Grains see slight profit taking after Tuesday’s rally. October 7, 2020
Good Morning from Allendale, Inc. with the early morning commentary for October 7, 2020.
Grain Markets traded slightly lower overnight after Tuesday’s significant rally. Traders may begin preparing for Friday’s USDA report where there are well-known expectations for declining new crop stocks. Some suggest we can prepare for USDA export estimates to be raised again on the November report. On the other hand, moderate rains are seen for Brazil starting this weekend. It will in no way stop the concern over dry conditions but may encourage planting. There is also a mild additional concern over the coming hurricane that will hit the US this week.
Hurricane Delta, a 145 mph hurricane currently Southeast of Cancun, Mexico, will reek havoc this week. Water levels could rise to 9 feet over normal in Cancun. The Category 4 hurricane is expected to make US landfall through Louisiana Friday night and move to the Northeast up through Kentucky by Sunday night. Winds are expected at 100 mph by landfall and down to 25 mph when over Tennessee and Kentucky.
Oil and natural gas production in the Gulf will be the first market impacted. The Gulf of Mexico is responsible for 17% of US crude production and 5% of its natural gas.
Grain handling off the Mississippi will be impacted next, in some way. The Mississippi portion of the Gulf shipped out 45% of last week’s ocean going shipments of US corn. It moved 58% of last week’s soybean shipments and 18% of wheat.
President Trump indicated he has ended negotiations with House democrats for a second COVID-19 aid package. He suggested the distance between the two sides was too great and a new stimulus bill would be offered after the election.
Ethanol production for last week, ending 10/2, will be released at 9:30 am CT this morning. This week will be compared against last year’s 963,000 barrel per day production for the same week. Two weeks ago our production run was 8.0% under last year. USDA’s current new crop corn for ethanol goal, 5.1 billion bushels, would be about 5.6% from a “normal” run. Assuming we start this new crop year out at -8%, and perhaps end next August at -3%, USDA’s estimate is reasonable.
Brazil soybean exports in October were seen dipping down to only 1.911 million tonnes according to the export association, Anec. This would be down from their 3.945 mt estimate for September. Even after noting October is typically a lowerer export month, this is quite low. Trade Ministry statistics show a 5.2 mt export last October.
US soybean export prices remain at a clear discount to Brazil for just this last month. From November and beyond asking prices show a discount for Brazil at $11 per metric tonne. Some in the industry suggest this may not matter given prospects for China attempting to fulfill trade deal obligations.
Rains forecast for Brazil are seen from Saturday the 10th – Friday the 16th. Totals of .50 – 1.75 inch are likely. This won’t solve any problems but may give producers confidence for planting. Allendale is not too concerned about farmers planting the crop. Current soybean prices are dramatically over last year and there is massive financial incentive, even if patience is needed.
Brazil soybean production estimates were raised from 132.6 million tonnes to 133.4 according to the analysis firm, Agroconsult. USDA on 9/11 was at 133.0. Allendale is at 132.2.
Live cattle deliveries against the October contract totaled 1 Tuesday afternoon. This was for Worthing, South Dakota. Monday afternoon saw 9 tendered for the same location. Given the small number, and this specific location, this is not seen as a market mover.
Feeder cattle futures pushed to new lows for this downtrend on today’s corn rally. The November contract is now at its lowest since July 8.
Wholesale pork slipped 2.45 on Tuesday. It is still up 0.40 for the week. Pork prices have risen a large 19.93 in September and so far in October with no sign yet of a top.
Hog slaughter this week will push 2.7 million head. The previous two weeks have been low at 2.601 and 2.603 due to mechanical issues. This week’s run would be the largest since March. Seasonal increases in supply into Q4 suggest the need for +2.8 million head at times ahead.
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