Midday Comments: 10/26/2020

Reacting to US weather forecasts added rainfall for the southern Plains & reports that weather conditions have improved in Russia, wheat futures extended Sunday night losses to plunge by double-digit on Monday, leading corn & soybean futures lower early in the session. Friday afternoon’s CFTC Disaggregated Combined Futures & Options data hinted that grains were susceptible to bearish news.  After being net buyers of all major grain contracts except soyoil in the weekly period ended Oct. 20, managed trading funds owned the highest long/short grain ratio (5.0620:1) since Oct. 2. 2012 at last Tuesday’s close.  Managed trading funds owned their largest net long position in soft red winter wheat (+47,728 contracts, up 11,138 contracts for the week) since Feb. 18, their largest net long position in hard red winter wheat (+38,146. up 5,949) since Sept. 18, 2018, & their largest net long in hard red spring wheat (+4,492, up 6,266) since Aug. 21, 2018.  Funds also owned their largest corn net long (+218,825, up 47,956) since March 13, 2018, & their largest soymeal net long (+81,624, up 4,556) since June 19, 2018.  Funds maintained their second-largest net long position in soybeans (+231,892, up 5,448) since Aug. 21, 2012, & a still owned a hefty net long position in soyoil (+82,034, down 154 for the week).  Corn & soybeans each set fresh session lows shortly after the regular trading session resumed at 8:30 am, & then rallied. Corn found support from the estimates from the Ukraine Grain Traders Union that predicted Ukraine corn production will be only 30 mmt this year, 6.5 mmt below USDA’s current forecast & 5.9 mmt below last year’s total.  Traders also continue to build in expectations that US corn yields are lower than the 178.4 bu/ac. USDA projected on Oct. 9.  Soybean futures reversed higher by 9 am & added to gains thru the noon hour.  USDA's 10 am release of its Weekly Grain Inspections report showed soybean shipments (97.898 mb) at the highest since Nov. 17, 2016 last week & well above trade expectations that ranged to 80.8 mb. By contrast, corn (25.050 mb) & wheat (13.368 mb) inspections were below pre-report trade expectations & well short of the weekly shipments needed to reach USDA’s export forecasts for those commodities.  Massive soybean shipments (74.261 mb) to China are taxing US port capacity & limiting non-soybean exports right now.  If history is a guide, soybean exports will remain at 80-110 mb per week thru mid-November & then taper off.  Both corn & wheat inspections are then likely to improve after Jan. 1.  At 1:08 pm, Dec. corn futures were down 3/4c, March corn was 1c lower, Nov. beans were up 4.75c, Jan. beans were 3.75c higher, Dec. soymeal was up $3.10/ton, Dec. soyoil was 0.43c/lb. higher, & Dec. & March SRW wheat were each down 10.5cc.
 
Monday's losses are a contrast to strong gains that nearby contracts posted on Friday. Old-crop grains rallied to cap strong weekly gains as speculators bought into expectations that China continue to buy US corn, that South America would see la Nina-driven crop losses, and that drought would cut 2020/21 Russian wheat output. Dec. corn futures rose 3c on Friday, March corn gained 2c, Nov. beans soared 10c, Jan. beans jumped 8.75c, Dec. soymeal rallied $4.00/ton, Dec. soyoil were up 0.42c/lb., Dec. soft red winter wheat soared 10c & March SRW wheat was 8.75c higher.  For the week continuation charts of corn rallied 17.25 to its highest Friday close since July 19th 2019. Soybeans surged 33.75c higher last week to post its highest end-week settlement since July 8, 2016. And SRW wheat rose 7.5c last week to its highest Friday close since May 24, 2014.
 
This year’s contra-seasonal harvest rally is typical of what is seen in years where traders come to realize that crop size is not as large as previously forecast.  As speculators buy the rally & end-users lock in supplies to avoid even higher prices, demand is pulled forward even as higher prices ultimately ration demand later.  Massive Chinese buying ahead of the Nov. 3 election may be fulfilling a promise made by President Xi to President Trump, but delayed planting in Brazil & worries about a strengthening La Nina pattern make such purchases even easier.  As Thursday's weekly export sales report indicated, cumulative corn export sales (1,115.5 mb) by shipments for the middle of October are the highest since at least 1979. Cumulative soybean export commitments (1,666.3 mb) through mid-October are the largest in history by 464.1 mb.  And cumulative 2020/21 wheat export sales (566.5 mb) are the highest in four years. China has been a major factor in those trends. Whether a genuine attempt to meet its phase one trade deal or restock depleted government-owned stockpiles, China bought 17.066 mb of corn 48.108 mb of soybeans 20,000 mt of soybean meal 11,000 mt of soybean oil & 7.708 mb of milo last week.  That brought China’s total 2020/21 purchases of US corn to 415.307 mb, it cumulative soybean purchases to 981.147 mb, & its year-to-date grain sorghum purchases to 87.252 mb. Although China did not buy any US wheat in the week ending Oct. 15, it has booked 56.501 million bushels of US wheat this marketing year.  
 
In export news, USDA announced on Monday morning that 4.752 mb of 2020/21 US corn were sold to unknown destinations & 135,000 mt of 2020/21 US soymeal was sold to the Philippines.  On Friday, the farm agency reported that 39.368 mb of 2020/21 US corn was sold to unknown destinations. Grain merchants report that Egypt bought 6.063 mb of Russian wheat on Friday, paying about 57c/bu. more than in Sept. for Russian milling wheat.  South Korean feed mills bought 1.837 mb of feed wheat over the weekend.  Taiwan feed processors tendered for 2.559 mb of optional-origin corn for Feb. arrival, & Syria will seek 7.349 mb of Black Sea-origin wheat on Wednesday.
 
Locally, corn basis was up 4c, soybean basis was 3c higher & wheat basis was steady on Friday.  For the week, cash prices for Oct. delivery corn soared 34c higher, soybeans rocketed 50c higher & wheat rallied 8c.
 
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"Closing Comments" are written by David Marshall, First Choice Commodities LLC, Nashville, IL.  To learn more about his farm marketing advisory or commodity brokerage services, contact him at dmarshall@firstchoicecommodities.com or call (618) 327-4370 (voice/fax) or (618) 314-0918 (cell). This commentary is not intended for specific trading strategies. We strive to insure this information is reliable, but we cannot guarantee its accuracy or completeness.  Commodity trading involves risks. You should fully understand those risks before trading.