Morning Comments October 20, 2021


Markets were stronger yesterday, testing the high side of the recent range but failing to break through resistance levels. 

For the most part, the market and its participants have run out of new stories to trade. We know the supply is there and based on what we are starting to see develop in the river market and likely soon its tributaries, production levels may even grow a bit from recent estimates.

However, demand remains the wildcard and after what took place last year our memories are skewed to expect continued growth in that sector. This concept is supported by some of the more bullish analysts in the industry who continue to beat the drum of demand growth and need for increased production. 

Energies remain the hottest sector in the commodity space right now and as we talked about yesterday, ethanol and soy crush margins are some of the best we've ever seen. Interesting to note, renewable diesel demand growth prompted many large companies to announce new crush plant projects, harkening back to the early ethanol days. 

It is important to remember though just how much room Brazil has to grow ,with an estimated 490 million acres of pasture land that could be brought into production with the right economics. 

With an expected increase in production of 255 million bushels of soybeans this year alone, it is likely we could see a situation develop where Brazil takes on much of the global business we price ourselves out of with rapid domestic demand growth. In theory, this could convert our market structure to a much more domestic-centric one, versus the current 50/50 split we have between exports and crush today. 

Growth in the domestic market is something we can count on and is likely better for the health of our market structure as a whole long-term, but it is important to keep in mind a growth in one sector doesn't happen with an absence of possible reduction in another.

That being said, it does appear as though China has returned as an active buyer in the bean market again with one of their state-owned entities currently making purchases to replenish government stocks they plan to auction before the end of the year. These government auctions will be watched closely as they will give us insight into what domestic demand for soy actually looks like in the country versus our current assumptions. 

Rumor has it they are inquiring about Soft Red Wheat as well, with 2 boats trading last week according to market participants. 

Looking ahead, we will get updated energy figures later this morning. Traders are expecting ethanol production to increase week over week again with more available corn and those high margins pushing plants to produce as much as possible. We will be watching stocks to see if the market is absorbing this increased production indicating strong demand. 

Crude inventory has come in much higher than analyst expectations over the last couple weeks, though that has done nothing to cool prices. With rig counts up to their highest level in a year and a half and economics continuing to push increased production, it's likely this week will be the same. 

China has announced they will crack down on any market participants manipulating the coal market, which based on what prices have been doing is probably a few days too late. We've seen this play out countless times towards the tail-end of a big market move.

Outside of the energy markets, it is likely we will see some additional confirmation of Chinese business being done in the bean market on the overnight based on strength there. $5.38 and $12.40 are key levels folks will be looking to trade through in Dec corn and Nov beans, how the market handles that resistance today will be key to how we finish the week. 

Corn up 4-5

Beans up 9-11