Editor’s Note: Catch Randy Martinson every Friday after markets close on the Agweek Market Wrap at agweek.com.
It seems that the grains are influenced by two different factors. The fundamentals are trying to give some direction to the market, but the market macros continue to get in the way.
Cereals did not close the second week of October as expected. The week started with wheat posting strong gains while corn and soybeans posted modest gains. But then grains spent the rest of the week under pressure, at least wheat and corn. By the end of the week, wheat was posting modest losses while corn and soybeans were posting modest gains.
Part of the week’s guidance focused on the USDA’s October agricultural production report, which did not turn out as trade expected. Once again, the trade was going in one direction, while the USDA report was going in the opposite direction. Ultimately, the ratio was negative for wheat and corn (due to a greater than expected reduction in demand) but favorable for soybeans (due to reduced yields).
Once the report was released and the trade had a chance to integrate the numbers into the market, the grains resumed trading the current news. The Russian-Ukrainian conflict continues to influence wheat and corn, while harvest pressure has slowed the recovery of corn as well as that of soybeans. But the balance tipped on the positive side for soybeans with strong export sales announcements at the end of the week. From Wednesday October 12 to Friday October 14, China and an unknown destination teamed up to purchase over 1.6 million metric tons of US soybeans.
On Thursday, October 13, a higher than expected consumer price index estimate put strong pressure on cereals. The CPI came in at 8.2% against expectations of 8.1%. The report sent the US Dollar sharply higher and the Dow Jones sharply lower, which in turn sent through to commodities. The higher inflation estimate combined with last week’s strong jobs report almost guarantees that the Federal Reserve will raise interest rates by 0.75% at its November meeting, and likely in December as well. .
But surprisingly, the Dow Jones was able to bounce off the support and push towards the positive side. The Dow’s 1500-point reversal was able to ripple through the US Dollar as it reversed from 1 cent higher to nearly 1 cent lower. Grains benefited from the rally in external markets and also staged a rally with wheat pushing to double digit gains while corn posted a strong finish. Soybeans were higher for most of the second half of the session, but shed their gains to end flat.
Grains did not rally solely because of the reversal performance of the Dow Jones or the US Dollar. Reports that Russia will not extend the maritime transport agreement with Ukraine added support. There is approximately one month left in the export corridor before the end of the program. And with reports of a slowdown in inspections and a huge backlog of ships waiting to be inspected, it’s likely that no more boats will have the capacity to load.
The Drought Monitor map, released every Thursday, continues to show increasing drought in the western states as well as the plains. The majority of the US winter wheat crop is in some stage of drought. At this point, it seems unlikely that all of the planned area of winter wheat will be planted (due to no or low soil moisture). Dry conditions also play a role in the northern Plains, as fall tillage or fertilizer applications will be difficult. The report also showed that 82% of the continental United States is in a drought stage, the highest percentage since the Drought Monitor began in 2000. No relief is in sight for the United States until the latest October week.
The third week of October started with cereals rallying to hold decent gains due to the escalating war between Ukraine and Russia. But the escalating fighting failed to capture traders’ attention as the market shed Monday’s gains.
Selling pressure came from improved weather forecasts that call for drier weather for Brazil later in the week and rain for the southern plains of the United States at the weekend.
A negative crop progress report added to the sale. For the second week in a row, the progress report showed better than expected crop development stages for soybeans, but not as much for corn. As of October 16, the maize harvest was estimated to be 45% complete against 40% on average (1% below expectations). The corn crop condition rating dropped from 1% to 53% good/excellent (1% lower than expected). The only states showing declining conditions were North Dakota (-1%) and Ohio (-3%).
The soybean harvest was estimated at 63% complete against 52% on average (3% above expectations). The soybean crop condition rating remained unchanged at 57% good/excellent (as expected). The only states showing declining conditions were Indiana (-1%) and Ohio (-4%). Most states remained unchanged for the week.
Winter wheat planting progress exceeded its average pace last week with 69% of the crop now planted vs. 68% on average (1% above expectations). Emergence, however, continues to be slow due to dry conditions. By October 16, 38% of the winter wheat crop had emerged compared to an average of 44%.
The National Oilseed Processors Association’s crush estimate for September was disappointing, coming in at 158.11 million bushels against expectations of 161.63 million bushels. The drop in the crush estimate was slightly offset by the friendly stocks estimate which put bean oil stocks at 1.459 billion pounds against expectations of 1.511 billion pounds.
Harvest pressure and improved weather forecasts (rain in the United States, drought in Brazil) will put pressure on cereals in the short term. November options expire on Friday, October 21, which will add further volatility to the grain as traders search for the strike price of the option that has the most open interest.
Grains appear to be settled into the trading range and so far the news has not been enough to lift Grains out of this pattern. Stocks are tight, so traders are reluctant to break through the low end of the trading range to avoid unwanted demand. On the other hand, we still need demand to control inventory as traders also seem reluctant to break above the high end of the range as traders seem to be waiting for more confirmation on production.
Minneapolis December wheat trading range appears to be $9.30 to $10.15, Chicago December wheat $8.20 to $9.50, Kansas City December wheat $9.25 to $10.35, December corn $6.50 to $7.05 and November soybeans $13.50 to $14.50.
Separately, Russian officials met with the United Nations and Turkey on the renewal of the safe shipping corridor. At this point, Russia would accept an extension of the agreement, but it would require the acceptance of more concessions and the fulfillment of the concessions of the previous agreement before Russia would sign. Most of the new concessions are not known at this time, but one is to ease sanctions on Russia so it can freely sell and ship crude oil and fertilizers.
Argentinian officials lowered their estimate of wheat production from 500,000 metric tons to 16 million metric tons. To add to that, 50% of Argentina’s wheat acres are also in a drought stage.
Australia is experiencing heavy rains which are beginning to cause quality issues with its wheat crop. Wet conditions are also rampant in the south-central region of Brazil. Their wheat crop is also reportedly affected by heavy rains as well as delays in soybean plantings.
China also made the news this week. President Xi Jinping has asked all Chinese citizens to leave Ukraine immediately due to the possibility of nuclear fallout. Xi also made the comment at the opening of the CCP that China has gained full control of Hong Kong and Taiwan is next.
Livestock markets closed the second week of October mixed with live cattle posting gains in the first October contract due to strong spot trading, but with losses in the forward contracts. Feeder cattle suffered losses at all levels. USDA’s beef production estimate in October also limited gains due to a 130 million pound increase in beef production, bringing 2022 production to 28.136 billion pounds. The USDA also increased first-quarter 2023 production by 10 million pounds and second-quarter production by 70 million pounds, but total 2023 beef production saw only a 30 million-pound increase for reach 26.365 billion pounds. The USDA also reduced imports and increased exports.
Cattle were able to shake off the negative production estimate and stage a slight recovery to start the third week of October. Cattle are oversold and in need of a technical correction, but it appears traders are more focused on macro concerns. Especially with expectations of the Fed raising interest rates by 0.75% in early November and likely again in mid-December. But technical buying, squared position ahead of Friday’s Cattle on Feed report, and firm spot trade (as well as a lower grain market) all came together to help give cattle a boost.
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