- HEADLINES: Chicago mixed awaiting USDA October crop report; Grain/soy spread unwind; Mississippi river worry deepens/China books US soybeans for December.
- Chicago grain futures are expectedly mixed at midday. Unwinding of the long grain/short soy spreads is occurring following the windfall gains of recent weeks as worry over a smaller US soybean and larger US corn yield circulates. And US/world financial markets are also trying to recover ahead of the key US CPI report on Thursday. The CPI report could be more important for US grain values than the October crop report in broad terms as will help define how much US bank lending rates will rise heading into 2023. There are considerable macro headwinds as the US inflation rate will decline from last month’s year on year change of 8.3%. However, the fall will be modest to 7.6-8.0% which is far from the target of a 2% inflation rate and stable world financial markets.
- Chicago brokers estimate that finds have sold 4,500 contracts of corn and 6,100 contracts of wheat, while buying 4,900 contracts of soybeans. In the products, funds have bought a net 1,200 contracts of soymeal and sold 1,900 contracts of soyoil. Amid the flow problems of the Mississippi River, traders are looking to buy the products and sell soybeans as crush margins are expected to contract.
- New US corn, soy and wheat export demand is abysmal. FOB soybean offers at the Gulf are sky high at $2.80/bu over for October, $2.40 over for November and $2.15 over for December. Even January 1-15 is offered at $1.95 over before the onset of the Northern Brazilian soybean harvest. The point is that buying US soybeans (even with the break in Chicago) is expensive for importers with freight costs rising. Brazilian soybeans for March are offered at just $0.20 over Chicago which means that there is a massive $2.00/bu to be made for waiting just a few months. The point with Brazilian fob corn cheaper by $1.00/bu vs. the US is that importers will only secure what they must from the US. Brazil is offering corn through January while new crop soybeans are available for export in LH of January. The US soybean export window is now down to 3 months.
- Chicago open interest rose sharply on Monday with wheat up 4,791 contracts, corn up 10,389 contracts and soybeans up 14,667 contracts. China’s return from holiday and pricing of prior soybean basis contracts was the rational for the big OI jump. US cash corn movement was said to be the best of the 2022 harvest.
- Russia is said that it was to drop its export quota amid all its supply. We look for WASDE to raise the 2022 Russian wheat crop size to 94-97 million mt tomorrow and to a final crop of 100 million due to record yields in Siberia. The problem is that new crop Russian winter wheat seeding is being delayed by excessive rain that could cause a seeding fall of 6-10% from 2021.
- China has purchased 3-4 cargoes of US soybeans for December from the Gulf and PNW today. China is filling in demand in December/January.
- The midday GFS weather forecast is slightly wetter for the E Midwest, but otherwise, an arid flow holds with limited rain for the Plains, W Midwest, and Mississippi River in the next 2 weeks. The Western US drought will deepen, and a displaced southern branch of the jet stream push rain chances into the E Midwest. Colder than normal temperatures will prevail with the 2022 US corn/soybean harvest pushing to a rapid conclusion. We remain concerned about Mississippi River flows amid the arid forecast .
- The USDA report looms with the supply driven bull market coming to an end following the October Crop report. Thereafter, it is demand that will key future Chicago price direction. We see no strong reason for corn to push above $7.20 December or January soybeans to push too far above $14.40 post report. It is future US export demand that troubles us amid the potential for a record large Brazilian crop. Selling Chicago rallies as the US Central Bank hikes rates and a US/world recession looms would seem a sensible strategy for now.