Perspective: Mid-Day Commentary for September 22

By: Arlan Suderman, Chief Commodities Economist

Wed, 22 Sept 2021, 16:55

Perspective: Midday Commentary

Arlan Suderman

Chief Commodities Economist

September 22 - Wall Street supported a buying spree today based on a story rumored to be circulating around trading desks that The Chinese Communist Party is working on a deal to restructure Evergande Group into three separate entities while protecting domestic stake holders. The VIX is trading near 21 as calm returns to Wall Street. The dollar index is trading near 93.1, while yields on 10-year Treasuries remain near 1.32% ahead of this afternoon's Fed statement. Crude oil prices are more than 2% higher in broad buying of the commodity sector, which includes most of the Ags as well. End users and speculative bottom pickers are in the market today to buy the grain and oilseeds. The broad-based buying lifted the protein sector as well, although today's strength just keeps prices within their recent trading range for both the cattle and hog markets. This week's cash cattle trade has been light thus far, but it is mostly at $123 - $124 per cwt, which remains in the range it has been for the past several weeks.

Decent gains for corn and soybeans evaporated this morning when Reuters broke a headline that the White House is about to make "big cuts" to the biofuel blending mandates for 2020,2021, and 2022. I'm not sure how you make cuts for current years that still have no numbers, but that was the story. This was largely a recycle of a story it ran in August, with a few more details added. The White House continues to seek a middle ground between the Ag and Oil lobby groups. It's expected that it will revise its 2020 blending mandate lower to reflect pandemic conditions that cut refinery output by roughly 15%, with more modest cuts for problems seen in 2021. Cuts to the biodiesel blending mandate for 2022 are expected due to expectations of tight feedstock supplies. That should allow for an increase in the ethanol blending mandate for 2022, while the new generation of renewable fuels utilize available supplies of edible oils. Soyoil led soybean and corn futures lower when the headline broke, but the market eventually discounted the story - returning to its previous price levels with bull spreading the feature of the day.

The focus now shifts to harvest results for corn and soybeans. Yields I've seen thus far (it's still very early in the harvest window) have been better than expected in the west, thanks to those late-season rains, but poorer than expected in the east due to late-season disease pressure. Southern and eastern areas are still drying out following recent rains, while harvest activity is ramping up again in the west, focused mostly on getting soybeans harvested while the weather holds. The production picture should become much clearer over the next couple of weeks.

U.S. commercial crude oil stocks fell by another 3.5 million to 414.0 million barrels (not including the Strategic Petroleum Reserve) in the week ending September 17. That puts stocks about 8% below the five-year average for mid-September. Gasoline stocks rose by 3.5 million barrels, leaving them roughly 3% below seasonal levels. Distillate stocks fell by 2.6 million barrels during the week, leaving them 14% below levels typically seen this time of year. Ethanol stocks were pegged at 20.1 million barrels last week, up slightly from the 20.0 million barrels seen both last week and in the same week last year. Ethanol production slipped to 926K barrels per day last week, down from 937K the previous week, but up from 906K barrels per day last year. The production of ethanol utilized an estimated 91.7 million bushels of corn in the week ending September 17, down from 92.8 million the previous week, and down from 93.6 million in the same week last year. Estimated corn use to date for the first 17 days of the marketing year totals 224 million bushels, down 21 million bushels from the total seen in the first 18 days last year.

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