The grains put in another strong performance this week, but the gains did not come easy. The grains started the week off in a back and forth fashion but exploded to the plus side Wednesday, Oct. 7. The gains followed through into the start of Thursday’s session but all of the major markets faded into the red late in the day session and had wheat closing with sharp losses while corn and soybeans ended with small losses.
The market continued to have one eye on the Oct. 9 U.S. Department of Agriculture October Crop Production report. This report will bring the bullish stocks estimate from the Sept. 30 Quarterly Grain Stocks estimate into table form.
The markets also breathed a sigh of relief once President Donald Trump was released from the hospital late in the afternoon on Monday, Oct. 5. The market does not like uncertainty and with the president in the hospital, uncertainty was high. Just the fact that he was back in the White House has brought a bit of calm to the marketplace, especially the stock market.
Wheat started the week under a little pressure as the market tried to correct a slight overbought condition. But the fundamental picture continues to be friendly wheat. The U.S. Southern Plains, Russia, Ukraine and Argentina are all expected to see warm and dry conditions for the next 10 to 14 days. This will stress newly planted wheat and cause poor emergence. In addition, there is a concern that the newly planted wheat in the Black Sea region and the U.S. will not see significant growth before going into dormancy, which could increase the likelihood of winter kill.
In the Oct. 5 Crop Progress report, corn was reported to be 25% harvested, which was slightly below expectations and below the five-year average. That is helping to bring a little support to corn, as are the dry conditions in Brazil and Argentina. Planting progress is varied in South America with Brazil slightly behind their average pace (producers are holding off planting waiting for rain) while Argentina is slightly ahead of average. Corn’s crop rating did improve 1% but at this point conditions are not as important as harvest progress and actual yield reports.
Soybean’s harvest progress was estimated at 38% complete, which is ahead of both the five-year average (by 10%) and expectations. Producers remember last year and with the current U.S. forecast calling for warm, dry conditions for the next 10 days to two weeks, producers are going to concentrate on wrapping up soybean harvest before adverse weather returns. What is interesting, soybeans crop condition rating was left unchanged, while most of the major producing states saw conditions improve. One would have expected overall conditions to also improve (Illinois +3%, Indiana +3%, Iowa +2%, Minnesota +2%, Nebraska +2%, South Dakota +2%). North Dakota and Ohio did see declines of 1% and 2% respectively.
The market had been preparing for what is expected to be a friendly Crop Production report on Oct. 9. This report will have to deal with the stocks estimates from the Sept. 30 Quarterly Grain Stocks estimate. That report lowed U.S. stocks for corn (225 million bushels) and soybeans (53 million bushels). It will be interesting how USDA handles the lower stocks estimate. Most were looking for USDA to adjust the old crop residual category to make up for the lost bushels, but it is more likely USDA will increase corn feed demand 100 million bushels and ignore the other 120 million bushels, calling those bushels normal anomalies. For soybeans, look for USDA to make a slight adjustment to residual.
Wheat continues to see most of its strength from dry conditions in the U.S. Southern Plains, the Black Sea region, and Argentina. U.S. wheat demand continues to be average at best, so the rally is entirely due to production concerns. That being said, Japan bought 118,428 metric tons of wheat from the U.S., Australia, and Canada earlier in the week. In a surprising move, Argentina’s government has approved its first GMO wheat, which has a drought-tolerant gene.
After 18 weeks, wheat shipments were at 37% of USDA’s expectations versus 34% last year and sales are at 55% of expectations versus 51% last year. Technically, Chicago hit highs not seen since October 2018 and Kansas City traded to highs not seen since June 2019. Minneapolis continues to trade in the middle of their recent range.
Corn saw a strong push this past week, off the backs of the strong wheat complex. Demand for corn continues to be strong, but not to the degree of soybeans. This past week, the only reported export sale was to Mexico (160,000 metric tons). After five weeks, corn shipments were at 6% of USDA’s expectations versus 5% last year while sales are at 44% of expectations versus 22% last year. To date, China has bought 10 million metric tons of U.S. corn versus 59,000 metric tons last year.
On the world front, Argentina is estimating planting progress at 19% complete versus 15% last year. Brazil is reporting planting progress at 37% complete versus 31% average. Brazilian officials are estimating 2021 corn production at 105.2 million metric tons versus 102.5 million metric tons last year. Ukraine officials once again lowered their potential corn crop 2.3 million metric tons to 31.7 million metric tons. That makes the decline over the past two months a total of 7.2 million metric tons.
Last week’s ethanol production estimate was friendly to corn, coming in at 923,000 barrels per day, up 42,000 barrels from the previous month. Stocks were estimated at 19.672 million barrels, a decrease of 19,000 barrels from the previous week.
Dry conditions in Brazil and strong U.S. demand continue to be the main drivers in the soybean complex. Soybean planting has begun in the Mato Grosso region of Brazil with planting currently at 1.7% complete versus 9.6% average (slow planting due to dry conditions). In all, Brazil’s soybean planting pace is at the slowest pace since 2008. The slow planting pace has the U.S. ag attaché in Brazil lowering the new crop estimate by 2 million metric tons to 131 million metric tons while Agroconsult raised its estimate 800,000 metric tons to 133.4 million metric tons. CONAB estimates Brazil’s new crop soybean production at 133.7 million metric tons versus this past year’s 124.8 million metric tons due to an additional 2.3 million planted acres.
Soybean exports continue to roll in with this week’s report sales including 506,000 metric tons to China, 426,400 metric tons to unknown destinations and 132,000 metric tons to Mexico. Last week’s export sales report was also supportive with exports at 95.2 million bushels with 56.5 million bushels of that going to China. To date, China has bought 22.1 million metric tons of soybeans from the U.S. versus 4.8 million metric tons at this point last year. After five weeks, soybean shipments were at 11% of USDA’s expectations versus 9% last year while sales are at 70% of expectations versus 36% last year.
The big issue in soybeans is there is no incentive to store soybeans because of the inverted market. As of this writing, March futures were at a 23-cent discount to the November futures. It makes more sense to sell beans off the combine than own them 23 cents lower in the deferred contracts.
Cattle have seen a mixed performance this week. The live cattle have held on and traded decent, posting small gains due to strong cash. Feeders on the other hand have taken a hit with most of the pressure coming from a stronger grain market. Light selling is also due to expectations for increased supply as now that field work is coming to an end, producers will start to pull calves off pasture. The economy will help gauge the direction of cattle. If a stimulus package can be passed, it will help stabilize the fragile restaurant industry.
“The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results.”