October 11 – Stock futures pushed cautiously higher overnight, ahead of key inflation data to be released this morning, and perhaps more significantly, the minutes of the last Federal Open Market Committee meeting to be released this afternoon. Traders are also looking ahead to tomorrow’s consumer price index data, which they believe will again provide encouragement for the Federal Reserve to pause if not pivot its monetary policy, even though expectations currently have core inflation above 4%. Israel continued to strike targets in the Gaza Strip overnight, preparing it for a possible ground assault, but Wall Street still believes that the conflict will remain contained and not become broader regionally. The VIX is trading below 17 this morning, reflecting that cautious confidence, while the dollar index is trading near 105.8, after slipping to a fresh two-week low overnight. Treasury yields continue to slip lower ahead of the release of the FOMC minutes, with yields on 10-year Treasuries trading near 4.56% and yields on 2-year Treasuries trading near 4.96%. Crude oil prices are modestly weaker, while the grain and oilseed markets were quietly mixed overnight as they anticipate tomorrow’s crop data.
USDA is scheduled to release its October WASDE crop report tomorrow. The primary focus of the report will be the corn and soybean production estimates. The average trade guess going into the report will be that USDA will modestly reduce its corn yield to 173.5 bushels per acre, down from 173.8 the previous month, while cutting its soybean yield to 49.9 bpa, down from 50.1 bpa the previous month. Those numbers are programmed into the Algos, and they will respond accordingly whether USDA’s numbers come in above or below those numbers. StoneX’s customer survey revealed October 2nd expectations for the corn crop to improve to 175.5 bpa, with soybeans improving to 50.4 bpa. The primary question I anticipate USDA to answer tomorrow will be whether we see yields on late-maturing crops continue to surprise with better-than-expected yields, or will they disappoint due to the late season stress? Regardless, the trade is increasingly confident that the crops will be large enough to support anticipated demand for the coming year, and that will be the bottom line for traders.
But perhaps just as significant will be USDA’s corn and soybean export targets for the ‘23/’24 marketing year that began on September 1 as Brazil continues to dump large quantities of both crops onto the world market. Soybean shipments from Brazil are slowing, but they’re still above levels typically seen this time of year. Meanwhile, corn shipments continue to ramp up, especially to China. China typically leans on Ukraine corn for its import needs, but that’s been more difficult since Russia pulled out of the Black Sea Grain Initiative. There are unconfirmed reports that China recently made a significant purchase of corn from Ukraine – perhaps as much as 1 million metric tons – but China typically buys much more than that, so it’s been leaning heavily on Brazilian supplies, while taking periodic cargoes from the United States. However, China’s corn needs may be declining, based on reports from inside the country that this year’s crop is much bigger than anticipated. USDA currently calls for a Chinese crop on par with last year’s crop, while China’s official estimate puts it up 8 mmt. But private estimates within China put the crop 15 to 20 mmt above last year’s crop, with some as high as 25 mmt higher than the 2022 crop.
China’s soybean imports are expected to plateau in the year ahead, and perhaps even pull back a bit after China focused on rebuilding its reserves over the past year. Per capita pork consumption never fully recovered from the high prices seen during the African Swine Fever epidemic that claimed more than half of China’s hog herd a few years ago, and China’s population is in decline. Furthermore, official Chinse policy calls for reducing the inclusion rate of soymeal in the rations, which it has been successfully doing. The fourth quarter of the calendar year is typically dominated by U.S. soybeans headed to China, but the availability of competitively priced soybeans in Brazil, along with low water levels on the Panama Canal, has Chinese buyers continuing to buy South American supplies, along with new-crop U.S. soybeans. Chinese buyers purchased 16 cargoes of soybeans last week, which is again another slow week, down from the 25 to 30 cargoes they might typically buy each week this time of year. They still need to buy an estimated 11 mmt for December and January shipment, but they’re waiting to see how the Brazilian growing season starts. U.S. soybeans account for just 54% of the October shipments headed for China and 58% of the November shipments at this point, reflecting how Argentina, and primarily Brazil, have taken market share from the United States. The question is, will USDA reflect this will a lower export target on Thursday, or will it wait another month to do so? The agency also may reduce its corn export target in this report, especially if it further cuts its corn yield.
