Morning Comments September 30, 2022

Soybean Harvest Close Up 2016

Another day of active markets ending with limited fanfare as traders continue to struggle with what happens next and are not necessarily willing to stick their necks out too far ahead of month-end, quarter-end, and today’s Quarterly Stocks report from the USDA. At the close, we saw wheat down 7, corn down 1, and beans up 2.

Coming into today there is an incredibly tight range of guesses ahead of the midday stocks report. Today’s report is important for the corn and bean markets as it becomes the ending stocks figure for the 21/22 crop year. Traders expect corn carryout to come in slightly lower than current USDA ending stock estimates, with the average trade guess at 1.512 billion bushels, versus the USDA’s 1.525 billion bushel carryout figure used in the September supply and demand report.

Soybean carryout is expected to increase slightly from September estimates, with traders expecting bean carryout to come in at 242 million bushels versus 240 million used in the WASDE.

There is some talk that commercials are anticipating a smaller corn carryout figure than indicated by the trade guess due to the strong basis values traded at the end of the crop year. The debate continues as to what extent poor rail logistics has played into basis strength as of late, as moving bushels from where they are to where they are needed has become even more costly and less dependable.

Speaking of logistics, river levels along the Mississippi continue to drop, wreaking havoc on our ability to ship grain via barge as well. Draft levels are falling to near 1988 lows, cutting into the amount of grain able to be moved down the river. According to one analyst, a normal barge tow is 35 barges at 70,000 bushels a barge, moving 2.45 million bushels at a time down the river. The drop in water has resulted in a cut to capacity, with tows dropping to 25 barges able to ship 40,000 bushels a piece, or 1.2 million bushels.

The loss in barge loading capacity creates a major backlog for shippers along the Mississippi as their ability to move grain is cut in half, thus cutting what they’re able to handle in half without resorting to piling bushels, as trucks can only help to relieve pressure at best.

Massive carry in cash for beans is starting to build in some regions of the county already, as wide-open weather over the next two weeks is only expected to exacerbate the current situation, with no relief to low water levels in sight. The inability to feel confident in our logistics has pushed our values in the global market even higher, with US corn 40-60 cents a bushel more expensive than our competition.

Higher US corn values combined with an increase in available supply has pushed Brazilian corn exports to new highs, with shipments in September nearly double that of a year ago. The country’s farm groups remain poised to see an even further uptick in exports upon the completion of an adjustment to phytosanitary rules out of China, something analysts report is just weeks away.

In other news, traders are watching what is happening in other countries when it comes to managing forex risk and tackling what a strong dollar is doing to their economies. China is reportedly ready to launch a currency support program not seen since 1998 if conditions worsen, while Japan reportedly spent 2.8 trillion to prop their currency up against the dollar in the month of September. 

Chinese officials released a slew of data overnight ahead of their holiday next week, showing signs of a slight recovery in the manufacturing sector of their economy, though troubling signs remain when it comes to consumer demand and confidence. Talk of a potential move away from Zero Covid policies has been supportive lately as traders believe this move would result in a US style post covid spike in demand.

Others remain less convinced, as strong-arm policies and uncertainty are likely to result in a much different, very slow type of recovery.

The additional stimulus was announced overnight, with Chinese officials offering tax credits on home purchases and local banks cutting mortgage rates in hopes to put a bottom into a housing market that has seen 12 straight months of price declines.

Corn up 2 to 4

Beans up 3 to 6

USDA Sept Quarterly Stocks report out at 11 a.m. Central today