- HEADLINES: US wheat rallies on Chinese demand confirmation; Group 3 soybean yields awaited; GFS weather forecast drier across S America next 10 days.
- Chicago grain markets are mixed at midday. Soy futures are lower on the accelerating Midwest harvest while funds are in their final stages of liquidating stale market length. Wheat futures are higher on news that the US sold 4 cargoes of SRW wheat to China (hearing additional quantities working) while Chicago corn is pinned between the two with harvest to dramatically pick up next week as soybean harvest advances and farmers switch back to cutting corn.
- Seasonal lows tend to be formed next week in soybeans with fund managers aware that international weather for wheat/soybeans is far from ideal. East Central Brazil will receive flooding rain while soils are rapidly drying across Argentina and Northern Brazil. We look for a mixed settlement today with soybeans to form a bottom either today or by early Wednesday. China should return late week with several days of pricing that has worked in their favour amid the Chicago decline. Pre-report positioning is expected next week with debates raging as to whether the US corn yield falls in the range of 170-176 bushels/acre and soybeans at 48.5-51.0 bushels/acre. Yield data that we hear paints a yield on the lower end of these trade estimates.
- Chicago brokers estimate that funds have sold 5,400 contracts of soybeans and 3,900 contracts of corn, while buying 2,300 contracts of Chicago wheat. Funds have sold 3,900 contracts of soymeal while being flat in soyoil.
- FAS/USDA confirmed that China booked 220,000 mt of US SRW wheat and 265,000 mt of US soybeans. US SRW fob wheat had become the cheapest in the world and China saw an opportunity. Remember that under a 2018 WTO ruling, China must secure nearly 10 million mt of world wheat to follow their 2001 entry agreement. China been active booking French wheat, but Friday’s sharp Chicago price fall allowed US Gulf wheat to enter that mix. It is important to note that the 8.1 million bu US SRW wheat sale was not in the WASDE annual export grid. A sale of 500,000 mt US wheat (SRW/SWW mixed) would be 18.4 million bu and with 2023/24 US wheat exports at 135 million bu, such a sale ends up as being 14% of projected annual trade. The point is that US SRW wheat (spot Chicago futures) is cheap enough to encourage Chinese demand and likely bottom the Gulf fob market. A year ago, China booked 7.6 million mt of Australian wheat which is not available this year due to their drought. This leaves China looking to the EU/US and Black Sea wheat in the coming months for December forward shipment.
- EU wheat exports through September 30 stood at 7.4 million mt vs 9.8 million last year. The 2.4 million mt of reduced EU trade from July-October is based on last year’s strong start of the EU wheat export program before the Black Sea Grain Corridor Deal was signed in mid-July. We look for EU wheat exports to slowly increase in the months ahead (relative to last year) which makes the WASDE 37.50 million mt still too high by 1-2 million, with a total of 34.50-36.0 million mt closer to the right forecast with three quarters of the crop year remaining.
- US market analysts await Group 3 soybean yield results. The group 3 soybean harvest should start this weekend. Group 3 soybeans represent more than 30% of the US soy crop and they would be most impacted by the September (Midwest) heat/dryness due to their delayed maturation. We continue to maintain that there is great variability, but overall Midwest soybean yields are coming in below last year via small seed size.
- The midday GFS weather forecast is like the overnight run with limited Central US rainfall. The best Midwest rain looks to drop across from later today through Friday with totals of 0.1-0.9”. Thereafter, an extended period of dry weather follows which should allow the harvest to actively resume. Much cooler temperatures will occur from Thursday onward with highs retreating to the 50’s and 60’s with frost possible across N Wisconsin and N Minnesota this weekend. Next week appears to be largely dry for harvest.
- The flow of funds is dramatically reduced today which has sparked the Chicago price fall. The Midwest harvest is quickly advancing with 50% soybean progress to be reached sometime next week. There is plenty of time for cash sales on coming S American weather scares. And the Argentine Presidential election is Oct 19.