• HEADLINES: Chicago corn rally continues amid fat ethanol margins; Soy and wheat struggle on supply; US yields in focus next week.

• Chicago futures are mixed at midday with corn the upside leader while wheat/soy futures lag. Funds have been buyers of corn/soyoil, but at a much slower pace than recent days. Normally, funds enter/exit markets in 3-day time horizons, and this is the third day of the corn rally. Starting next week, corn and the entire Chicago should endure some correction as the US supply comes back into focus. Next week, the trade will be back to measuring US yield with StoneX and Markit updating November yield forecasts. Soybean yields will rise with most expecting gains in corn based on harvested yield data. And US farmers should be able to return to harvest amid sunny/cool weather.

• The volume of Chicago trade has been much less than prior days. We note that corn open interest has surged nearly 30,000 contracts this week on speculative inflows from investors. Corn appears to be cheap when measured against crude oil as an energy source and this has not been lost on fund managers. Yet, December corn will struggle to rise above $5.70-5.80 resistance until the November USDA crop report is released. US ethanol export demand is strong as US ethanol plants run at near capacity levels.

• It has been ethanol margins and their need to secure cash corn that has rallied Chicago corn futures this week. At some point, the pressure on securing forward corn will subside as US ethanol plants have enough forward cash coverage. We cannot find any interest from China for US corn. Although the rally in Dalian has sparked rumours of buying, cash connected exporters report that China has been quiet with Mexico the primary export buyer.

• FAS reported that the US sold 279,415 mt of US corn to Mexico and 132,000 mt of US soybeans to an unknown destination. The soybean sale was likely completed late last week and held offshore until its announcement this morning. China did secure a few cargoes of Brazilian soybeans for November. Where the Brazilians are finding the soybeans is hard to understand unless last year’s harvest was understated.

• Chicago brokers estimate that funds have bought another 4,000 contracts of corn and 2,000 contracts of soyoil, while selling 1,800 contracts of wheat and being flat in soybeans. Volume is well down from average and only modest hedge pressure will be felt heading into the weekend.

• Australian wheat harvest data is pointing to record yields and a potentially larger crop. The Australians and Argentines will become more aggressive sellers of world wheat as their harvest starts to gather speed. The new S Hemisphere supply is welcome and could cause a correction in world wheat values as the new supply is digested.  Coming world wheat tenders should be filled by Argentina/Australia, but Russian exporters will also try to shove more wheat out the door before tax rates rise in several weeks’ time. The Moscow Exchange will be closed next week Friday, so it is 2 weeks when the next tax determination will be made.

• Cool/dry weather will be featured across the Central US over the next few weeks. The cold temperatures will slow drying rates, but at least the precipitation chances will be limited to the Southern Plains and the Gulf States. Harvest progress will be slow to restart, but improved conditions will be noted by mid next week. High temperatures will range from the 40’s to the lower 60’s with lows in the 20’s/30’s/40’s.

• US Ethanol margins have been the story of the week with corn surging to its highest price since mid-August at $5.75 March. Producer selling is sporadic and fund buying could lift March corn to $5.80-5.85 resistance. Soybeans will struggle amid its current abundance of supply while KC December wheat is fairly valued in a range of $7.50-8.00.

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