- HEADLINES: Morning rally fails as US$ scores newer high.
- Chicago futures are lower at midday as an early rally effort failed to find any bullish heart as the Midwest harvest shifts into a higher gear. Corn, soybean, and wheat futures are all lower at midday with investment funds staying on the short side of the marketplace. US equity markets tried to rally and then failed amid the bearish impact of last week’s US Central Bank interest rate hike. The worry remains one of a future recession and its impact on demand. Chicago remains very focussed on the value of the US$ and the cost that it imposes on world importers in their own currency. We look for a weak Chicago close with the macro financial trends in a bearish price trend.
- Chicago brokers estimate that funds have sold 3,200 contracts of wheat, 4,300 contracts of corn, and 4,900 contracts of soybeans. In the products, funds have sold 3,100 contracts of soyoil and 1,200 contracts of soymeal.
- US export inspections for the week ending September 22 were 18.0 million bu of corn, 9.4 million bu of soybeans and 19.1 million bu of wheat. All were below trade expectations.
- For their crop years to date, the US has exported 63.2 million bu of corn (up 11 million or 17%), 43.0 million bu of soybeans (up 6 million or 14%) and 395 million bu of wheat (up 2 million or 1%). It is far too early to make any crop year export conclusions, but new crop export pace is steady with last year.
- World trade in corn, soybean and wheat trade is down due to high prices and budgetary struggles. Some countries will need new IMF loans to boost import demand. The rising US$ is causing struggles to repay dollar denominated loans and pay for the rising cost of imported goods. In developing nations, the rising US$ adds to inflationary woes. This is the worry of economists in that the sharp rise in US interest rates only boosts inflationary pressures outside of the US, thereby making the Fed’s fight more difficult. Stagflation is a word that will get discussed more and more acutely.
- China will start its week-long autumn holiday on Saturday. Any fresh soybean demand during the holiday week will be limited. And Brazilian voters will be heading to the polls in early October to vote for Bolsonaro or Lula in their presidential vote. The Brazilian election will have a big impact on the value of the Real, and the future profits of farmers. Besides the ongoing war by Russia against Ukraine, world grain markets have much to monitor and discuss.
- The midday GFS weather forecast is wetter in the eastern Midwest Oct 5-7 but is otherwise similar to the morning run. Hurricane Ian makes landfall in FL on Thursday, and then travels north-eastward across Southeast/Southeast Coast through the weekend. Little/no rain is offered to the Central US in the next 10 days, with better rain chances offered to IN, OH and PA thereafter. The GFS forecast maintains a warmer temperature profile following the arrival of hurricane Ian. Harvest threats are lacking into the first full week of October.
- The sheer strength of the US$ index is impressive and unfortunately reflects a lack of confidence in emerging market economies due to inflation. While early, major crop trade data to date does imply some measure of demand contraction. There is no doubt global grain stocks will again be tight in 2022/23, but our thesis is cantered on the fact that further downward revisions to stocks are being offset by weak US exports. Supply-driven rallies into mid-autumn provide selling opportunities.