The rally in the grains continued this past week as world production concerns and strong export demand influenced fund buying. Open interest in the grains has increased, which is a signal of new buyers coming into the market. The news is starting to become a little more concerning as more bearish news is entering the market.

So how much more does this market have left? That’s hard to say as it has performed better than anyone expected. One thing is for sure, the grains are over overbought and trading at levels not seen in years. Don’t be surprised to see a retracement, but until more concrete news is known on world production (Black Sea and South America regions) any short-term retracement will be met with a flush of buy orders.

Wheat has been the steady rock this week, leading the grains higher in most sessions. But late in the week, wheat started to falter due to a major change in the weather forecasts. The weather forecast on the afternoon of Oct. 21 brought in the first significant chance for rain for the western regions of the U.S. Southern Plains. This triggered a late round of fund selling in the winter wheat exchanges, pushing them into the red. Minneapolis remained firm throughout the session, but that same trend spilled over into the overnight session. A stronger U.S. dollar was another reason for the retracement. Russia and the rest of the Black Sea region remain dry.

The drought situation in the Black Sea region has forced Ukraine wheat prices to 21-month highs and pushed the Paris Milling Wheat futures and Chicago Mercantile Exchange Black Sea future contracts to new contract highs. Ukraine officials are reporting planting progress at 76% complete. Australian officials are estimating their production at 28 million metric tons versus USDA’s 28.5 million metric tons. This would be the highest production in four years and the third highest on record for Australia.

In export news, South Korea was rumored to be in buying two jags of wheat from the U.S. Late week confirmation showed South Korea buying 130,000 metric tons of U.S. wheat. Japan also bought 29,217 metric tons of U.S. wheat this week.

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Private analyst Informa updated its acreage estimate for the 2021 crop year. They are estimating 2021 winter wheat acreage at 31.6 million, 1.2 million lower than last year but 700,000 acres more than last month. Other spring wheat acreage is estimated at 12.85 million, 650,000 acres more than last year but 100,000 acres less than last month. And durum acreage is estimated at 1.8 million, 120,000 acres above last year and 300,000 acres above last month.

Minneapolis wheat is starting to reach levels that warrant hedging, not just 2020, but also 2021. Technically, Minneapolis wheat is trading in the middle of its trading range, Chicago wheat traded to new highs, and Kansas City wheat was trading in the top third of its recent range.

Corn has been following the wheat complex. Tight South American supplies, light farmer selling, and the potential for strong Chinese demand continues to support corn and erode the carry in the market. The Oct. 21 session was rumored to have been supported by heavy commercial buying by China but there was no confirmation. Light strength also came from concerns of dry conditions in Ukraine as most are looking for Ukraine to start to decrease its production estimates.

Corn’s harvest progress is at 60% completed versus 41% last week and 43% average, and expectations of 57%. Sure there are some states that are lagging behind their average harvest pace, but a majority of the major producing states are ahead of their average pace by 20% to 30%. The faster-than-expected harvest progress is slightly negative corn. The last corn crop condition rating for the year had corn rating’s decline 1% to 61% good/excellent (which was expected).

Harvest progress is expected to slow down the second half of October as a wintery mix of weather moves into the Northern Plains while cold wet conditions hit the Corn Belt. The adverse weather conditions are not expected to be as bad as the last two years but there is 1 to 3 inches forecasted for the southern regions while the northern tier could see up to 7 to 9 inches of snow. The heavier amounts are also in the forecasts for southern Minnesota, which could result in lost bushels.

Corn’s demand picture is centered around the idea that China needs corn. China has reportedly dumped 55 million metric tons of corn out of its reserves and the recent typhoon season was particularly tough on their major growing regions. This leaves China short of corn and with record setting prices as they try to ration what little supply they have left. The U.S. has already sold more corn to China (10.5 million metric tons versus 60,000 metric tons last year) than we have sold in decades. Seven weeks into the new marketing year, China has already purchased 10.5 million metric tons of U.S. corn versus 60,000 metric tons at this time last year. There were not many daily export sales reported last week. The only two sales reported were one to an unknown destination for 345,000 metric tons and another to Mexico for 123,000 metric tons.

Private analyst Informa is estimating 2021 corn acreage at 91.97 million, 1 million acres above last year, but 1.7 million lower than their estimate last month.

Farmer selling of corn remains light and with only 40% of harvest left, end users and exporters are worried that they might not get the supplies they need to cover commitments. On top of that, the delay in soybean planting in Brazil will lead to a delay in the planting of the second corn crop in Brazil, which could result in lower production. That will lead to further demand for U.S. corn.

Last week’s ethanol production estimate was negative as it showed another drop in production. Production was at 913,000 barrels per day, a drop of 24,000 barrels from the previous week. Stocks were estimated at 19.72 million, a drop of 287,000 barrels from the previous week.

Corn traded to a new high from 2020 and remains in the top quarter of its long-term trading range. Corn has lost its carry and the incentive to store into summer.

Soybeans are the biggest concern as that market appears to be losing its enthusiasm. This past week, soybeans were able to start the session firm, hold most of the strength through the session, and close with gains. But it took soybeans all week to return to their recent highs. Demand has slowed significantly with China an occasional buyer, not a consistent buyer like we saw a few weeks ago. This has traders worried that China has built up inventories for the short term. Meal continues to be the market carrying soybeans as traders are concerned that the recent dry conditions and adverse weather forecasts for Argentina could result in lower soybean production. That would lead world soybean meal buyers to have to shop to gets their needs met.

With that being said, soybean exports have been unbelievable so far this fall. As of last week, 76% of the soybeans expected to be exported have been sold, a record for this time of year. And the potential for increased exports improved when Brazil announced that they are going to be suspending the import tariff on corn and soybeans from outside their trading block. That means it opens the door for Brazil to buy U.S. corn and soybeans tariff free. This is an attempt for Brazil to bring product into country to stabilize sharply rising prices due to tight supplies. Will Brazil buy U.S. corn and soybeans? They will likely buy soybeans, but it will be a small amount.

Soybean harvest is tracking ahead of its average pace. As of Oct. 18, 75% of the nation’s soybeans were in the bin versus 61% last week and 58% average. Like corn, soybean harvest is running rapidly ahead of its average pace in most states, but there are a few states lagging. Most of the major producing states are showing harvest progress 20% to 40% ahead of average.

So far this week, only a few export sales have been reported on the daily sales report. An unknown destination bought 132,000 metric tons, Mexico bought 152,000 metric tons, and an unknown destination bought another 132,000 metric tons toward the end of the week.

Soybeans, along with soybean meal, traded to new contract highs to close out the week.

Cattle continued to struggle this week. Talk that the stimulus package is 85% in the bag helped to stabilize the cattle market but the lack of urgency to get the bill passed and money into consumers hands kept the cattle market on the defense. Position squaring ahead of the Oct. 23 Cattle on Feed report was also evident. Early estimates have the report at: On Feed: 103%, Placed: 102%, and Marketing: 106%. Cash traded at $106, which was $1 to $2 lower than last week.

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