- Chicago rallies on expanding Mid-East war; Iran reportedly launches missile at Israel; GFS weather forecast stays wet in Brazil after Oct 9.
- Chicago ag markets are higher at midday, with wheat pacing the rally on firming Russian cash prices, now quoted at $222/mt for Nov, vs. $218 previously, ongoing Black Sea drought and elevated concern over an expansion of Mid-East conflict. Spot WTI crude is up $3.10 at $71.25. Escalating tension between Israel and Lebanon/Iran is cited, with Iran reportedly launching missiles at Israel at midday. Dec Chicago corn touched its 100-day moving average while Dec Chicago wheat tested early Sep’s high of $5.98 before easing slightly. Grains have more easily found new buyers amid rising Black Sea premiums as, unlike in S America, a weather pattern shift in E Ukraine/S Russia is far less certain. We agree with the market in that wheat has the best fundamentally positive story between now and late winter.
- Exporters this morning sold 195,000 mt of corn and 120,000 mt of soybeans to unknown destinations for 2024/25 delivery.
- US corn export demand cooled in early Sep as the collision of rising Gulf premiums and eroding Argentine/Ukrainian basis provided steep competition into major Asian markets. We note US corn is more competitive Dec onward, which aligns with the need to slow Ukrainian/Russian export shipments following this season’s drought and reports of elevated toxin levels. Similarly elevated toxin levels are noted in Europe. Early corn yield data points to a higher national yield from USDA, but there is also evidence to support robust physical corn export disappearance in the Dec-Feb period. A change in world corn trade flows lies ahead beginning in Nov/Dec.
- Nov corn in Brazil is unchanged at $5.36. Spot canola in Canada has recovered nearly all losses experienced due to China’s anti-dumping probe. US soy crush margins are up sharply as Dec meal trades near $350, with margins in the cash market calculated at $3.00/bu.
- The S American weather forecast is consistent in keeping central and northern Brazil arid for another 7-8 days but allowing needed heavy showers to expand into Mato Grosso do Sul, Mato Grosso, and Goias thereafter. Confidence is increasing with the respect to the arrival of normal Brazilian rain in the second half of October.
- The midday GFS weather forecast is unchanged in the US. A pattern of complete dryness and normal/above normal temperatures lie in the offing through Oct 10, and probably beyond. The GFS forecast flirts with additional tropical storm activity in the eastern US Gulf Oct 6-7, but otherwise additional hurricane landfalls are not indicated. Rain is needed across the HRW Belt, but it is possible the US row crop harvest will be completely unobstructed over the next two weeks.
- Geopolitical risk is being added. We would caution that corn and wheat charts are nearing overbought levels, and as has been the case since Russia’s invasion of Ukraine in 2022, the market needs to see and feel a disruption to grain flows to sustain rallies. We maintain that corn/wheat outperform the soy complex amid coming rainfall in Brazil and Argentina, which keeps trend soy yields there intact.