- HEADLINES: Summer row crops sag on liquidation ahead of weekly export sales report and US rail strike; Wheat rallies on fund buying.
- Chicago futures are mixed at midday with the summer row crops sagging on the fast-approaching harvest and strong macroeconomic headwinds regarding demand. End users and importers are staying close bought on future needs with US domestic end users concerned by the pending US rail strike. The movement of ethanol and soy products would be greatly impacted if a rail strike lasted more than a few days. Traders worry that with harvest dead ahead, snarls of the supply chain add to future inflationary worry, with (even) higher interest rates the result later this year and through mid-2023.
- US interest rate futures are already digesting a US fed funds rate of 4.4-4.5% with talk that the US Central Bank may have to increase their lending rate above 5% in 2023 to cool wage and inflationary price pressures. We see demand as the future worry of CME grain/livestock markets. Future rallies will be tied to US grain supply shortfalls. This means that a top in Chicago should be scored between the September and October USDA crop reports.
- USDA will release their September Stocks in all positions report on the 30th with the October USDA crop report scheduled for October 12. Following October 12, it will be up to adverse S American weather to push Chicago values even higher with US export demand to be questioned with normal Brazilian weather. Please note that Argentine farmers can seed their first corn or soybean crops well into yearend, so the window is wide to get seed in the ground. We mention this since dryness is already impacting the area with soil moisture at its lowest level in 27 years, since 1995. The problem is that Argentine soil moisture and yield has limited or no correlation in the middle of September.
- The US PPI Report this morning showed that inflation likely reached a peak in July, but that it is not receding as fast as desired. Economists suggest that US inflation is being “sticky” which is why the US Central Bank keeps talking rates higher for longer to make sure that an embedded inflationary mentality does not go mainstream. The August PPI excluding food and energy was up 0.4% in August, not the decline that many market pundits were hoping for.
- US gasoline consumption as down 4%, an improvement from last week’s fall of 9%, but US gasoline consumption is not keeping up with last year’s usage pace, a sign of waning demand. US ethanol production fell to 283 million gallons.
- This week’s ethanol production was up 3% from last year. Amid all the plant maintenance planned for late September/October, we look for weekly production to fall near weekly gasoline consumption. We see the 2022/23 corn grind as falling below last year by 50-75 million bu due to sagging margins. The US Government has decided to refill the SPR (Strategic Petroleum Reserve) below $80/barrel, a big surprise!
- There was limited change in the GFS weather forecast with improving harvest conditions across the Central US. Some rain will fall across the S and C Plains, but amounts will be less than evaporation. There is no sign of a frost/freeze or a Gulf Hurricane into September 25. The time for cold weather damage is quickly passing for crops.
- Summer row crops are sagging as chart buying faded after the opening. The 100-day moving average crosses at $14.51 in November soybeans, a key level that acted to accelerate Monday’s rally. We fear that the Biden Administration nor Congress will halt the rail strike until the public outcry becomes too loud to ignore. It is ethanol and both soy products that would be the most adversely impacted heading into harvest. We hold a bearish short term Chicago view with initial downside price targets at $14.20-14.40 Nov soybeans and $6.60-6.70 Dec corn. KC wheat is higher on dry Plains weather forecasts and worry that if rail shipments stop, that HRW wheat feeding could return.