Brooks Schaffer Market Report for Friday October 6

This is the Market Report with Brooks Schaffer of Palmetto Grain. Reach him at [email protected] or 843-540-4540.

Brooks Schaffer with wife Rachel and son Allie

Markets have seemed to be treading water early in the week trading in fairly narrow trading ranges. The turmoil in the outside markets is having some effect on the grain trade but it is often offsetting in net effect. We dodged a government shutdown which will give us the October crop report which was probably bullish for the market but now the House of Representatives is in chaos without a speaker which is probably bearish. There are renewed concerns about a recession which brings a joke to mind: the stock market has predicted 15 of the last 3 recessions. We have talked about the imminent recession for years now. I think the grain markets are becoming more immune to these threats but whenever its front and center in the financial headlines, it does keep some institutional money on the sidelines so it does still have some effect on the grain markets. 

Speaking of things that we have been talking about forever, there are still news and rumors out of the Black Sea that are pushing the grain markets up and down. Ukraine has been able to line up an impressive number of ships willing to defy Russian threats and come to Odessa to load grain and other export goods. Russian threats do not carry as much weight as they have moved the bulk of their black sea fleet out of Crimea and to ports easier to defend and further from Ukraine. China has been reported to be a big buyer of Ukrainian grain over the last few weeks as shipping lanes have begun flowing. There were rumors of Russia trying to bargain to restart the Black Sea Grain Initiative but their participation does not seem necessary so they have lost some bargaining power and those rumors continue to be unsubstantiated. Russia also continues to pump out as much of their own (and stolen Ukrainian) wheat as they can to generate hard currency. They have a very fickle growing season so we could see a dramatic change to the balance sheet on the upcoming crop year but for now, there is enough of a cushion to keep the market from being concerned. The wheat market has been overdone to the downside now though pricing in too much supply and no logistical issues. This calm in the wheat market will not last but we do not know when the spark comes that ignites it. Any spark that comes from the Black Sea will also bring some buyers to the corn market. 

Corn has also been due a correction higher. Exports were good this week and corn was able to hold on to support despite weakness this week in the energy prices. December was able to push through the resistance at $4.90 and will hopefully make a run at $5 now. Corn has faced some harvest pressure in some markets but in the bulk of the corn belt basis levels remain very strong indicating good demand and plenty of space to hold the crop. We get USDA’s update on yields on October 12th which will set the tone of the trade for a while after. I expect yield to be trimmed and tighten up carryout just a bit. 

Harvest is progressing rapidly with little rain to slow down but rain is desperately needed to recharge subsoil moisture before it freezes and to keep the Mississippi river from dropping to new record lows. We need the Mississippi to export grain and to bring crop inputs north for next year. US dollar has strengthened and China continues to buy beans from Brazil rather than us. We are adding domestic crush to fulfill the renewable diesel demand so we are reducing our reliance on exports but that is still a large portion of demand for our beans. Early yield results for beans seems to be a little better than the worst fears but still below trend. We will get USDA’s estimate on Oct 12th. South American planting is still very close to the 5 year average. Parts of Southern Brazil are forecast to get too much rain and the monsoonal rains are forecast to start filling in the north soon. Argentina remains in a significant drought despite El Nino in the pacific. Even though we have seen a very strong El Nino, we are not seeing it exert the normal effects on weather so that deals another degree of uncertainty for the market. Market will be closely watching US yields and South America planting progress.