatures slow germination. Our guess according to farm sources in the area is that Russian farmers will turn to sunseeds and corn as cropping alternatives. Thankfully, winter wheat planting is advancing in the Ukraine and Europe which could help fill the void of 5-15 million mt of lost production.
- US farmers are selling cash corn/soybeans on the rally with November soybean futures priced at an 8-cent premium to March. There is no financial reason why producers should store soybeans. A long call or futures position is cheaper than paying monthly storage.
- The USDA announced that 154,000 mt of soybeans was sold to unknown destination. The rumoured buyer is said to be Europe.
- Delta looks to become a dangerous Cat 4 or 5 hurricane in the Gulf that could wreak havoc across LA depending on where it makes landfall. The remains of the storm will carry up across the Delta with heavy rains of 2.5-5.00″. The Midwest weather forecast is devoid of rain through Monday. Showers are then forecast for NE/E KS and MO as a cold front sags southward boosting rain chance.
- Funds are adding to existing net long positions in the hope that China will return with new purchase orders following their weeklong holiday. The potential of China demand amid USDA October Crop Report and a dangerous Cat 4 or 5 Gulf hurricane pushed corn, wheat and soybeans to new rally highs, which triggered new chart-based buying. December corn is near resistance at $3.90 while SW Russian dryness has lifted Chicago wheat to $6.00. The next upside target in Nov soybeans is the early 2018 high at $10.71.