Perspective: Mid-Day Commentary for September 21

By: Arlan Suderman, Chief Commodities Economist

Tue, 21 Sept 2021, 17:18

Perspective: Midday Commentary

Arlan Suderman

Chief Commodities Economist

September 21 - Stocks rebounded from Monday's losses today, although a quiet nervousness continues to hover over Wall Street. Tonight's trade in China will be that market's first opportunity to trade the Evergrande default issue, as its been closed for a holiday, which will likely influence tomorrow's trade here in the States. That then will provide the backdrop for the Fed's vote on its monetary policy tomorrow. Furthermore, Congress has yet to fund the government beyond September 30th, and the debt ceiling becomes a problem next month as well. As such, there's plenty of uncertainty to keep the VIX elevated, although it is trading modestly lower near 24 at midday. The dollar index softened to trade near 93.2, while yields on 10-year Treasuries are trading near 1.33%. Crude oil prices are modestly higher, while the Ags are mixed.

The soybean balance sheet is the tightest in the grain and oilseed sector, making traders wary of continuing to sell yesterday's probe below the 200-day moving average for the lead November contract. However, they continued to trade negative momentum signals for corn and wheat, with little impending fundamental data to prove them wrong. Wheat fundamentals remain the same - supplies of milling wheat among the world's exporters remain tight - but that doesn't mean that the market has to go up every day. There's an ebb and flow with the markets. The fundamentals are less clear with corn, where crop ratings are going up - largely due to Illinois - when early harvest results are quite mixed to disappointing. This week's cash cattle trade is expected to sustain this year's incredible steady tone, even as beef demand remains quite impressive. Lean hogs face very different dynamics, with supplies seasonally rising, while demand slides in the opposite direction.

USDA raised both its corn and soybean ratings modestly on Monday afternoon. Seasonally, this is the time when crop ratings tend to be flat to a bit higher, so that's not a big surprise. What was a surprise was the sharp rise in Illinois corn and soybean ratings. The graphics below show our weekly StoneX corn (left) and soybean (right) condition index scores for the growing season for Illinois. These are based on USDA's Excellent, Good, Fair, Poor and Very Poor ratings. I also added Iowa and Indiana's weekly ratings to the graphics. The weekly movement in their ratings is pretty typical for crops, while the Illinois ratings are far more volatile. The week to week swings are not unprecedented for Illinois, but they're not real common either, especially so late in the growing season when the crop is drying down.

It's not unusual for ratings to rise and fall with growing conditions through the season. Remember, these ratings are essentially a crop "beauty contest" based on how the crop looks. I filled them out weekly years ago when I worked for the government. I tried to walk fields weekly to make my ratings as accurate as possible, although that is not true of all of the thousands of crop observers filling them out each week. My observation is that the weekly ratings reflect what survey participants are hearing from farmers once the crops reach maturity. Ratings tend to rise if early harvest results are "better than expected" and to fall if the opposite is true. The crops certainly do not "look" better this week than they did last week. In fact, Illinois agronomists are talking about the way this year's corn crop died prematurely due to late season disease pressure, rather than maturing normally. Typically, that means smaller seed size, and smaller than expected yields, which anecdotal reports have indicated as well. There is still good corn in the eastern Midwest, with good soybeans as well. But are those yields record yields as was largely expected, which would offset the anticipated losses in the west? That story is yet to be told by the combine. They very well may be that good, but I'm skeptical. Yet, this year's big swings in Illinois crop ratings through the season will be the subject for debate for some time. Perhaps USDA final production numbers will shed some light.

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