Harvest was moving along in the Midwest until the rain this week brought many areas to a stop. Yield reports so far have generally been right around expectations, some areas a little better some a little worse. There has not been any shocking harvest news to move the needle either direction so far. The market has stayed very range bound on low volume this week awaiting the next USDA report coming out next week. We have also seen open interest dropping as the funds have exited the market.
We get USDA’s updated supply and demand next Tuesday, Oct 12th at 12 pm. Expectations are for a little lower corn yield but a little higher bean yield. This coupled with the additional old crop bean stocks reported last week gives the bean market a bit more cushion than the market was pricing in all summer. Conab (Brazilian USDA) lowered their production estimates and now falls a bit below USDA’s last estimates so we will see if USDA follows suit.
The soybean balance sheet was significantly altered by last week’s stocks report. We still do not have burdensome stocks, but we do have a little more cushion than anyone had anticipated. Until we get news or information that offsets this, we have taken some upside potential away and we need to adjust our expectations. We still have a long way to go on the South American crop as it is just now being planted and far from being made. We need to be scaling in sales between $12.75 to $13.00 rather than waiting on the mid 13 dollar range. We do not need to panic sell here, but we do need to adjust. We also need to be thinking about new crop soybeans as well. With the high cost of all inputs but especially fertilizer, I do not think beans are going to have to work hard to keep acres. There have been a lot of Midwest acres that have been corn on corn for several years now and this may be the opportunity they take to rotate. If South America makes a big crop and we pick up acres in the US, we could go a long way to fixing the balance sheet tightness even with the strong demand.
There are still some parts of Brazil that are on the dry side, but nothing catastrophic at this point. The weather models are showing increased chances in week three of the forecast which has very low confidence but the market will stay closely tuned.
Edible oils are still extremely tight around the world so US bean oil is very attractive and cheap relative to the alternatives. There is room for bean oil to move higher and help support soybeans.
The early basis premiums are sliding lower but harvest basis has actually gotten stronger in the Southeast which is puzzling. I do not think many in the Southeast have as good of a crop as we cut last year but there should still be enough beans to clog up the pipeline right at harvest. Shop your basis and make an offer. If you are moving beans now do not take posted bid. There is huge carry in the board so only move what you need to unless your market has some good basis premiums still.
Basis seems to have leveled off now in the Southeast and actually getting a little stronger in some markets. This was a huge crop for us but it’s almost all in the bin now. As poorly as all logistics are in the economy right now, I cannot imagine grain trains running like clockwork all winter. Be ready to move corn on a train delay!
The corn picture did not change as much last week as the beans. USDA will give us their updated yield next week but the market is only expecting a very small adjustment. Higher energy prices will help support ethanol margins and therefore demand. Elevated meat prices help support animal production margins and support demand as well. Too much rain in Chinese and Ukrainian production regions during harvest have raised concerns about quality. If it continues, it may lower production.
Corn still has a lot of support. I think we can be more patient on corn than on beans right now. We are putting in good chart support as long as we can hold the lows. With such high input prices, new crop acres are far from certain even with the board above $5. I would be waiting on $5.50 at least before scaling any additional sales.
World wheat prices continue to rise as Egypt has had to keep raising their tender prices. While wheat export sales have been rather disappointing recently and lag USDA pace, I do not see USDA lowering expectations for the year due to such tightness in the world market. As many exporting countries continue to limit their exports as a way to slow food inflation, I think exports should catch up over the course of the marketing year.
With nitrogen prices at the levels they are, $7.50 wheat does not look nearly as good as one would think at first glance. I do not see a ton of acres being added in areas of the Southeast that do not typically grow a lot of wheat. I think our traditional wheat heavy areas in the western part of North Carolina and Southeastern Virginia will stay close to what they were this year.
Wheat should stay supported here, but if you are going to grow wheat this year getting some on the board around $7.50 is a good starting place. Let’s hope that is the cheapest wheat we sell for next year.
Cotton for another week gets almost all the headlines. A catastrophic storm in India has been the driver as the market is trying to figure out how much cotton was lost. This is yet another reminder that with tight balance sheets and increasing demand, a major weather event in the right place in the world can completely turn everything on its head. Too much rain in the Southeast, Midsouth and Texas has also caught the markets attention. Cotton has given you a gift here and everyone needs to be selling cotton here. New crop made a move above 90 and those that are going to grow cotton should think hard about scaling some sales in there too.