• HEADLINES: Sagging energy values tug Chicago lower in sympathy; US weekly ethanol grind jumps 7%; Oats at a record premium to corn at $0.65 over.

• Chicago futures opened strongly higher with brokers reporting a push of new money into the space. Corn, soybean, and wheat futures rallied until that fund inflow ended with values then settling back into the red. Wheat futures have held in the black awaiting the results from Egypt’s tender for November fob wheat. The fall in crude oil/natural gas futures, amid a strong US$ helped pull Chicago values off their highs. The US$ is back testing Monday’s yearly high. Whether the greenback can post a new high into the end of the week will help in keying longer term Chicago grain price direction.

• The Chicago oat/corn spread reached a record premium this morning at $0.6550/bu. Never have Chicago oats been priced more than $0.60 above the price of corn. The dire 2021 Canadian drought has produced a spot shortage of US oats with more than 9 months remaining before the next harvest. Oat values above a record $6.00/bu is trying to dissuade users to switch to other feedgrains.  Yet, whether it be oats or cotton, it is breath-taking how high a grain can rise amid a shortage. Oat end users are showing no willingness to switch to other grains. Traders will watch if Dec oats can close above $6.00 for the week.

• EU and world natural gas prices fell sharply on a comment from President Putin that Russia stood ready to stabilise world energy markets. The comment came amid record low EU gas stocks while long lines of consumers tried to fill their cars/trucks. Although Putin was short on details, the nod that Russia would provide more European natural gas helped calm nerves heading into the cold season. The Putin assurance also pressured WTI crude futures, which led to the selling in the bio crops of corn/soyoil.

• Weekly US ethanol production jumped a sharp 7% for the week ending October t to 978,000 barrels/day which would consume about 100.9 million bu of US corn on the week. The big jump was unexpected, but it showed that US ethanol producers were awaiting the new corn harvest to boost their runs. US weekly ethanol stocks fell 1.4% to 19.9 million barrels. The report was deemed as bullish as US ethanol producers react to fancy margins and low seasonal stockpiles. We maintain that amid the high price of crude and soaring margins of ethanol producers, that the USDA is understating the US 2021/22 corn grind by 50-100 million bu. US ethanol exports will soar based on current price relationships.

• Chicago brokers report that funds have sold 4,400 contracts of corn and 2,700 contracts of soybeans, while buying 4,200 contracts of wheat. In soy products, funds have sold 2,300 contracts of soyoil and bought 2,900 contracts of soymeal. When the fund buying slowed in soyoil, futures declined with crude. We note that Chicago soymeal open interest is soaring and up nearly 40,000 contracts since late September. End users see value in soymeal.

• The US weekly export sales report should produce solid sales numbers for US corn, soymeal, and wheat. US soybean sales will be tepid with China out on holiday through this evening. China will be returning from its week-long holiday on Thursday and they should start to boost US soybean purchases. Since the stocks report of last week, Gulf elevation costs and flat prices have fallen which has raised Chinese crush margins to deeply green levels.

• The midday GFS weather forecast is similarly dry across the S Plains with showers starting to break out across the N Plains and NW Midwest on Sunday. An above normal temperature pattern is forecast with highs in the 70’s/80’s. The warmth will continue to speed the harvest with any crop concern centred on the S Plains where dryness is forecast to deepen.

• The bull market in energies is correcting and pressured Chicago grains. The energy bull market is far from over and a worsening tightening of supplies likely lies ahead. China returns from holiday overnight, which should produce some pause in putting on fresh soybean shorts. Wheat is awaiting Egypt’s tender result while world fob offers rise. December corn has support below $5.30, and the NASS corn yield had better come in better than September next Tuesday. Chicago chops sideways until then.

• NASS reported that 59% of the US corn crop and 58% of the US soybean crop were rated good/excellent, the same as the week prior. 34% of the US soybean and 29% of the US corn crops are now harvested with NASS to halt condition ratings once 50% or more of the harvest is completed. We expect that both the US corn and soybean harvest should surpass 50% either late this week or sometime next week. The US farmer is actively pushing ahead with harvest amid warm/dry weather conditions. Normally (historically), harvest lows are formed by the Columbus Day holiday on Monday.

• Malaysian November palmoil futures rocketed 163 ringgits higher and closed at a NEW record high 4,855 RM/mt for a spot futures contract. The record large palm imports by India during September and faltering production outlook should elevate palmoil values well into early 2022. The new highs in canola, rapeseed and now palmoil futures has placed a peg of support under Chicago soyoil values.

• The USDA October Crop Report looms next Tuesday with the US corn/soybean harvest to be nearly 50% completed by then. US and Ukraine farmers are not selling newly harvested corn. We hold to a bullish view in the grains. Crude oil futures have just scored a fresh three year high with the next upside target at $80-84.00. A cold early winter across either Europe or N America could push crude oil to $90.00.

• Chicago futures are mixed at midday with the soy complex posting strong gains while corn/wheat relax on the unwinding of prior spread positions. Long wheat or corn against soybeans was a popular trade ahead of the September Stocks report. The position paid off handsomely, but the key question going forward is the October USDA crop report next week Tuesday (Oct 12) and what NASS will say on US corn and soybean yields.

• Current November soybean futures have dialled in a 51 bushels/acre plus yield and growing stocks. We would remind that soybean prices are a function of G3 (USA, Brazil & Argentina) soybean stocks and the price of corn. We expect that the price of corn will hold or even rally which will act to underpin the complex. Moreover, the rally to record highs in palmoil/canola oil along with the buildout of the US renewable diesel industry has produced a strong demand story for world vegoil prices in the months ahead.

• Yet, until the 2021 US soybean crop is better determined, the upside price target of $0.62-0.63/pound basis December soyoil should capture the upside price potential. A smaller US soybean crop would be seen as bullish, but with crush margins at some of their best levels in years and spot WTI crude oil futures targeting $80/barrel, it is all about soybean availability and boosting US crush rates. US soyoil export sales are at record lows, so it is all about domestic crush and renewable diesel demand.

• US cash corn basis bids keep climbing with reports of $0.37/bu over said to be paid for 2 week delivery corn in Central Illinois. Most posted Central Illinois bids are resting at $0.30-0.35 over with Cedar Rapids, IA paying $0.25 over. End users are concerned that with ethanol margins so strong, that they need to restock their supplies. In fact, ethanol, exporters, and feeders are all looking for additional cash corn movement and concerned that the pipeline may not be fully restocked by the end of harvest.

• Argentina has suspended new corn export licenses which stand at 38.6 million mt vs USDA estimate of 37.5 million for the 2020/21 crop year.

• The Argentine old crop corn export program is winding down, and with the Ukraine farmer waiting for their corn crop to dry down in extremely wet weather, the US corn market will soon become the default for importers. Brazilian corn offers are exceptionally limited with feed wheat trading above world corn. The outlook for US corn export demand is brightening.

• The midday GFS weather forecast is similarly dry across the Plains and slightly wetter across Illinois and Indiana in the coming 10 days. An above normal temperature pattern is forecast for the Central US with highs in the 70′s/80′s. The warmth will continue to speed the harvest with any concern cantered on the S Plains where dryness will be maintained.

• HEADLINES: USTR seeks new trade talks with China, no new revelations; Stonex crop estimates this afternoon.

• Chicago futures are mixed at midday with corn/Chicago wheat firmer with soybeans/KC wheat weaker. December oats did reach a new historic high this morning $6.05, exceeding the prior high set in 2014 at $6.00. Old time traders used to argue that oats were the bellwether for Chicago since it was a mostly commercial marketplace. We note vegoil markets and oats are testing historical highs, and price is reflecting ongoing strong demand for each. Demand rationing has become more difficult as supply chains are disrupted and end users lay down additional supply, just in case.

• Soy futures are weaker amid the ongoing harvest and reports of better than expected yields. Fund managers are entering short new positions that puts them long of grain and short of soybeans. However, soy product prices have not been falling as fast with key support for spot soymeal offered at $310-320/ton, a level where the bull market started last year. Chicago spot soymeal below $310.00 would appear cheap relative to other feedgrain prices. This meal price correlates with November soybeans finding solid support at $12-12.10. Beans are likely to keep leaking lower until the US harvest surpasses 50%.

• The US Gulf export corridor continues to recover with weekly exports of 88.4 million bu last week of all grains. We understand that 25-30% of the Gulf remains closed or is compromised by Hurricane Ida. In the coming weeks, we are hopeful that just 10% of capacity is offline.

• For the week ending September 30, the US exported 31.8 million bu of corn, 31.0 million bu of soybeans, and 22.5 million bu of wheat. We expect that in the coming weeks, US soybean exports should ramp up to 50-70 million bu/week with corn getting back closer to 40-50 million bu. The US has an estimated weekly export capacity of 147-152 million bu, so improved exports are expected. China did ship out 5.5 million bu of US corn and 13 million bu of soybeans.

• The USDA reported that Mexico purchased 426,800 mt of US corn. The sale is likely related to the cola bottling industry in Mexico and their locking down margins in the year ahead. The cola bottling industry often uses the midpoint of harvest to make longer term purchases.

• StoneX is expected to release their October yield estimates this afternoon. Back in September StoneX estimated the US corn yield at 177.5 bushels/acre with a soybean yield of 50.8 bushels/acre. An October corn yield above 176.0 or a soybean yield above 51.5 is needed to be bearish. StoneX forecasts final US corn and soybean yields, not what NASS will be saying on October 12.

• The midday GFS weather forecast is drier across the Plains and slightly wetter across the SW Midwest over the next 10 days. Any meaningful harvest delayed rainfall will drop across the SW Midwest and E Kansas. The remainder of the Plains stays arid which will slow wheat seeding and germination. An above normal temperature pattern is forecast for the Central US with highs in the 70′s/80′s. The warmth will continue to speed the harvest.

• The market is focused on building world demand for US grain with farmers holding off on corn sales in the US and Ukraine. Corn and wheat will remain the upside Chicago leaders while soy futures leak to a harvest low either right before or after the October 12 USDA report. China should return as an active buyer late week as their Golden Week Holiday ends Thursday. The Biden Admin new China trade initiative to press for trade talks and for them to fulfil their promises. This should produce enlarged buying by China into late 2021. China would like to enter into a Phase 2 agreement much like the Phase 1 if the US will gradually cut its tariffs.

• HEADLINES: NASS raises the 2020 soybean crop by 81 million bu bearish surprise; Wheat stocks bullish; Corn neutral.

• The September Stocks Report was deemed as mixed. US wheat and corn stocks data was viewed as neutral to slightly bullish, while the soybean data was bearish. US 2020/21 soybean stocks were well above market expectations at 256 million bu and this will drive Chicago price direction into today’s close. Grain/soy spreads should rally into the October NASS crop report.

• NASS estimated final 2020/21 corn end stocks at 1,236 million bu, which was 81 million bu larger than the pre report trade estimate, but 683 million bu less than last year. The final 2020/21 US corn stocks were 49 million bu larger than what the USDA was using in September.

• The 2020 corn production was revised down 71 million bu with FSA data indicating that yield should be dropped to 171.4 bushels/acre. The smaller 2020 yield has bullish implications for 2021 US corn yields.

• The Q4 US corn feed/residual total is estimated at 608 million bu which is slightly less than what USDA had forecast. The additional old crop corn bushels will not have a big impact on the 2021/22 US corn balance sheet with new crop yields falling well below NASS expectations. December corn has support under $5.20 with resistance above $6.00. We calculate 2020/21 US annual corn feed/residual use at 5,605 million bu, down from the USDA forecast at 5,725 million bu.

• The bearish shocker was NASS finding any additional 81 million bu of 2020/21 US soybean stocks. NASS adjusted 2020 US soybean production up 81 million bu to account for all the increase. The 2020 US soybean harvested yield was adjusted up by 0.8 bushels/acre to 51.0 bushels/acre with harvested area at 82.6 million acres. The US soybean production gain was one of the largest in years with prior stocks report not reflecting such a production gain. The increase was a bearish surprise.

• The extra old crop stocks and better than expected W Midwest soybean yields opens the market to downside price risk to $12.00 November. Chicago is holding support against $12.50 November currently. Chinese pricing is resting below the market, which is offering scale down support, but there is no doubt that the finding of extra old crop soybeans opens the market to additional downside price risk. We calculate the Q4 US soybean residual at a negative -78 million bu compared to a positive 10 million bu for the quarter last year.

• September stocks are known for US corn/soybeans. The demand driver of renewable diesel will offer scale down support in vegoil prices. However, the bearish soybean stocks could be compounded by the better-than-expected soy yields from the W Midwest. Soy futures will be the bearish drag on Chicago. There is $0.50-0.75/bu of downside price risk based on today’s September Stocks data. Corn/soy and wheat/soybean spreads should perform in the coming weeks.

Sep 1 US Stocks (million bu)

2019        2020         2021

Corn            2,221        1,919        1,236

Soybeans     909          525           256

Wheat          2,346        2,158        1,780

• NASS wheat data was released generally as expected but is viewed as bullish, nonetheless. Final US wheat production is pegged at 1,646 million bu, vs. NASS’s prior estimate of 1,697 million. Sep 1 US stocks totalled 1,780 million bu, down 378 million from last year. Jun-Aug wheat feed/residual is calculated at 256 million bu, the highest since 2016/17. This helps explain that rapid recovery in values during summer, as record low exporter stocks/use triggered to market to halt elevated feed use altogether. Total Jun-Aug US wheat consumption totalled 732 million bu, vs. 726 million last year and also the highest since 2016.

• The USDA in its Oct report will lower US wheat end stocks by 40-50 million bu, and the lack of the US market’s access to imports will assure 2021/22 US wheat end stocks at or below 560 million bu. Wheat retains its status as the global ag market’s bullish leader. We note that world futures followed the US higher, with newer highs scored in Europe at midday. USDA will also lower its wheat exporter stocks/use to a record low 12.5%, vs. 15.3% in 20/21, based on coming adjustments to US and Canadian balance sheets.

• The 2021/22 US soybean balance sheet has loosened immediately amid larger carryover stocks. Corn’s balance sheet remains tight and end stocks fall to pipeline minimum if yield is lowered just 2 bushels/acre in the Oct or Nov reports. Additionally, we look for end users to use this break in soybeans to add to autumn/winter supply coverage, with China still very short bought.

• HEADLINES: Chicago boosted by international markets; US crude oil stocks still very tight.

• Chicago ag markets are higher at midday as macro financial markets provide support. More importantly, international, and minor ag markets continue to provide bullish guidance for US corn, wheat and soybeans. It is clear an intense battle for acreage lies ahead, in the US and elsewhere, and this makes coming USDA data all the more important. There will be little tolerance for reduced US carryover or 2021 yields. Corn and soy futures today are trading fair value as determined by USDA balance sheets, but major changes are possible in the next 30 days. Disappointing US and Ukrainian corn yield data lingers in the background.

• Canadian and European rapeseed/canola markets are up sharply, with spot EU rapeseed finding new contract highs at $750 per ton. EU rapeseed has rallied a full 10% in the last 30 days and is now valued at a premium of $280 per ton (60%!) to spot Chicago soybeans. We maintain that world rapeseed and rapeseed oil users must simply go without supply this year due to crippling drought in Canada. Dec Chicago oats remain perched above $5.80, with Dec cotton finding a new 10-year high at $1.02 per pound.

• And Europe’s corn market has been one of the better performers during the month of September, with Nov MATIF corn finding newer contract highs this morning. Unwanted soaking rainfall of 2-4″ will impact France and western Germany Sun-Wed. This region accounts for roughly 30% of total EU corn production. Harvest in France is unlikely to surpass 10% complete in the next 10 days. Europe’s grain supply issue will stay intact until corn harvest is complete in November. A pattern of lingering rainfall is also being monitored across China’s Central Corn Belt. Rainfall there of 3-7″ over the next 10 days will at the least delay harvest.

• US ethanol production through the week ending Sep 24 totalled 269 million gallons, vs. 272 million the previous week. The lack of available old crop corn supplies has kept weekly grind rather deflated since late August. Yet, there remains a sizeable need for elevated production amid tight ethanol stocks. US gasoline disappearance last week was 9.4 million gallons per day, up 10% from the same week in 2019 and up 3% from 2019. Recall that work suggests gasoline use at/near pre-Covid levels requires an annual corn grind of 5.30 billion bushels, vs. USDA’s currently projected 5.35 billion. Corn’s demand outlook is bright.

• US crude oil stocks last Friday totalled 419 million barrels, up slightly on the previous week but down 15% from a year ago. Spot WTI crude at midday is up $0.05 per barrel at $75.30. Spot RBOB gasoline is now quoted at a $0.02 per gallon premium to Chicago ethanol. US ethanol also maintains a modest discount to Brazilian origin in the world marketplace.

• The midday GFS weather forecast is drier in IA and across the far Upper Midwest but is otherwise unchanged. Needed rainfall of 0.25-1.75″ will be spread across much of the US HRW Belt Thurs-Sun. This system expands into Delta region and eastern Midwest early next week. A temporary slowing of harvest occurs across the Delta, KY, TN, IL and IN but lasting delays are not indicated. A pattern of Central US warmth and dryness resumes Oct 5-10. Max temperatures today and tomorrow across the Plains and Western Midwest will reach into the low/mid-80s.

• Amid rapid harvesting in the US, final old crop corn and soy stocks and new crop production will be largely known in the next 10-15 days. Downside risk now hinges entirely upon NASS yield estimate, as otherwise seasonal price trends point upward, and international cash markets better reflect global stocks tightness. Any post-USDA weakness should be used to boost supply coverage further.

• HEADLINES: Macro weakness spills into ag markets; EPA uncertainty persists; Midwest weather forecast trends wetter.

• Chicago values are weaker at midday with corn, soybean and wheat futures failing on an early rally attempt. The soybean market has been the downside leader as China did not show up with fresh US purchases. US exporters have 48 hours to report sales, but the lack of sales sparked a round of early selling amid the advancing Midwest harvest.

• And crude oil futures turned lower (and corn appeared to follow crude to the downside). The DOW is off 500 points as worry over the US Government shutdown and debt limit hike rattles traders. The US 10-year note traded as high as 1.56% as Fed Chairman Powell indicated that Central Bank Bond purchases could be tapered as soon as November. The inflation bar has been reached for the Fed to start cutting back on its bond buying program. This rallied the US$ with the December futures contract at a new contract high. The financial headwinds and the coming September USDA report sparked Monday’s buyers to be Tuesday’s Chicago sellers. Support is offered in December corn below $5.31 while November soybean at $12.70, while KC December wheat should uncover demand below $7.05.

• The USDA reported the sale of 150,000 mt of US corn to Mexico. No Chinese soybean sales were noted, even with US exporters reporting fresh demand on Monday. We are hearing fresh interest from China on today’s weakness.

• Democratic Senators are calling on the Biden Administration to reverse their EPA position on cutting biofuel mandates from 2020-2022 as they argue that it would threaten the US farm economy. The OMB is scoring the cuts, with an announcement expected in October. The Senators argue that the cuts would undermine Biden Climate Change Initiative. The democratic House and Senate need to hold together in their vision for there to be any chance on passing the stack of legislation that is pending. Biden’s EPA may choose to further delay any announcement until after several key legislative votes occur.

• Argentina has approved Bioceres’ HB4 GMO wheat back in October of 2020 for production. However, as the harvest of the Argentine winter crop nears, importers and end users are objecting, with Argentina’s biggest wheat importer, Brazilian millers, claiming that they will not secure the GMO wheat. Other key world importers including North African countries are also reviewing their import policy knowing that a very small portion of the Argentine crop could contain GMO seed. USDA has Argentina exporting 13 million mt of wheat, so the countries that allow or reject GMO wheat seed will be important. We have no way of knowing how this all falls out, but it is something that everyone must follow. The world does not have the availability for widespread switching in 2021/22 amid tightening protein supplies in the EU and Black Sea.

• The midday GFS weather forecast has again shifted near-term rainfall eastward into the Central Plains and bulk of the Midwest. A pattern of moderate but lingering rainfall impacts this area Thurs-Sun, with accumulation pegged at 0.25-2.00″. Favoured areas will include the eastern Plains, AR, MO, IA and IL. The pace of corn/soy harvest slows in the near-term, but widespread dryness resumes Oct 4-8. Summer-like temperatures will be ongoing, with max highs to reach into the low 90s across the Plains today and tomorrow. Unfortunately, coming rainfall does not extend into E CO, W KS and W NE, but a majority of the US HRW Belt sees a rejuvenation in topsoil moisture.

• Potentially large adjustments to 2021/22 US corn and soy carryover, along with final US wheat production, are due in just 48 hours. Choppy, mediocre-volume trading occurs in the meantime. Work suggests odds are high that final 2021/22 stocks are trimmed, which along with positive seasonal price trends keeps our strategy of buying breaks intact.

• HEADLINES: This morning saw rising global energy values, which should add support to ag commodities; Russian wheat values rise for 11th consecutive week; Corn rallies to best daily gains since early August; China buys additional US soybeans; Golden Week Holiday.

• Sharply higher corn with wheat/soy values following are the Chicago market trend. Tightening cash markets (limited farmer selling) along with rumours that China may be looking to make large purchases of US soybeans/corn has lifted values. December corn is testing its 50-day moving average at $5.42 while the 100-day moving average rests at $5.52. November soybeans have tested the psychological $13.00 resistance while KC December wheat runs into selling above $7.25 on wetter weather forecasts for the S and C Plains. The USDA Stocks and Final Seeding report looms, but the thesis appears to be that corn/soy futures have scored their seasonal lows with disappointing harvest yields and limited farm selling offering support.

• China’s Golden Week Holiday starts on the weekend with China out for most of next week. This suggests that Chinese ag buying is likely to be concentrated in the days leading into Thursday’s USDA’s Stocks Report. FAS/USDA reported the sale of 334,000 mt of US soybeans to China in the 2021/22 crop year. This was the largest single purchase in over a month.

• The release of the CFO of Huawei was important in soothing the US/China political relationship. US exporters report that China may return the favour with the purchase of US ag goods including soybeans, meats and even corn. We hear that China did secure another 5-7 cargoes of US soybeans today for November forward. It is nearly impossible to find any fob/cif offers for October as Gulf elevations are sold out. Getting the closed Gulf exporters back online will be key in early October to making sure the US can fulfil the existing sales program.

• US export inspections for the week ending September 23 were; 20.4 million bu of corn, 16.2 million bu of soybeans, and 10.5 million bu of wheat. Slowly and surely the Gulf is coming out its Hurricane Ida mess. However, it will still be a few more weeks before US weekly exports reach back to 80-85% of the pre-Ida normal.

• US farmers are not selling the rally with merchandisers suggesting that it will take $5.50-5.60 December corn and $13.25 plus November soybeans before farmers engage in new cash sales. The lack of cash selling reflects disappointing yield trends with farmers using the market to boost revenue. Normally, in a double-digit corn rally, farmers would price new crop harvest.

• World energy prices are spiking higher (WTI crude oil reaches $75.73 basis November which is causing fertiliser exporters like China/Russia to restrict exports. SOE’s (State Owned Enterprises) in China were told to halt fertiliser (urea/phosphate) exports due to rising costs and tightening supplies. Worry over input costs is rising.

• The midday GFS weather forecast is drier across the W Plains, and wetter for the Midwest compared to the overnight run. The midday GFS forecast indicates that rain would miss the driest wheat areas of the HRW late this week. Above to much above normal temperatures are forecast to persist into mid-October. The Midwest rain come with winds which would cause some toppling of E Midwest corn.

• Someone wants to be long of corn. There is no one fundamental reason why corn is rising, but a host of them including positioning for Thursday’s Stocks report, lower than expected E Midwest corn yields, and the potential for a lower Ukraine corn crop (no larger than 36 million mt compared to the 39 million USDA September estimate). Also, China’s 2020/21 corn imports from all origins will be raised to 29-29.5 million mt with world stocks to decline a like amount. We have no idea on whether China will secure US corn as a payback from the weekend political thawing. A test of $5.45-5.50 December lies ahead with Thursday’s report then determining if the rally accelerates. Wheat and soybeans are trying to follow but lack their own leadership today.

• HEADLINES: Chicago mixed in slow volume ahead of active harvest weekend; Ukraine corn yields are disappointing.

• Chicago is mixed at midday in thin volume. Short betting traders are expecting pre hedge selling in corn ahead of an active weekend of Midwest harvest. The harvest is fast, but cash connected selling said to be limited, a surprise. Some cash corn is being sold in the Plains/Missouri, but otherwise, producers are storing or filling contracts which has forward cash bids firming. In fact, ethanol plants are starting to become more aggressive in future corn bids with their concern that harvest progress will reach past 50% in early October- and they have not booked their desired volumes. Amid the open/dry forecast, farmers are choosing to just push ahead on corn and then move to soybeans. Some IL and IN farmers will finish their corn harvest next week. Producers continue to report disappointing corn yields. Corn and soybean yield data points to a declining trend, it is a question of degree for the October report.

• Rising energy prices are also in the minds of traders as WTI crude has rallied to near $74.00 on tightening supplies and the coming cold season across the Northern Hemisphere. Coal values are at record prices in China and gas prices are at records in Europe. Comparatively, ethanol/biodiesel appear cheap, and funds are looking at what are the cheapest BTU units that can be purchased.

• It has been a very slow trade in Chicago to date. Funds have bought 2,200 contracts of wheat, 1,800 contracts of corn, and 1,100 contracts of soybeans. In soy products, funds have bought 3,100 contracts of soyoil while selling 1,200 contracts of soymeal. December soyoil is trading above its 20-day moving average with the next target being $0.6009, the 50 day average. Soyoil appears to be rising as being the primary feedstocks in biodiesel.

• It will be interesting to monitor the Chicago close in terms of pre hedging ahead of the harvest weekend. Most traders are positioning for this pre hedge, and if it does not develop, prices could rise on speculative short covering.

• China’s ban on crypto currencies, calling them illegal, no matter whether they are held on or offshore has pummelled the value of Bitcoin by 6% and other digital coins by as much as 8-12%. Although the announcement was only 4 hours ago, the market move has been swift as Chinese investors flee the asset. The fall in digital currencies is slightly bearish on raw material values.

• We would remind that China’s electrical shortages and the taking of several crush producers offline, can easily be made up by others. China has about 40% more crushers than they need which is always a bearish omen for margins. Thus, be careful with trying to determine how much (if any) Chinese soybean imports to reduce via their domestic energy shortage.

• Ukraine corn yields with 4% of the harvest completed are just 77.2 bushels/acre. The early Ukraine corn yield is slightly better than last year, but well below the 115 bushels/acre that the USDA is forecasting for the entire harvest. On average, corn yields rise in Ukraine as the harvest advances, but if yield does not start rising sharply in ensuing weeks, the USDA is overstating the 2021 Ukraine corn crop at 39 million mt with exports at 32 million. Amid the global shortage of feed, the size of the 2021 Ukraine corn crop is of real importance.

• The midday GFS weather forecast is wetter across the E Plains, and drier west compared to the overnight run. This would miss the driest wheat areas of the HRW. Above to much above normal temperatures are forecast to persist into mid-October.

• Low volume into an active harvest weekend is pressuring corn/soybean futures at midday. If the cash related hedge pressure does not surface before the close, a bounce will follow. It is the September Stocks report next week and whether the US Government can stay open which will key longer term direction. This week’s higher close in the “gut slot” of the Midwest harvest is impressive. Wheat/corn are favoured.

• HEADLINES: Wheat rises on demand talk while corn jumps on new fund cash inflows based on the cheapness of ethanol/crude oil values vs. coal/natural gas.

• Early selling uncovered consumer buying in corn/soyoil which has rallied Chicago values into the midday hour. Funds appear to be better buyers as chart patterns slowly start to turn to the upside. Wheat has been the upside leader amid rumours of Chinese buying of US wheat (told 1-3 cargoes) while US farmers have not been parting with much cash corn with an estimated 20% of the harvest completed through Friday. US farmers are making fast time in harvest, it is just that they are not willing to make new cash sales. Merchandisers report that farmers are targeting the $5.50 level basis December corn and $13.00 level in November soybeans for new sales. The lack of farm selling, and end user pricing has lifted Chicago values from early day lows.

• Goldman Sachs noted that they did not expect the US Central Bank to raise interest rates in 2022 and that its commodity head forecast $80 crude this winter with a chance of reaching $90 if the US winter was particularly cold. Natural gas, coal and a host of other energy products are soaring on a global basis. Chinese thermal coal prices have rallied sharply amid the political slowing of Australian coal due to their purchase of a nuclear submarine from the US. The US$ fell sharply on the “lower for longer” US interest rate outlook.

• Amid rising energy and wage values, and steady US interest rate outlook, the winds of inflation are blowing which will entice managed money to consider commodities into the beginning of 2022. Remember that Chicago open interest is at the lowest level since 2017 in terms of corn, soybeans, and wheat. The stage is set for additional managed money to look at Chicago as energy values are set to rise even more. Crude oil is the cheap energy today and stocks are expected to fall sharply in the weeks to come. This will make ethanol and corn look cheap on a comparative basis.

• The US sales in the week ending September 16 were 13.1 million bu of wheat, 14.7 million bu of corn, and 33.2 million bu of soybeans. This was the third week in a row that US corn sales were disappointing. For their crop years to date, the US has sold 396 million bu of wheat (down 99 million or 20%), 982 million bu of corn (up 93 million or 11%) and 852 million bu of soybeans (down 449 million or 34%). US corn export sales are the second largest on record, while US soybean sales are down and falling behind even more (relative to last year).

• The rise in world energy values should not be overlooked heading into winter. Chinese coal or EU gas prices are sitting at record highs, this will speed the story for renewables during 2022 to helping to balance out the supply chain. Chinese crushers worry that their power will be cut while hog producers are concerned about future meal supplies. Our point is that the energy bull story makes next week’s US September corn stocks and the October NASS corn yield estimate more important. There is no room for US corn supplies to fall.

• The midday GFS weather forecast is wetter across the N Plains, compared to the overnight run. The GFS forecast has added rain for late September and early October which would be ideal for planting Plains wheat. The EU model also hinted at increasing showers for the Plains but was less specific on amounts. Above to much above normal temperatures are forecast to continue into mid-October.

• New money appears to be coming at Chicago from hedge fund players as the sharp rise in natural gas, coal, fertiliser prices has attracted the attention of investors. The flow is just starting, but corn ethanol and crude oil are the cheap energy sources today. This is a big reversal of prior years and energy costs through winter will further hike the monetary demands of workers (wages). World wheat values are rising on tightening world supplies, but should needed rain fall across the Plains, a correction could ensue. Russian winter wheat areas have received some nice rains in the past week. We maintain that it is the September Stocks report that will determine the speed of the post harvest recovery.

• HEADLINES: Biofuel mandate report from Reuters hits bio-crop values; Chicago recovers on enlarged 2022 mandate; Russian cash wheat market firm.

• Chicago futures are mixed at midday following a failed morning rally in soyoil/corn, the biofuel crops. Wheat values are holding steadier on rumours that Russia may limit wheat exports to 1.6 million mt per month starting in January on a quota. No confirmation is offered, but this would drop 2021/22 Russian wheat exports below 30 million mt by our calculation. Therefore, wheat is holding when compared to the remainder of Chicago trade. Russian legislation allows for the tax and quotas should Russian wheat stocks/supplies be deemed as too limited. Details are awaited but the quota is another restriction on Russian grain trade.

• Reuters reported that EPA was mulling cuts in biofuel blending in a win for the US oil industry. We would note that the win for big oil is primarily based on sharply reduced prices of RINs and that compliance bars will be set lower. Note that with the 2020 year completed, and just 1 quarter left in 2021, such that the lower blending requirement will not have a noticeable impact on US ethanol or biodiesel demand. Reuters indicates that the EPA 2020 blending mandate will be set at 17.1 billion gallons with 2021 at 18.6 billion gallons. Both are lowered to account for reduced fuel demand due to the pandemic.

• Importantly, the biofuel mandate for calendar year 2022 was raised to 20.8 billion gallons. It is the 2022 mandate which is most important to US vegoil/soyoil demand/prices amid the growing demand for renewable diesel. Renewable diesel is not part of the EPA mandate program and to keep it near 21 billion gallons is longer term bullish to soyoil. OMB are said to be reviewing the EPA proposals with a final mandate announcement due later this month or in October. Just getting the industry to better understand the 2022 mandate is important along with getting rid of the headline risk that has plagued the US biofuel industry since 2019, the last time it was finalised. Chicago soyoil and corn futures have been raked over by headlines of reduced biodiesel blending for months, getting the mandate behind the market is considered a relief to traders.

• Weekly US ethanol production was 272 million gallons, down 3 million from last week, but up 2% from last year. US ethanol stocks roses million gallons to 845 million gallons while Americans consumed 8.9 million barrels of gasoline per day. This gas consumption rate was up 4% from last year, but down 5% from 2019. US ethanol production is expected to eclipse 2020/21 by at least 4% which will produce a corn use estimate of 5,250 million bu or more. American gasoline consumption is expected to hold 2% below 2020 into early next year.

• The forecast is wetter across the Plains and N Minnesota, compared to the overnight run. The GFS weather forecast has added rain for late September and early October which would be ideal for germinating Kansas wheat. The EU model also hinted at increasing showers for the Plains. Otherwise, the Midwest/Delta forecast is little changed with showers continuing across the E Midwest heading into the weekend.

• It is difficult to find European wheat or Ukraine corn offer in each’s FOB/CIF markets. The tightening of non-US supplies is being felt. Yet, as the US Gulf slowly comes back to into operation, weekly export sales will be low Thursday morning. And US corn/soybean loadings will be dull for another few weeks. Thankfully, Chicago is looking beyond the macro financial conditions of China’s Evergrande today, but the company will report Thursday if they have paid/missed a US$ denominated bond debt payment. We maintain a bullish outlook on wheat, corn and soyoil with soymeal to struggle on rallies. The 50-day moving average crosses at $5.435 December corn and $7.045 in KC December wheat. Funds are vulnerably short of Chicago wheat.