- HEADLINES: Row crops correct on lack of fresh demand, Turnaround in crude.
- Chicago futures are mixed at midday, with US/European wheat values able to sustain overnight strength while row crops languish amid a lack of fresh demand news. We see the biggest threat to recent escalating Black Sea tensions as cantered on Russian wheat shipments, due to sanctions/logistical issues, but it remains that the US market must see and feel an adjustment in global grain flows. This has not yet been the case in corn and soybeans as S American and Ukrainian basis trades steady to lower week on week.
- Ukrainian corn for Oct-Nov delivery remains offered at/below Chicago futures, with Brazilian fob bids down $0.10/bu from mid-September. In fact, the spread between US and S American corn has widened slightly this week and Thursday’s export sales will be lacklustre across the board. We note that corn sales must average 35 million bu over the next 12 months to meet the USDA’s target.
- US soybean sales must average 33-36 million bu prior the arrival of Brazil’s harvest in early February. Fresh demand was absent from FAS’s daily reporting system this morning.
- The US$ index has rallied another 800 points to a new 20-year high. Slowing economic growth is being exacerbated by rising costs of grain/oilseed in importers’ domestic currencies. Assuming the Fed raises benchmark rates another 1-2 times after today, capital will continue to flow into the US$.
- US ethanol production through the week ending Sep 16 totalled 265 million gallons, vs. 283 million the previous week and down 3% from the same week a year ago. It is far too early to measure weekly output against the USDA’s annual projected grind, but amid eroding gasoline use and large ethanol stocks, the urgency to boost production is far less than it was a year ago. US gasoline disappearance last week was 8.32 million barrels per day, the lowest since early July and down 6% year on year. Additionally, the US released yet another 7 million barrels of crude from the strategic reserve, with crude stocks outside the reserve up 4% from last year. Spot WTI crude at midday is flat and $3.40/barrel off morning highs. The US must eventually replace reserve crude stocks, but amid offsetting weakness in demand, we doubt spot crude trades outside of a range of $80-90/barrel into winter.
- The midday GFS weather forecast is slightly further west with a Gulf tropical storm Sep 30-Oct 3. Assuming the forecast is correct, flooding rainfall will impact AL and the Southeast in the 11–15-day period. Confidence in details so far out is low, but the arrival of the season’s first major tropical event is probable, and the path of this storm must be monitored closely. The GFS forecast today implies ag/energy will be spared but that the model has shifted this storm increasingly westward is noteworthy.
- Otherwise, cooler temperatures but a near complete lack of rainfall are offered to the Plains and Midwest throughout the next 10 days. Harvest accelerates next week.
- Corrections will find support in the near term as important questions surrounding US yield and Black Sea grain availability will go unanswered until early/mid-October. Rallies will be rewarded as negative macro input is beginning to spill into physical ag supply and demand. We reiterate that the key difference between this market and that of 2020-2021 is the lack of major demand driver.