- HEADLINES: Chicago grains rally on reversal in the financial markets; Russia to place restrictions on corridor exports; US dry trend to persist.
- Chicago futures are following the financial market rally as traders understand that the next measure of US inflation is 30 days away. The US Labor Dept reported a September US inflation rate of 8.2% this morning, down just 0.1% from August which is sure to push the FOMC to raise interest rates by 0.75% in early November. The DOW fell by over 500 points and the US$ rallied sharply, only to reverse these trends by mid-morning.
- At midday the DOW is up 655 points, crude oil is up $1.61/barrel at $88.89 while the US$ declines on profit taking. We find no single statement as to the rationale behind the rally, other than profit taking as traders try to measure peak Central Bank hawkishness. Said another way, how many additional rate hikes are ahead.
- We look for a mixed close with the US weekly export sales report to be released on Friday. We anticipate another week of tepid sales amid the non-competitive position of US corn/wheat. US soybean sales could be larger due to the absence of S American offers, but the window for US export opportunity closes by mid-December as most buyers will wait for cheaper Brazilian supplies from mid-January onward.
- Reuters reported that Russia is asking for restrictions on the Ukraine grain export corridor beyond November 22, the end of the current agreement. The Russian demand is that Turkey broker that Ukraine seaport grain is sold to poor nations in need, not the EU/NATO members. The UN told Russia in June/July that the reason for opening the corridor is to prevent African starvation. We would note that once the Ukraine grain gets past Istanbul, there are no policing of whether a poor nation sells it to a developed nation at a profit.
- US ethanol production is seasonally rebounding but holding well below last year. The US produced 274 million gallons of ethanol, down a hefty 10% from last year. US gasoline consumption continues to sag amid high prices and slowing economic activity.
- US weekly gasoline consumption was down 10% to 8.28 million barrels daily. The slower gasoline consumption pattern appears to be locking in through late year. US ethanol stocks at 918 million gallons are up 10% vs a year ago.
- The midday GFS weather forecast is drier than the overnight run for the southern quarter of the US with diminished rain chances into late October. The remainder of the Central US holds in an arid weather trend. Temperatures will hold at below normal levels for the next 10 days with snow possible around the Lakes. The dry/cold forecast will not help the flow of the Mississippi River with new draft restrictions likely by the end of October. Plains HRW wheat struggles amid the ongoing deepening drought.
- It is a macro day where raw material markets follow the value of the US$. The stock market’s rally and the dollar’s decline sparked Chicago short covering. FAS will release its weekly export sales report tomorrow. The report’s data will be so skinny on US grain sales, a pace that is starting to become worrisome. December corn does not currently belong above $7.10 or November soybeans above $14.25. And Russian wheat stays cheap which caps US wheat rallies.