Morning Comments October 28, 2021

Grain bins dryer

It was a big day for corn yesterday as it traded through the 100 day moving average for the first time since August, breaking out of the high side of the recent range.

As suspected, rumors of Chinese buyers inquiring about U.S. corn values was what brought buyers into the market, with strength in ethanol and technical buying pushing us through that ever-important resistance level.

While we could potentially be seeing some interest from China, current world values would indicate they would be buying some of the more expensive corn when compared to our competition. Of course, while quality or logistical capacity could sway the decision as there are rumors Ukrainian export capacity is booked for the next handful of months, price always seems to have the final say. 

As we discussed yesterday, the market is pre-dispositioned to remember the year prior and of course we saw exponential growth in Chinese demand no matter the price, so anything is possible.

In addition to ideas China may be interested in upping corn purchases we are seeing quite the move in ethanol values and grind margins for plants.

Ethanol traded to its highest level since 2014 yesterday, up nearly 90% from levels traded a year ago. Grind margins are profitable or at the very least break even well into the summer, with many folks believing corn used for ethanol could be up as much as 300 million bushels higher than a year ago.

Last week's production numbers gave us one of the highest weekly production figures on record, with a slight reduction in stocks. To meet some of the current private projections for ethanol demand we would have to average just under last week's production figure for the duration of the year. Something we may find a bit difficult, though if margins stay where they are, I'm sure the industry will find a way.

Other energy data not quite as encouraging yesterday with a larger than expected build in domestic crude stocks as well as a week over week decline in gasoline demand. Oil traders are watching a resurgence in Chinese Covid cases closely as a further slowdown in the Chinese economy could have a major influence on global oil and energy demand. 

We are starting to hear more talk about what the USDA will say in its next supply and demand report. Some private analysts floating s and d modifications to the corn balance sheet indicating reduced production and increased demand. From an overall perspective there really isn't much out there indicating the crop is substantially smaller or larger than current estimates, but we will definitely see much more in the way of guessing over the next 2 weeks.

Looking ahead, we will get updated export sales figures this morning. The last handful of weeks we have seen larger than expected soybean sales as smaller private entities out of China seem to be active in the market but are buying quantities below the flash sale threshold. Traders are expecting 1.6 million metric tons of beans were sold last week. 

Corn and wheat exports have been far less exciting, with it looking like we could see a reduction in wheat export expectations from the USDA soon. It will be interesting to see if China was in buying even a small amount of corn this past week, but it's likely Mexico will again be the biggest buyer. 

Corn down 1-2

Beans steady to 1 higher