The CME and Total Farm Marketing offices will be closed
Monday, September 6, 2021, in observance of Labor Day.
MARKET SUMMARY 9-3-2021
The price gap between December corn and December oats is trading historically narrowly. The oat market is trading near multi-year highs, as limited acres and drought conditions have brought production in the United States and Canada to historically low levels. This has driven the price ratio between corn and oats to a narrow spread of less than 15 cents, the narrowest since 2014. The spread was pushed this week with the strong move lower in corn due to demand concerns and shipping issues developing in the Gulf after Hurricane Ida. In looking at history on this ratio, could this spread be too tight? Typically, one of the two grains moves to widen the spread. This is what occurred the past three times the spread reached these levels — 2001, 2006, and 2014. These markets are dealing with very different forces and issues in each market this year, but historically the spread between corn and oats wants to run wider than present levels.
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CORN HIGHLIGHTS: Corn futures started softer on the overnight trade and, while trying to recover at one point, ended the session sluggishly. September lost 8-1/4 cents to close at 5.08 and December down 1-1/2 at 5.24. December lost 29-3/4 cents on the week, posting a weekly reversal on charts. For now, prices have fallen into oversold territory. September 1 marked the beginning of the new marketing year. Cumulative export sales have reached 33.5% of the USDA forecast for the 2021/22 marketing year versus the 5-year average of 17.8%. The impending harvest and a three-day weekend, along with Hurricane Ida and its disruptions, all weighed on futures this week. A warmer forecast would suggest that maturity will push along faster than normal. It is not unusual to hear producers indicate they might be in the field one two weeks sooner than normal. This is also a function of a dry spring in which planting progress was rapid. Basis continues to fade as well, more evidence that end users are only buying as needed. While export sales are off to a good start for the marketing year keep in mind much of those sales were to China in spring. They were likely insuring supply prior to the growing season. A private firm, StoneX, is estimating yield at 177.5 versus the USDA July estimate at 174.6. The USDA report will be released next Friday, September 10, 2021 at 11:00 central.
SOYBEAN HIGHLIGHTS: Soybean futures firmed, closing with gains of 3-3/4 in September at 12.93, and November added 8-3/4, ending the session at 12.92. StoneX raised its yield and production projections for beans on Thursday to 50.8 bu/acre and 4.409 billion bu versus the USDA outlook for 50 bu/acre, and output of 4.339 bb. Recent rains were viewed as beneficial, helping to increase yield potential. Futures did finish firmer today but had a difficult week as hurricane Ida has many concerned how logistically the Gulf will load out. Once prices began to slip, technical selling developed. This seemed noticeable once November futures dropped under 13.00. For the week, November futures lost 31-1/4 cents. Bullish traders have likely had the wind taken out of their sails. Expectations are that supplies will remain critically tight, and it will be several months before South American production will be to the world market. Until then, limited supplies from South America should support U.S. prices. Once more assessment is known regarding the damage in New Orleans, traders are likely to prepare for a slowdown in exports at a time when harvest will be picking up steam. Will elevators become full of beans quickly and unable to move them? Will this backup supply in fields? Maybe. At present we don’t know how to assess the damage in a conclusive enough manner. Our bias is that export loadings will be slowed yet in the long run likely a temporary issue.
WHEAT HIGHLIGHTS: September futures inching closer to expiration, gained 10 1/2 cents closing at 7.14 1/2, and December gained 9 1/4 cents closing at 7.26 1/4. KC September gained 14 cents closing at 7.15 1/4 with a volume of only 15 contracts today, and December contracts gained 14 cents as well, closing at 7.23. The week felt “weak” regarding wheat, but really and truly when compared to fellow grain, Chicago wheat only lost 6 cents for the week and KC only lost 1 – all in the wake of Hurricane Ida’s wrath on the markets since Monday. Also adding pressure to futures this week was rain in the western Plains that will help fall planting conditions for winter wheat – more rains expected to fall in Kansas next week as well. In contrast, the northwestern states remain dry, but should help spring wheat harvest come close to wrapping up this week and next. The bullish outlook for wheat hasn’t changed. USDA in their August report estimated US ending wheat supplies at their lowest in 8 years, and this week we continue to see global supplies tighten with projection models of Russia and Canada continuing to shrink.
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Author
Bryan Doherty