Jon Scheve with weekly market commentary made on October, 29, 2022
Throughout October, the soybean board traded $13.83 – 18 out of 21 possible times, while corn traded $6.83 – 19 out of 21 times. Clearly the market is in a sideways trading pattern and is searching for a reason to move higher or lower, but there are several variables impacting market direction. Ukraine Grain Corridor The warring parties in Europe agreed to a 120-day grain export corridor in the Black Sea that will end in mid-November, unless an extension agreement is made. Russia on Saturday has indicated it is not happy with the current arrangement and will not renew the agreement. Without an agreement, there will be less grain available from the Black Sea region and a futures rally would be expected. On the flip side, should a deal be brokered, and a continuation of the agreement put in place it could put downward pressure on prices. US Export Pace Soybean’s current export pace is running ahead of what is needed to meet USDA expectations. It is too early to tell if this pace will continue into the first quarter of 2023, especially since Brazil is expected to raise a very large crop this year. Corn export pace is the opposite of beans, which may mean the export estimate reduction for the marketing year is warranted. However, if livestock feed numbers are at least 95% of what they were last year, there is still plenty of opportunity for US feed markets to make up for a sizeable export decrease. South American Weather It is probably a little too early to worry about drought conditions in the Southern Hemisphere. However, Argentina has been extremely dry, which has pushed back early planting and may eventually mean lower yields at harvest. Brazil raises 75% of their corn production during the second crop, which is planted in February. That means there is a lot more time left to watch weather patterns and determine if La Nina will end soon or last until the heart of Brazil’s growing season. Brazil’s bean production will be impacted the most by precipitation in December and January. Any dry weather threat could mean explosive price potential, while normal weather would likely mean a steady slow drop in prices for several months. Basis Markets The basis market is on fire in the Plain States. This week, corn basis values delivered to the Texas panhandle hit +200 and a central Nebraska ethanol plant started trading at +70. Normally, basis levels in these areas are 100 cents less than what is currently trading. Corn Basis values in the east may have found a floor slightly higher than normal for harvest. Plus, the Mississippi River issues may start getting resolved, as harvest is nearing the end and there is a lot less grain left under immediate pressure to find shelter. This past week also saw bean basis begin to improve in the western part of the belt as soybean harvest is complete. After harvest, it may be difficult to motivate farmers to sell their stored grain throughout the winter, which could help push basis levels even higher. Bottomline Historically, when carryout is tight as it is this year, the futures market usually rallies after harvest is complete. The market is dealing with the southwestern part of the corn belt being out of corn, while the eastern corn belt has more than it can use. Difficult logistical problems due to dry weather and expensive fuel and freight costs are only perpetuating the problem. Add to that a world economy that is concerning everyone, and the market is left with more questions than answers and a sideways trading market. The news this weekend of the grain corridor getting shut down by Russia could be the catalyst that helps the market break its sideways pattern.
Jon Scheve Superior Feed Ingredients, LLC
9358 Oak Ave Waconia, MN 55387 jon@superiorfeed.com