Morning Comments October 12, 2021

Grain Bins

Soy oil flipped midday yesterday heading lower, taking soybeans with it to the downside. Corn and wheat were mixed at best as traders wait to see what the report today will bring.

Energy values remain stout, but we're starting to see signs of production increases especially here in the U.S. as prices encourage growth in domestic production. A report released by Baker Hughes shows the number of oil and gas rigs in operation here in the U.S. as of Friday is the highest we've seen since April 2020. 

In addition, it appears Chinese rule makers are looking to back off a bit from some of the 'greener' changes to energy policy they were looking to make, incentivizing coal production and looking to do whatever it takes to keep the country's lights on and homes warm as we head into winter.

Experts in the energy trade say we're heading into what is usually a seasonal downturn in values, and with prices trading some 40-50% higher than they were at the start of September we're starting to hear talk that values could potentially be overpriced. 

Europe continues to deal with energy issues as well, though many of those issues seem more self-inflicted than actual market conditions dictating high prices based on the economics of supply and demand.

Speaking of supply and demand, much of the attention in today's trade will focus on just what the USDA is thinking when it comes to production and subsequent demand for grains and oilseeds in the year ahead. 

Ahead of today's report traders are anticipating a slight reduction to corn production, with the average pre-report yield guess coming in at 175.9 bushel per acre, versus 176.3 last month. The increase in beginning stocks thanks to the September stocks report is expected to absorb much of the reduction in production with carryout expected to come in around 10 million bushels higher than last month's estimate at 1.418 billion bushels.

Soybean production is expected to come in higher than last month, with the average trade guess coming in at 51 bushel per acre, up from last month's 50.6. The big increase in beginning stocks we picked up in the September stocks report combined with the expected increase in production has soybean carryout expectations coming in around 298 million bushels, up significantly from last month's 185 million bushel estimate. 

Wheat ending stocks are expected to come in much lower month over month again with continued cuts to production anticipated in both Hard Red Winter and Hard Red Spring wheat. Soft Red Wheat is really just along for the ride at this point, but seems to be enjoying the attention.

There is lots of chatter heading into today's report on how most traders feel completely comfortable with the expectation of a bullish wheat report and a bearish bean report. Corn seems to be the wildcard as 2 bushels higher or lower could really have a make or break type potential to price direction.

To look at it simply, a 2 bushel acre increase or decrease could add or subtract around 170 million bushels to overall production. This meaning we would have the potential to see carryout work its way towards 1.6 billion bushels or fall back towards a 1.25 billion bushel figure, both of which having very different consequences when it comes to price. 

In addition to today's noon eastern USDA report we will get updated export inspections and crop progress due to yesterday being a government holiday. As we mentioned yesterday, export inspections are expected to see a continued trend higher as we regain capacity and the pipeline gets replenished. Bean harvest is expected to come in around half done, corn harvest thought to be around 43% done with wheat planting expected to come in around 60% complete.

Harvest weather is expected to remain a bit touch and go across much of the Corn Belt this week with on and off chances for rain through the weekend before a big harvest window is expected to be opened. Current forecast models indicate temperatures should remain warm with drier than normal precipitation expectations through the last week of October.

Corn down 1-2

Beans down 3-4