Morning Comments October 4, 2021

Red Barn Behind Field

The markets are a touch weaker this morning with soybeans leading the charge so far to the downside in the early morning trade. 

It is interesting to watch this market structure develop as we have some incredibly interesting changes in fundamentals taking shape. First off, from a supportive to price sort of standpoint we are watching energy markets, metals, and certain commodities continue on their blistering pace to multi-year highs. 

The market seemingly left behind cotton earlier this year when other markets traded to levels not seen since 2008, but cotton has caught up and continues to surge. Trader sentiment late in the week had cotton market expectations at the most bullish level on record-something that doesn't tend to end well for late-comers to a market, but definitely something that keeps folks interested on the buy side at least in the short-term.

The wheat market continues on its scorched earth path to higher prices, with all three classes there keeping up with their global counterparts, trading at the high-side of the range and threatening further breakouts. Vegetable oils remain stout around the world as well, with Malaysian Palm Oil trading to its highest level on record. 

As market observers, we also can't ignore what is taking place in both China and Europe when it comes to energy or lack thereof, though it appears the reasons behind shortages vary greatly by region.

That's not even mentioning how hard it is to break a market so heavily influenced by inflationary concerns when inflation is at 30-year highs.

However, underlying fundamentals for soybeans are incredibly concerning. The stout increase to available stocks last week and the pretty solid acceptance that bean yields are generally phenomenal across much of the Corn Belt so far are likely pushing new crop carryout back up to more than adequate levels. A large increase in year-to-year carryout combined with the idea growers will gravitate to beans next year as fertilizer costs continue to soar only adds to the heavy feeling.

In corn we are struggling with uncertainty over yields, as some more bullish private analysts continue to claim yield reductions are necessary in upcoming USDA reports. This an interesting sentiment seemingly built on the idea Illinois yields are disappointing. which they are in the sense that growers were anticipating 260 bpa yields and are seeing 225 or so. 

One private analyst responsible for collecting hundreds of yield reports over the last several harvest seasons is saying there is no indication a substantial reduction is necessary based on what he's seeing, but the idea production could be reduced in light of what is happening with wheat continues to keep prices supported. 

As mentioned, wheat continues to have a story, though it appears at this point much of it hinges on just what Russia is going to do with their exports as rumors continue to run rampant that they're looking to limit exportable supply. At this point cash traders there say that is unlikely at least anytime soon as many in the country are still trying to get their arms around production as a whole before those types of decisions are made. 

One expert trader said it best, "Wheat's job is to stay high enough priced that global importers aren't tempted to buy U.S. stocks." So while the storyline we're currently trading is unlikely to push us to new highs, wheat will continue to work to keep itself expensive enough to limit too much foreign interest.

Looking ahead, we will get updated export inspections this morning. While supply is the main focus right now as we roll into harvest, we need to continue to monitor what is happening on the shipment side of things. Much of the big increase in demand we've seen year-over-year has been growth in exports as many folks believe we will work to stay close to last year as a whole. While we are only a month into the new crop marketing year, current pace isn't overly supportive to that hypothesis.

We will also get updated crop progress numbers today. Most folks are expecting corn and soys to come in around 30% harvested with wheat 50% planted.

Corn steady to 2 higher

Beans 7-8 lower