AgriVisor Market Recap

Thursday, October 15, 2020
Grains were able to shrug off overnight weakness early in today’s day trade and post moderate advances. Prospects for larger Chinese grain demand was the primary reason for this strength. Soybeans struggled though, and while not as negative as early on, did post declines as rain chances are increasing for Brazil and planting is progressing. Building geopolitical tensions between China and Hong Kong impacted soybeans as well. We did see a 261,000 metric tons soybean sale to China though that was supportive and allowed futures to rebound. Harvest pressure is not as great as expected on corn and soybeans which was beneficial to both. 

Interior basis values across the United States are becoming mixed. Seasonal basis weakness developed when harvest began which is not uncommon. Basis values are already starting to firm though, especially on soybeans in regions where harvest is winding down and movement has slowed. We have also started to see basis strength in corn where even though harvest is underway movement is less than expected. It is becoming apparent that farmers are not going to move as much corn as hoped during harvest, and buyers are now needing to push bids for movement. 

Another factor in basis value volatility is the variability we are seeing in yields. Some regions of the Corn Belt are reporting much better than expected yields while others are seeing lower production figures. We are obviously seeing more movement in higher yielding areas and in turn the weakest basis. Not only are these yields impacting basis, but we are already starting to see estimates on the next WASDE report with high production variability as well. 

A factor that could impact basis values as the year progresses is the impact futures’ volatility is starting to have on processing margins. The most notable at the present time is in ethanol manufacturing where margins have been under pressure for several months. Lower energy values on a whole are the main negative factor for the losses in renewable fuels. We are now seeing pressure build in livestock margins as well. 

Soybean inspections in the weekly report were again high this week at 79.3 million bu. Of this a reported 75% was destined to China. While this is supportive at this time, trade is starting to contemplate what may happen if China walks away from US soybeans once the South American crop is available. China has record soybean purchases on the books and some traders believe these may be washed out of if the Brazilian crop is as large as thought and futures deteriorate. 

We may be starting to see a shift in Chinese commodity interest. China has been a strong buyer of US soybeans in recent weeks, but the country is now elevating its corn buying. Domestic corn values in China have rallied to record high values on production losses. In the month of September alone China’s corn market rallied 14% and that was with harvest taking place. Concerns over corn production in other regions of the world may keep China’s interest in US corn for several months. 

The NOPA crush report for September was released today with mixed numbers. A reported 161.49 million bu of soybeans were crushed by NOPA members in the month which was above estimates. This was also a record volume for the month of September. At the same time, this was also the lowest monthly total of the past year. Soy oil stocks at the end of September were an 11-month low at 1.43 billion pounds. 

Ethanol manufacturing data for the past week was also released today and was mixed as well. Ethanol production for the week averaged 937,000 barrels per day, the highest average in the past month. Ethanol stocks increased by 336,000 barrels though, pushing the total back above 20 million barrels. This stems from a decline in energy product demand on a whole. 

RISK DISCLAIMER: The risk of loss in trading commodity futures and options is substantial. Before trading, you should carefully consider your financial position to determine if futures trading is appropriate. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results. The information contained in this report is believed to be reliable but is not guaranteed to accuracy or completeness by AgriVisor, LLC. This report is provided for informational purposes only and is not furnished for the purpose of, nor intended to be relied upon for specific trading in commodities herein named.  This is not independent research and is provided as a service.  As such, this is considered a solicitation.