Showers across the Midwest this morning which kicks off a rainy week in the corn belt. Rains the last 24-hours were heaviest in S-IA/N-MO with showers also falling in C-IL/C-IN/C-OH. Rains will continue falling over the next 2-days in IA/E-NE/KS/SE-MN/WI with totals between 1.00-2.45” expected. Hurricane Nate is also expected to make landfall Sunday morning which will bring heavy rain to the Delta and US-SE before pushing into the Mid-South and ECB. Totals for those areas by early next week are expected to be 3-8”. The Northern Plains will be mainly dry after today and stay that way through the 7-day and into the 6-10 day. The below normal temps leave by the 6-10 day, and above normal temps return for the 8-14 day along with below normal precip which will aid harvest efforts in the WCB.
Easier markets this morning as we get set to end the first full week of October and the new quarter. For the week, corn is down 6.25c, soybeans are down 1.50c and Chicago wheat is down 8.50c. Open interest continued to rise nearly the entire week for all of the major commodities, including yesterday when corn O/I rose another 4,055 contracts, Chicago wheat was up 995 contracts and soybeans bumped 268 contracts higher. Corn open interest has risen 136,835 contracts since August 30th, and all of that increased participation has occurred between the prices of $3.44 ¼ and $3.62. This is a fairly narrow price range for such a large amount of open interest to accumulate in, suggesting that when corn finally does move outside of this range, the move could be swift as someone is caught on the wrong side. Unfortunately, volatility continues to decline on an almost daily basis, implying the breakout is not in the immediate future. December ATM option vol settled yesterday at 14.43% vs. 16.28% a week ago and 19.00% at the beginning of September. Important to remember, the vast majority of harvest is still in front of the market, not behind.
Yesterday saw a solid jump from soybeans despite mediocre export sales (which we will cover below), softening CIF bids and contract lows in calendar spreads. There didn’t really seem to be an impetus behind the jump, although seasonally, October is a fairly solid month for price performance for not only soybeans but corn and wheat as well. According to www.sentimentrader.com, the 30-yr average performance for the month of October on soybeans is +1.314%. This would be about a 13c rally from where we opened the month. On corn, the 30-yr average performance for the month is 1.829%, or a 7c gain from the open of the month. On Chicago wheat the average return is 0.618%, or about a 3c rally. One other interesting seasonal tidbit for soybeans is the fact November soybeans have made their low for the month of October before the 15th in every year except 2008 going back to 2003. For January soybeans, the same was true except for 2009 when the high came before the 15th.
Export sales were also released yesterday and were average to slightly above average compared with trade estimates. Wheat sales were solid at 18.1mbu vs. the weekly amount needed at 13.5mbu. This was the largest total in five weeks. Total commitments for wheat now stand at 514.8mbu, down just 3% from a year ago while the USDA is calling for an 8% decline. Sales were led by hard red spring wheat with 7.0mbu of new commitments, which is nearly double the amount needed. Total commitments of 141.2mbu are down 13% from a year ago while the USDA is calling for a 19.0% decline. Corn sales totaled 32.0mbu which were at the low end of expectations, but above the 28.4mbu needed weekly. Total commitments of 478.9mbu are down 41% from a year ago amid cheaper supplies from Argentina, Brazil and Ukraine. Soybean sales came back down to earth at 37.3mbu vs. the 29.5mbu needed weekly. Total commitments measured 857.3mbu which are down 18% from a year ago vs. the USDA calling for a 3.6% increase. China is on holiday this entire week, so it will be important to see if they flip the buy switch back on next week.
Informa Economics released their latest crop production estimates during the session yesterday, inching both higher and in-keeping with the overall trend of yield reports. They put the national average corn yield at 170.5bpa vs. USDA at 169.9bpa in September, while total production is 14.182bbu vs. USDA at 14.184bbu. Soybean yield was increased to 50.0bpa vs. USDA at 49.9bpa last, with total production jumping to 4.474bbu vs. 4.431bbu USDA last. They also took a stab at sunflower production, putting the average yield at 1,508lbs/ac vs. 1,731lbs/ac last year and total pounds at 1.830 billion pounds vs. 2.655 billion last year. USDA has not estimated the nation’s sunflower crop yet this year but will issue a guess next week. Other private estimates out this week included FC Stone at 169.2bpa and 49.8bpa for corn and soybeans, respectively. T-Storm weather put the crops at 171.1 and 49.2bpa, respectively.
Jumping back to the wheat market for a moment, think it worth pointing out the improving technical and fundamental picture of Minneapolis spring wheat. As noted above, export sales notched the highest level in 7-weeks and were the second largest of the marketing year. Price has also found support from the 200-day moving average which we touched Monday through Thursday of this week and held. Further, various studies of momentum are indicating a potential bullish divergence, but would need trade back above $6.50 to confirm. As of 9/26, managed funds held a net long position of 5,913 contracts which was the smallest since May 30th, and slightly below the 52-week average of 6,915 contracts, indicating their position has finally gotten more balanced. While a sharp retracement isn’t expected straightaway, one can certainly make the argument for a meaningful correction back into the upper 6-handle area. Cash markets and spreads should be good leading indicators to the futures board as we move into fall and winter, which is precisely how a well-functioning market is supposed to work: first cash, then spreads, then futures.
Bottom Line: News is light, outside markets are fairly quiet and harvest could be interrupted by rain in many parts of the WCB this weekend. The amount of pre-hedging going into the weekend isn’t likely to be as heavy as it was last weekend or will be in the futures which should take some pressure off. Friday’s are trend days, and our markets are all carrying losses for the week.
Good Luck Today.
COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.