- HEADLINES: Chicago corn holds the 50-day moving average at $5.33 and tests 100 day at $5.465; Cash ethanol rallies offering demand hope; US/China talk overnight Tuesday.
- Chicago futures are higher at midday with corn leaping to fresh weekly highs while soybeans/wheat follow. The corn rally appears to be related to strengthening US ethanol prices amid the ongoing advance in world energy prices. Cash ethanol values rallied 7-9 cents/gallon this morning which translated back into firming grind margins and new buying of Chicago corn futures. Wheat and soybean futures followed corn gains. Chicago oats scored new historic highs at $7.15/bu while Minneapolis wheat rallied to fresh contract highs at $10.4675 amid the fear of Canadian grain production shortfalls. The Chicago grain rally has been strong with December corn now trading at the 100-day moving average at $5.465. A close above this level would encourage a rally to $5.50 to see if the market could spur some cash connected selling.
- The US State Dept confirmed that the US/China held high level diplomatic meetings overnight including Janet Yellen, the Chair of the US Central Bank and China’s Vice Premier Liu He. The call was the second in the past 4 months with both sides pledging to work more closely together regarding macroeconomic policies and to broaden communications.
- US/Chinese relations received a boost back in a September phone call between the country’s two presidents. While the tone of Tuesday’s joint diplomatic meeting improved, the details of the discussions are lacking including any progress on trade. It is Chinese demand for US ag goods that will be highly important in the weeks ahead as the US/China Phase One agreement will be expiring on December 31. Can a new trade deal be cut for 2022-2024.
- We would note that China is well behind on Year two ag/energy purchase commitments. Whether China steps forward with new purchases that will be shipped in early 2022 will be closely monitored. Cash traders widely rumoured that China’s state buyer Sinograin was a buyer of US PNW March soybeans yesterday. Most assume that these soybeans will be heading to China’s reserve for future use since PNW fob offers are above S America.
- Chinese feed prices have been rising sharply in recent days, even as their farmers gather a record corn harvest. Dalian corn futures rallied to $10.325/bu overnight. The early start of Chinese wheat auctions and rising domestic corn values has caught the attention of world grain traders. Debate is rekindled over Chinese feed grain stocks and whether China will be a large importer of grain in the months ahead. China imported 29 million mt of world corn in 2020/21. Traders are raising their estimates of 2021/22 Chinese corn imports due to rising Chinese domestic prices and import margin. We have no indication that China is a corn buyer on today’s Chicago rally, but the widening spread does have US exporters talking more favourably about the potential for future demand.
- The midday GFS weather forecast is wetter than the overnight run by adding rain to the E Plains, Midwest, and Delta later this week. Rainfall of 0.5-2.00” is due from Wednesday into Saturday. A drier pattern returns late in the coming weekend, but the corn/soy harvest will likely be delayed into mid/late November east of the Mississippi River amid saturated soils and cool temperatures that will limit drying. Firming soils should support heavy equipment sometime after November 7.
- The midday GFS forecast keeps intact needed rainfall in Argentina in the 6–10-day period, while a favourable mix of rain and sun continues across Central and Northern Brazil. The S American weather forecast is improving for crops.
- Rising energy values and inflation are in the background of Chicago prices which produces buying on breaks. Hedge fund managers see corn as being a proxy for rising fertiliser prices on a long-term basis. Margins for ethanol producers and soybean crushers are near record highs. US weekly ethanol production is expected to be near a record high on Wednesday. The market will endure dips, but a seasonal rally is underway that should top in early 2022. March corn futures should rise above $6.00 for a winter seasonal high.