Editor's note: Catch Randy Martinson and AgweekTV's Michelle Rook every Friday after markets close on the Agweek Market Wrap at agweek.com.
The grains closed out the month of October posting solid gains. Not only was Minneapolis wheat sitting at contract highs (and highs not seen since 2012) but so were the other two classes of wheat along with canola and oats. Paris milling wheat was also posting contract highs and trading at highs not seen since 2008. Tight world supplies of vegetable oil and milling quality wheat have sent those two markets through the roof and has many wondering when the run will end. There is an old trading adage that is ringing true today, “a nation with ample wheat supplies has many problems, the nation without enough wheat has only one problem.”
But it was not only the grains that were seeing strong gains as we end October and start November. The stock market went from one of the worst Septembers in history to one of the best October performances in history. The big three (Dow, S&P 500, Nasdaq) all posted record high closes three sessions in a row to start November.
So, what is driving the grains higher? Inflation concerns are part of the problem. Tight supplies are also part of the issue. But the fear of not being able to get product timely is also playing a role in the market rally as end users and processors try to secure product. The grains are also seeing strength from increasing input costs. The rising costs of fertilizer and chemical for the 2022 crop year has helped the grains push higher in an attempt to bid for or hold potential acres. Soybean acreage is expected to increase sharply next year due to lower fertilizer demand. But other less intensive fertilizer crops are also getting attention like barley, dry edible beans, peas, oats and flax. This will make for an interesting spring.
As October came to a close, the grains were pushing higher on weather forecasts for rain for much of Northern Plains and Corn Belt. The rains would delay harvest progress and could result in some production loss due to poor stalk integrity in the corn as well as pod shatter in the soybeans. Corn was also seeing support from another impressive ethanol production estimate, which put the previous week’s ethanol grind at the second highest production estimate on record. The week before saw the third highest production on record. To say that ethanol is strong would be an understatement.
Exports have slowed once again with only a few sales being reported. On Oct. 29 reports had Mexico buying 279,000 metric tons of U.S. corn while an unknown destination was in and bought two separate jags of U.S. soybeans, one for 132,000 metric tons and one for 222,000 metric tons. On Nov. 1, China was in and bought 132,000 metric tons of U.S. soybeans. To say U.S. exports are disappointing would be an understatement. Wheat sales are reported to be at the lowest level for this time of year in history while soybean sales are running about a third lower than last year at this time. U.S. corn is the cheapest in the world and should be gaining more export demand than it is at this time, especially with the recent run up in wheat prices which should be taking wheat out of the feed ration.
The harvest prices for crop insurance were established in October. Corn’s harvest price came in at $5.37 versus $4.58 for the spring price. Soybean’s harvest price is $12.30 versus $11.87 spring price. Oil sunflower harvest price was established at $31.60 versus $22.00 spring price. With the increase in harvest price, producers will need to have a production loss to have a claim.
With the start of November, trading limits for the grains have changed. The new daily trading limits are Chicago wheat and Kansas City wheat: 50 cents, Minneapolis wheat: 60 cents, corn: 35 cents, soybeans: 90 cents, and oats: 40 cents.
The weekly Crop Progress report continues to show slower harvest progress than expectations of the trade. As of Oct. 31, 74% of the nation’s corn was in the bin, 5% less than expected by the trade. The rain delays have been worse than expected. And it is likely the delay in harvest has resulted in decreased stalk integrity. Soybean harvest was estimated at 79% complete which was 4% less than expected. Most of the delays due to rain are occurring in the Delta and eastern regions of the Corn Belt.
Sugarbeet harvest has sped up and is now slightly ahead of average. As of Oct. 31, 87% of the nation’s beets were lifted versus 84% average. North Dakota is 96% complete versus 91% average while Minnesota is 93% complete versus 91% average.
Sunflower harvest has also seen rain delays as only 53% of the crop is in the bin as of Oct. 31 versus 50% average. North Dakota has 52% of its sunflower crop harvested, which is equal to the five-year average.
Winter wheat planting has slowed down as well. As of Oct. 31, 87% of the crop was planted versus 86% average. Again, it is the eastern regions of the U.S. and Delta that are seeing the delays. Forecasts are calling for drier conditions next week, which might help see more planting progress, but it is getting late to plant and with the high revenue prices, it could result in some producers claiming prevented planting.
The big surprise in the winter wheat market in the Nov. 1 report came in the crop ratings. The average trade estimate was looking for the winter wheat crop to increase 2% in crop ratings due to rain, but instead conditions dropped 1% to 45% good/excellent. The rating is one of the worst on record for this time of year. Although that really does not mean much as wheat’s potential it not established until it breaks dormancy.
In general, the weekly Crop Progress report was friendly to the grains. The report is showing moisture levels improving, though, as topsoil moisture conditions improved 6% to 71% surplus to adequate while subsoil moisture conditions improved 8% to 64% surplus to adequate.
Nov. 2 turned out to be a turnaround Tuesday session as after opening with gains and rallying to another round of new contract highs, all three wheat exchanges and oats faded to post modest losses for the session. Profit taking and technical selling were the main drivers as both markets have rallied significantly over the past month without much of a correction. Canola also set new contract highs, but canola was able to hold its strength. Soybeans were able to open with gains Tuesday and hold gains due to spill over strength from a higher soybean meal market as well as from harvest delays.
The grains remain in an overbought condition and actually need to break further to completely correct the situation. Minneapolis wheat appears to be poised to test the 2011 high of $11.20. From there it gets real as the next level of resistance is in the $12.25 range and starts to get into the run that occurred in 2008, which pushed wheat over $20. Now it is very unlikely wheat has the strength to push that high, but crazy things happen when you get markets up into never seen before levels. Just look at oats and canola.
The U.S. Department of Agriculture will be releasing their November Crop Production estimate on Nov. 9. Early estimates for the report show a potential increase in both corn and soybean yields, which will in turn increase production. It is unlikely USDA will make any adjustments to demand as, although ethanol production has been strong, corn exports have been stagnate. For soybeans both crush and exports have been languishing, so no adjustments are expected. The net result would be seeing the increased production flow right through and result in an increase in ending stocks. StoneX released their estimate for the report. They are estimating corn production at 15.119 billion bushels, 100 million bushels above USDA’s previous estimate. Their yield estimate is at 177.7 bushels per acre, 1.2 bushels above USDA’s October estimate. Their estimate for soybean yield is 51.9 bushels per acre, 0.4 bushels higher than USDA which puts production at 4.49 billion bushels, 42 million bushels higher than USDA.
Cattle finally started to see strength late in the week. Support came from an increase in cash bids (finally) as well as from strong export demand. Expectations of a strong economy (due to strong stock market) and expectations of tightening supplies all added to the gains.
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