Closing Comments; Tuesday, October 27th, 2020

Grains were the leaders early in today’s session, taking support from a strong cash market on corn and the low quality rating on the winter wheat crop. Soybeans were mixed to start but eventually moved to the positive side as well. Soybeans were pressured by improved global weather conditions, mainly in Brazil. Trade is again monitoring a hurricane in the US Gulf that will make landfall tomorrow afternoon. Damage from this is expected to be minimal, but it will still slow exports. There were no flash sales announced this morning which weighed on all contracts as did a drop in buying interest as the session progressed.

The initial condition rating on the US winter wheat crop was released yesterday with a surprisingly low number. Just 41% of the US winter wheat crop is rated as Good/Excellent compared to estimates for 45% to 48%. This compares to last year’s initial rating of 56% G/E and is 17 points under the average rating. At 41% the crop rating is the lowest since 1986. Thoughts are this number may improve next week though as rains move through the dry regions of the Plains.

Not only is trade monitoring the rating of the US wheat crop, but that in Brazil as well. Harvest is starting to progress in Brazil’s wheat crop and yields are well below normal. Some regions of the country claim production will be down 30% from last year due to the same drought conditions that delayed soybean planting. Typically Brazil imports half of its wheat needs from Argentina, but that country is also suffering from drought, so we could see elevated US exports as a result.

Brazil has seen its corn values climb to record levels in recent weeks. Corn in Brazil is now at the $7.00 per bushel level and nearly equal to the cost of US imports. This generates ideas that Brazil will soon be turning to the US for corn coverage. While possible, currency exchange rates may prevent sizable corn sales from happening. Buyers in Brazil are also showing concern over GMO content in US corn and what it may do to their domestic market.

Chinese interest remains a leading influence on soybean values. While China remains the United States’ leading soybean buyer, the United States is not China’s leading soybean source. In the month of September China imported a reported 9.8 million metric tons of soybeans. Of these, just 1.17 million metric tons originated from the US. This is a trend that has started to develop with the US providing China just enough soybeans to bridge the gap between South American harvests.

Another source of support the soy complex has had that is diminishing is drought in Brazil. Heavy rains have moved through South America in recent days helping replenish dry soils. This has allowed soybean planting to pick up the pace in Brazil with the major production state of Mato Grasso now reporting planting at 25%. While this is half the normal pace, and the slowest since 2015, sources in Brazil claim plantings may be at normal rates within the next few weeks.

Global weather on a whole has improved since a week ago. Not only has South America seen beneficial rains but so has the Black Sea and the dry US Plains. The question now is if this will benefit developing crops or simply prevent further losses. The most interest on US weather right now is on wheat as the crop heads into dormancy.

Domestic markets are starting to focus more on demand and less on production. This is especially the case on corn where we are again starting to see some doubt cast over future ethanol production given current market economics. Even if we do see ethanol usage decline it may not affect the market as much as some fear given the likely increase to feed demand given the larger livestock numbers. It is not out of the question that domestic demand on a whole could be underestimated.

RISK DISCLAIMER: The risk of loss in trading commodity futures and options is substantial. Before trading, you should carefully consider your financial position to determine if futures trading is appropriate. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results. The information contained in this report is believed to be reliable but is not guaranteed to accuracy or completeness by AgriVisor, LLC. This report is provided for informational purposes only and is not furnished for the purpose of, nor intended to be relied upon for specific trading in commodities herein named. This is not independent research and is provided as a service. As such, this is considered a solicitation.


Market Commentary provided by:

Karl Setzer Grain Commentary