Market Thoughts 10.4.20
Corn Complex- USDA this week came out with another big surprise in their quarterly stocks report. In fact, this is this the second such surprise in the last 3 months that has reshaped thoughts on the underlying fundamentals of the marketplace. The USDA released a near 250-million-bushel adjustment to Sep 1 stocks, with 200 million of that coming as a nearly unprecedented adjustment going back to the already published June stocks report. This implies a few things given we know where final exports for the 2019 crop landed and can imply quite closely ethanol usage. It would appear that the USDA underestimated 2019 crop size as feed usage likely was not 9% higher in the previous quarter with only 2% higher livestock numbers. So where do we go from here, taking the stocks adjustment right to the bottom line implies 20/21 carryout somewhere closer to 2 billion bushels vs 2.2-2.3 billion bushels. Still a near record large carryout but implications for the ’21 crop year means futures still will need to maintain or buy some acres to keep carryout levels comfortable for the marketplace. Funds did show length growing out towards to 110k contracts, nothing near record, but continued growth in the last couple of weeks. Export sales continue with another strong week with total sales at just over 40% of USDA projected levels. We will need to continue monitor as South American fob values are now a significant discount to US and will be competitive for world market share.
Soybean/Canola Complex- Soys worked back higher this week with info from the quarterly stocks report being the catalyst. USDA indicated a nearly 50 million bushels adjustment to Sep 1 stocks an adjustment only eclipsed by last year’s nearly 90-million-bushel adjustment. The 50-million-bushel adjustment took implied carryout levels to around 525-million-bushel level for the 2019/20 crop and carrying thru to the 20/21 crop would indicate carryout around 425 million bushels continuing to tighten US carryout levels. For world markets we continue to watch the rain chances for the major Brazilian planting areas into mid-Oct as forecasts remain dry with scattered chances of moisture. Funds continued to add to their long this last week pegged at just short of 230k contracts all as additional longs in the market. So, with near record longs will they want to push beyond if we have the fundamental framework for additional buying or we will see a bit of a stall out near the current price levels.
Wheat Complex- KC wheat led the pack for the week as continued dryness in the SW US Plains has added a weather premium to the market. With little rain chances in the 2-week forecast this next week could see additional volatility as the market looks for rain chances. Chicago and Minnie complex both moved along with the strength in KC. World weather looks slightly better for the Argentine crop, but still showing mixed bag of rain/dry in Ukraine and Russian Black Sea region. Funds continue to sit on small longs in the KC and Chicago market with a small short held in the Minnie market. Export sales for most classes of wheat continue to hold up decently even with US dollar strengthening and competition for elevation space at export houses.
Outside Markets- Outside equity markets have remained a bit volatile mostly focused on potential changes resulting from the November elections. We have seen outside market indicators be mixed bag with unemployment continuing to fall but seeing continued concerns about small business growth across many sectors in the US. One area to watch as well is commercial real estate especially as it relates to retail locations, i.e. US mall and strip mall operators may be encountering significant financial distress.