Morning Comments October 28, 2022

Bin sunset harvest

For the second day in a row, November beans managed to finish nearly unchanged as traders continue to debate future demand from China while looking at strong domestic crush margins. Wheat and corn tried to rally early on corridor concerns but failed to see follow through with limited fresh news, wheat finished 2 lower, while corn was down 3.

A shift in Argentina from exporting meal to exporting beans, negative crush margins in other countries slowing production, and a strong outlook for renewable and biodiesel demand have provided support to the US crusher. Meal and Oil remain relatively elevated value-wise compared to beans which in turn is providing some solid opportunities for domestic crushers, with July crush margins reportedly the best ever seen for this time of year. 

Strong crush demand and the desire to own beans before they’re put away has pushed some to firm bids around the country, especially in the Western Corn Belt where the harvest is all but wrapped up and most of the loose supplies have been bought. 

River woes and an inability to move many of the bushels from where they are to where they are needed is weighing more heavily on the Eastern Belt basis, as a dislocation in supplies is becoming more evident. Like corn, two years of production problems in a row combined with a sharp uptick in beans needing to move out of the PNW due to river system issues, are likely to keep a sharp divide present in basis paid in the West versus the East as the year develops. 

Speaking of crush margins, the expected influx of new crop beans has helped to pressure values out of Brazil February forward, providing the Chinese crusher positive margins as we look out into next spring. Margins and logistics continue to weigh on short-term demand as our river issues here in the US have pushed bean offers well above seasonal norms, prompting Chinese crushers to hold off on foreign purchases, choosing instead to go hand to mouth or to rely on government auctions to get by for the next handful of months. 

While additional purchases through the end of the year are expected to remain somewhat sparse, we should see decent shipment volume continue each week as China has purchased 17.7 mmt (650 mbu) of soybeans so far this marketing year, many of which purchased for harvest time movement. This purchased quantity is up nearly 2 mmt from last year’s pace for this same week in the marketing year.

As we’ve discussed numerous times, the export outlook for corn isn’t quite as rosy currently, with our top 5 corn buyers volume of purchases down 53% from a year ago. The biggest decline in purchases has come from China where bushels bought on the books is down 8.4 mmt (330 mbu) from last year at this time. Purchases from Mexico are down 2.2 mmt (86 mbu) from last year as well, with Japan cutting their US imports on the books currently by nearly half. 

Mexican corn purchases will become a focus soon, as the country’s ag minister doubled down on efforts to reduce the prevalence of GMO corn in their supplies. The country had announced a GMO corn ban for both production domestically as well as for imports, though there are questions on what that actually may mean for cattle feed, as some believe the law does not address that sector of demand.

In any event, Mexico’s ag minister believes big investments into domestic corn production will help the country get well on its way to some level of self-sustainability, with claims these increases in domestic production will cut US corn imports by half in 2024. Mexico bought 17 mmt (669 mbu) of corn from the US last year.

In other news, the European Central Bank increased rates 75 basis points yesterday, in line with expectations and taking the region’s benchmark rate to its highest level since 2009 at 1.5%. US GDP data for the third quarter came in better than expected at 2.6%. This is slightly higher than the 2.4% consensus, but slightly lower than some analysts had anticipated ahead of the release.

The fact that the economy grew at a relatively robust pace in the face of major rate increases has helped to change the sentiment regarding the Fed’s next steps just a touch, as now some believe another big hike may have to come in December after a 75 basis point hike is expected to be seen next week. The dollar recovered late in the day Thursday after touching new 5-week lows and has continued higher overnight.

Corn down 2 to 4

Beans down 6 to 10