- HEADLINES: US weekly ethanol grind disappoints; US$ forms key reversal on the charts; Mississippi river level getting low.
- It has been a mixed morning in Chicago with wheat sharply higher and soybeans/soyoil sharply lower with corn caught in between. The selling in the soy complex has been tied to low Mississippi River levels (soaring barge costs) while traders are becoming confident that Russia will not renew the Ukraine export corridor in late November, which has bulled wheat.
- Spreaders are unwinding long soybean/short wheat and long corn/short wheat spreads. Seasonally, wheat prices tend to rise into Q4 before peaking. Key resistance rests above $9.25 basis December Chicago wheat. The US harvest is gaining speed across the Midwest with varied reports of yields being offered by producers. Amid the Bank of England that went back and added liquidity via new bond purchases to stabilise £Stg/equity markets, doubt is starting to develop whether the FED will need to raise rates too much beyond December. If true, this could produce a tradeable low in US/world equity markets.
- Chicago brokers estimate that funds have bought 4,600 contracts of wheat and 5,900 contracts of corn, while selling 2,400 contracts of soybeans. In the products, funds have sold 4,200 soyoil and 1,400 contracts of meal.
- We have noted that the Mississippi River flow is in sharp decline due to the ongoing dryness impacting the Missouri/Tennessee Valley Basins. Rain is needed to improve water flows, but the forecast offers limited rain into mid-October. As barge rates soar on demand due to lower draft levels (and the additional barges needed) to carry the same supply, the worry is that basis levels in the interior will be pressured. To assist the movement of grain to New Orleans, rail will take on additional tonnage, but there is a limit. We suggest watching barge rates and Mississippi River flows closely.
- The US weekly ethanol grind continued to decline on poor margins and weaker US gasoline demand. Last week the US produced 251 million gallons of ethanol, down 6% from last year and down 14 million gallons from last week. Weekly US gasoline consumption fell 6% vs. last year, a concerning trend. Seasonally, the US ethanol grind should start to increase in early October. We would maintain that WASDE is too high in its 2022/23 ethanol grind forecast by 50-75 million bu.
- The midday GFS weather forecast is consistent with Hurricane Ian to come ashore as a strong category 4 storm with wind gusts over 150 MPH. Ian then slows its forward progress as it dumps flooding rain of 12-24” across Central Florida. Ian will re-emerge in the Atlantic as a tropical storm on Friday. Soaking rainfall of 5-10+” impacts the SE US with wind gusts of 30-40 MPH. The rain could cause lodging of any mature/unharvested crops.
- The Central US holds in a dry weather trend with warming temperatures after another night of cool temperatures and frosty low 30’s across the Upper Lake States. We do not see a good chance of rain for the next 10 days. Corn/soy harvests will go uninterrupted into mid-October.
- The US$ has formed a reversal high which is helping to rally US financial markets. The DOW is up 430 points with crude oil up nearly $3.00/barrel. The NASS September Stocks/Small Grain Report will be released on Friday with the industry looking for only a modest decline in stocks from the September WASDE forecast. November soybeans have nearly reached our downside price target while December corn should hold support at $6.60. The closing of the Ukraine export corridor should be more bullish of corn than wheat.