August 8 - The global banking sector was rattled following Moody's unexpected downgrade of 10 small- and mid-sized banks overnight, as well as caution sent toward some bigger banks. That created headwinds for both stocks and for commodities in today's trade, although some commodities are managing to push into the green at midday. The VIX is trading at two-month highs near 18, reflecting elevated concerns, as money flowed into the traditional safe-havens of the U.S. dollar and Treasury securities. The dollar is trading near 102.6, which is just below its recent one-month highs. Yields on 10-year Treasuries are trading near 4.02%, after probing to 3.98% earlier in the session, while yields on 2-year Treasuries are trading near 4.78%, after falling to a nearly three-week low below 4.72% earlier in the session. Crude oil prices are modestly lower at midday, while the grain and oilseed sector is mixed. December corn continues to find modest buying interest just above key chart support near $4.90, while the hard wheat markets in Kansas City and Minneapolis find support from declining yield prospects for the Northern Plains and Southern Canadian Prairies. November soybeans fell below the 100-day moving average that had held the market in yesterday's free-fall, but short covering began when traders found few sell-stops below that level ahead of Friday's USDA crop report.
China bought about 40 cargoes of soybeans last week, according to our cash sources, with nearly half of those being U.S. cargoes for shipping in October and November. StoneX Brazil data shows that the Brazilian farmer still has about 40 mmt of soybeans to sell from this past harvest, which is up notably from 27 mmt in early August a year ago. That means that Brazil has plenty of soybeans that can still move onto the world market as the U.S. supply becomes available. China has been depending on those Brazilian supplies, but a slowdown in Brazilian farmer selling sent local cash basis notably higher late last month, pushing the cost of Brazilian beans above that of U.S. new-crop soybeans. That could change if/when cash basis weakens again in Brazil. China continues to aggressively import soybeans this summer from Brazil, which it purchased earlier this year. Actual unloadings versus crush are expected to leave China with a surplus of soybeans coming in from May through September of roughly 12 mmt, or 440 million bushels. From all indications, those surplus soybeans have been flowing into China's reserve, which it drew down last year rather than buy more expensive U.S. soybeans. The question is, will China again release those reserve soybeans, or a portion of them, during the U.S. export season to reduce its import dependency on U.S. soybeans, or will it keep those soybeans in its reserve for the future? Only China knows the answer to that question, but the answer will have significant implications for the U.S. soybean new-crop balance sheet. What we do know is that U.S. new-crop soybean sales on the books are dramatically below where they've been in recent years, even with the recent uptick in sales.
The average trade guess for Friday's USDA crop report puts the corn yield at 175.5 bushels per acre with soybeans at 51.3 bpa. Our official StoneX estimate comes from our customer survey, pegging the corn crop at 177.0 bpa and soybeans at 50.5 bpa. The above average trade pre-report estimates are being programmed into Algo computers to trade USDA's numbers when they are released Friday. Those Algo computers will put in buy or sell orders in the initial seconds following the report's release based on whether USDA's yields are higher or lower than those trade estimates. They will do so with other numbers as well, including ending stocks estimates. My biggest difference with USDA on its new-crop balance sheets revolves around corn and soybean export sales - especially corn sales. USDA's number appears to be more about solving for a desired outcome rather than reflecting reality, and I do not expect it to bring its new-crop export number down unless it cuts yield more than expected, or we get deeper into the fall. I include two graphics below showing the trend of my weekly yield model projections through the growing season. These yield model estimates are based on weekly USDA crop ratings, and they are not our official StoneX estimates. But they do provide an indication of the evolution of yield expectations as conditions change during the growing season. Yield prospects dipped during times of weather stress in June, and again briefly in late July, before recovering with better weather in August. This reflects the constantly evolving new-crop supply and demand fundamentals traded by the market.
