- Russia’s SovEcon has suggested that the 2017 record wheat harvest may well be a precursor to a second “bumper” crop in 2018 as a consequence of fast paced early plantings this autumn. A slow start to planting has been replaced with a much better pace, with 11.2 million ha planted as of Tuesday, which compares with 10.8 million has a year ago. SovEcon intimated that as much as a record 18.1 million ha could be planted this season. Clearly such an area could well weigh heavily upon prices, both locally and globally, assuming average weather conditions. The strong Russian planting area is driven largely by lower production costs, which in turn leaves growers in profit despite current low prices. SovEcon’s final word was that costs of production in Russia were “substantially lower than the rest of the world”, which should resonate loud in the ears of growers elsewhere.
- Early selling in November soybeans found good demand under the 100 day moving average, and soybeans traded up into late in the day to close two cents higher. In the soy product markets, meal end firm while liquidation kept soybean oil prices lower. US soybean cash basis has collapsed in the last week as harvest gains pace, with IL river bids up and down the state quoted as much as $.60/bu under. The Delta harvest is running well ahead of normal and good yields have kept the Gulf well supplied. Additionally, limited August rains have lowered river depths, restricting the tonnage that barges can haul and thus raising barge freight rates. Spot freight rates typically spike in late September as the harvest gets underway, and we note that forward offers are significantly cheaper. Exporters have noted exceptionally strong Chinese demand, and expect they will ship out a record number of beans in the first quarter. Our bet is for an early seasonal low in basis, with strong export demand to support Chicago soybean futures on breaks.
- Corn bucked off a stronger US$ and unchanged S American cash markets, and settled 1-2 cents higher. US yield data so far suggest NASS’s September estimate is relatively accurate, or at least within 1-3 bu of final. Export sales on Thursday will no doubt be unexcited. However, we have in recent days has mentioned that the US ethanol market is strong, and with wheat values rising, the burden on the global corn market to find demand is less intense than it was a year ago. Black Sea feed wheat this evening is up another $2/mt to $178 (vs. Gulf corn at $157), and note also that feed wheat’s seasonal trends points higher through Nov/Dec. S America will dominate world corn trade through late year, but it is becoming likely that the USDA is underestimating total corn trade. US ethanol production last week totalled 293 million gallons, down 11 million from the prior week but up 2 million on the same week in 2016. Ethanol stocks fell and, importantly, it appears that non-domestic ethanol disappearance remains strong. There is still no compelling argument for a major price move in either direction.
- Chicago wheat hit new six week highs amid positive technical considerations, and as world cash prices continue to inch higher. There’s also growing concern over SRW establishment in the US, particularly as short and long term outlooks trend drier across the C and E Midwest. Managed funds in Chicago are still short an estimated 70,000 contracts. Russian wheat offers rest at $191-193/mt into November, vs. $180/mt in late August. In the last six weeks Russian prices have rallied 6%; French & German offers in the same period are up 2-4%, and as demand is found in the Black Sea prices there are rising to match other world origins. Further upside exists into mid/late November. Do to overlook Australia’s massive premium to all other markets, and that a full 3-4 million mt of demand previously filled by Australia will be forced elsewhere, and, recall, Russian exports will be capped by logistical constraints. An overly bullish outlook requires adverse weather, but over time a test of $4.80, basis December Chicago, is projected barring major surprises in coming USDA reports.