- HEADLINES: Corn jumps on expanding ethanol production; Soy, wheat follow.
- Chicago futures are steady to higher at midday as the overnight break found end user buying interest and as input leans bullish. FAS’s daily export sales reporting system was void of new business, but EIA data this week is considerably bullish ethanol and corn prices. The market’s perception of US corn supply and demand is changing rapidly as near-record industrial use is becoming more likely. Corn has been the upside leader this morning, with soy and wheat following. Fundamentally based trading operations are increasingly using Chicago corn futures as a proxy/hedge against soaring fertiliser prices as the market must sustain profitable corn/wheat returns amid the need for US and global acreage expansion in 2022.
- US ethanol production in the week ending Oct 22 totalled 325 million gallons, up 3 million on the prior week and the second largest total for any week on record.
- Recall that weekly production must average only 295 million gallons to meet the USDA’s forecast, which increasingly appears to be upward of 200+ million bu too low. It is just tough to justify an annual ethanol grind number below 5,400 million bu amid tight energy stocks and highly profitable margins.
- Most importantly, ethanol stocks last week totalled 837 million gallons, down 7 million gallons from the previous week, with weekly US ethanol stocks/use at 5-month low. We estimate that the industry is now running at 97% of capacity and the industry must stay at 95-97% of capacity just to keep stocks stable. Blend use is perched at pre-Covid levels, while ethanol residual/export disappearance through late Oct is up 7% from last year. US crude stocks are down 13% from last year. Gasoline stocks are down 5%.
- Brazil’s shrinking corn export program should boost US corn exports 100-200 million bu above USDA’s forecast. Adding 200 million bu of additional industrial use and trimming national yield by just 1 bushels/acre pulls 2021/22 US corn end stocks down to just 1.1 billion bu. There will be limited tolerance for additional yield cuts in NASS’s Nov or Jan reports.
- Paris milling wheat futures have reversed, with December posting new contract highs for a fourth consecutive session. Close attention will be paid to heavy rainfall in eastern Australia, with two-week precipitation in New South Wales pegged at 3-5”. Aussie rain is now unwanted as harvest moves along. We would also note that vegetation health in Central Argentina remains well below last year.
- Egypt’s GASC secured a sizeable 360,0000 mt of Black Sea and Romanian wheat for early Dec arrival at an average fob price of $328 per tonne. Egypt last paid $320 per ton in early October.
- The midday GFS weather forecast is slightly wetter IL and IN into the weekend but is otherwise unchanged. Harvest stays challenged over the next 4-5 days, but the first half of November is void of additional meaningful rainfall outside of the far eastern Midwest. 3-day precipitation totals are projected in a range of 0.50-1.50” in IA, MO, IL, IN and OH.
- The midday GFS forecast is unchanged in S America. Needed rain falls across a majority of Argentine crop areas Sun-Tues. Brazilian soy areas face additional sizeable boosts in soil moisture over the next 10 days.
- Wheat and soy rallies have struggled to gain momentum amid ample US soy supplies and talk of wheat import financing difficulties. Yet, Egypt’s tender this week suggests major wheat importers are only covered through early autumn. Breaks in wheat encourage consumption. Corn demand potential is turning outright bullish, with Dec Chicago now firmly above all major moving averages.