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September 29, 2021
There's an old adage that a market that doesn't fall on bearish news is one that has a lot more working for it than against it.
Last Friday's bullish Hogs and Pigs Report would certainly qualify as "bearish news" for corn, and yet corn futures posted double-digit gains.
We noted in our weekly basis analysis that for the first time in seven straight weeks, corn basis among the cities we track actually improved from the prior week, even though harvest is gaining momentum.
So, what else is going on for corn to account for the surge? Two things. First, soaring energy prices have made ethanol quite attractive to blenders again. All the rumors that EPA is going to scale back RFS standards are yet to be confirmed, but fade into the background if blending ethanol makes sense for refiners whether "required" to blend or not.
The other thing notable is widening reports of corn yields falling short of expectations, mostly on evidence that either drought stress sped up maturation in the West, or disease pressures from excessive moisture caused even good-looking fields to shut down early in parts of the east.
Monday’s export inspections certainly didn't hurt. While still well short of last year due to Gulf terminals not yet fully up-to-speed, traders have at least lowered "expectations" enough that yesterday's weekly loadings tally of 517,539 tons was at the high end of pre-release estimates ranging from 300K to 575K. Plus, there were rumors circulating that China was looking for U.S. corn on the same day they made a flash purchase of 334K tons of soybeans.
Premiums to U.S. Gulf prices for Brazilian beans and meal are soaring as domestic bidders choke off their export competitiveness. We anticipate a pattern of aggressive U.S. soybean sales now through harvest.
As in corn, yesterday's weekly export inspections report was far behind a year ago when Gulf terminals were loading full tilt. What's important in terms of trade reaction is where they come relative to scaled-back expectations. On that score, it was a similar story as in corn. Soybean loadings just shy of 441,000 tons came in at the higher end of expectations ranging from 150K to 500K.
There are reports that nearly two dozen Chinese crush plants have been temporarily closed or working only partial hours due to energy rationing. However, it hasn't slowed soybean purchases or weakened prices. Soybeans at the Dalian exchange are still near season's highs of $19.64. In fact, if crusher slowdowns cause a problem for meal users, we could actually see China buying U.S. meal, which is really bargain-priced.
Dan Manternach is a Senior Economist at Commstock Investments. He can be reached at 712-227-1110.
Futures trading involves risk. The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that CommStock Investments believes to be reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.
The opinions of the author are not necessarily those of Farm Futures or Farm Progress.
Senior Economist, Commstock Investments
Dan Manternach grew up on a diversified family farm in Iowa that had a beef herd, feedlot, farrow-to-finish hog operation and an egg-laying chicken. He’s a graduate of Iowa State University where he majored in Agricultural Communications and Agricultural Economics. A former President of Pro Farmer, Dan developed strategic alliances with firms in Canada and Australia that led to the launch of Pro Farmer Australia and Pro Farmer Canada, both still thriving today under new owners.
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