- Chicago futures are strong at midday with only a moderate decline from the opening high. Volume and fund buying are active with corn, soybeans and wheat each scoring a new rally high. November soybean futures have reached $10.5975, December corn $3.92, with December Chicago wheat at $6.115. In the case of wheat, this is the best level for a spot CME wheat future since 2015.
- The big question for traders is whether USDA’s October Crop Report will offer fresh bullish data to accelerate the bull run. The unknown of a major monthly crop report will likely cause some profit taking into Friday. Some selling near the close is expected, but it is important to point out that Chicago corn/soy have been able to rally this week during the heart of the 2020 harvest.
- Chicago market volatility will stay elevated for months to come. The declining US soybean stocks profile for 2020/21 along with the SW Russian drought has changed the landscape. Funds are holding a record or near record long US ag futures position which amid a world energy market that is over supplied looks to produce big rallies/big declines leading up into 2021. We should be prepared for a wild swinging marketplace for weeks to come.
- Chicago brokers estimate that funds have bought 9,000 contracts of corn, 9,300 contracts of soybeans, and 6,100 contracts of wheat. In the products, funds have bought 1,200 contracts of soyoil and 5,500 contracts of soymeal. We calculate that funds hold a 280,000 net long soybean position which is 30,000 contracts above the prior record set in 2012 amid a dire Midwest drought. Futures peaked in late August just below $18.00/bu.
- We understand that China booked 8 cargoes of US soybeans for Dec-Jan overnight. There are no offers of new crop soybeans from Brazil until February. The China normally takes 6.5-8.0 million mt of soybeans in January, so additional booking of US soybeans is why we raised our 2020/21 US soybean export estimate by 100 million bu to 2,275 million bu. This has dropped US 2020/21 soybean end stocks to 280 million bu which makes Friday’s report critical.
- US weekly ethanol production rose to 271 million gallons vs 259 million last week. The 4% decline in production is in line with the WASDE annual forecast. US ethanol stocks fell to 826 million gallons, down 1 million from the prior week and the lowest stock level in over 8 years. Stocks in the Gulf fell sharply but rebounded in the East Coast and Midwest. US blender demand remains soft on negative margins vs unleaded gasoline.
- The midday weather forecast is like the overnight run. Limited rainfall is evident for the next 10 days (likely longer) with harvest operations to continue aggressively. Hurricane Delta makes landfall in WC LA and turn north and northeast on the weekend. Thankfully, the forecast is less wet than the overnight with rains of 1-3.50″. This rain will cause a 3-4 day slowdown in Delta harvest operations. No rain is forecast for the Plains with the 11-15 day period maintain this dry trend. The EU model is wetter for the Plains, but the US and Canadian models are not offering confirmation. Rains is needed across the Plains to germinate a newly seeded winter wheat crop.
- Funds are adding to existing net long positions in size. The money keeps coming and Chicago keeps pushing higher. However, we expect that there will be a pause in the flow of funds ahead of the USDA report. The one thing that is certain is with Chicago funds holding a record large net long and Chicago open interest being record large that market volatility is going to be extreme. This produces opportunity. Russian and S American weather determine when a top forms.