Weekly Update – October 26, 2018

Corn has suffered this week but through no fault of its own. In the face of sell offs in equities, soybeans, wheat and cotton, corn has done its best to hold on. Corn has very little new data to trade on other than anecdotal yield reports from the Midwest as harvest continues in an open window. Rain moves back into the forecast in the 7 to 10 day periods for much of the Midwest. The Delta and Eastern belt will be facing showers sooner than that as the remnants of hurricane Willa move across the country. Basis is firming in much of the country, including the Southeast, as many Midwest producers opt to sell beans and store corn. Ethanol prices are near record lows and margins have been negative for several consecutive weeks. Exports were disappointing this week as well. US supply and demand has been priced in for now. We could rally on more harvest delays or a stabilization of the macro situation. Funds have been buyers of corn here and seem to have started building a long position.

Soybeans have taken it on the chin this week. Headwinds have come from ramped up negative rhetoric from both the Chinese and the US as well as volatility in the world equity markets. There was hope of a meeting between Trump and the Chinese president during the G-20 summit at the end of November but the rhetoric from both sides seems to have dimmed that prospect at this point. However, there is still plenty of time between now and the end of November for things to change. The harvest delaying rains seems to have negatively impacted both yield and quality of Midwest beans. However, with the huge swings in the Dow and overseas equity markets and rhetoric from the trade war, market is not in the mood for much fundamental news. It is all about outside markets right now. Basis actually improved to many processors in the Midwest. Basis in the Southeast is still very weak. China says they can wean themselves off US beans all together, but I put the same chart back up from last week below. They may be able to reduce US imports significantly, but I do not believe they will be able to make it a year without US beans. However, we have wasted two months where the US typically dominates the export market. Every day that passes is a day closer to another South America crop and more competition. We need progress on trade!

We have been looking for the last three months for Russia to try to curb exports and have seen no sign so far. A rally in the US dollar is also pressuring wheat as it makes our wheat more expensive elsewhere in the world. On the break in prices, we have seen increased tenders by wheat importing nations such as Algeria, Tunisia and Jordan. It is expected to see Egypt in the market soon with the recent drop. Market seems to be struggling to find a bottom right now. However we have seen open interest increase even in the face of significant fund selling indicating that the funds that are long are trying to hold their position. Wheat is building bigger carries as it has to work to keep people interested in storing with raising interest rates.

Cotton has seen two hurricanes wipe out cotton in the Southeast and rain and freezing temps in the big cotton producing regions in Texas and reacted very little to any of it. It is obvious the market is focusing on something other than US supply. Cotton is one of the most sensitive commodities to economic conditions and so the drop in the stock market in the US as well as in China and other emerging markets has created a lot of pressure on the market. A higher dollar that makes our cotton even more expensive also weighs heavily on cotton. Weak exports, concerns about Chinese demand as well as increased negative rhetoric on trade are all adding to pressure on cotton.