September 5 – Stock futures were mixed to lower overnight as Treasury yields surged higher, and as traders reacted to weak economic data out of China. The VIX is trading near 14 this morning, while the dollar index traded to a nearly six-month high above 104.8. Yields on 10-year Treasuries are trading near 4.23%, while yields on 2-year Treasuries are trading near 4.91%. Crude oil prices pushed higher to fresh nine-month highs as Saudi Arabia announced that it will extend its cut in output until December, following last week’s announcement by Russia that it will extend its cut through October. The grain and oilseed sector is mostly weaker as weather forecasts improve, and ahead of private production forecasts due out this week ahead of next week’s highly anticipated USDA WASDE crop report.
The Midwest forecast shifted milder and somewhat wetter over the holiday weekend, which allows conditions to improve as this year’s corn and soybean crops finish the growing season. Crops will vary as to how much they benefit from this improved weather pattern. Overall benefits will be somewhat limited, although the improvement in conditions certainly should slow additional losses if the season had finished under worse conditions. The focus now is on the extent of damage done to the crops over the past several weeks, which have been quite dry across most of the Ag Belt, with periods of extreme heat included in that time frame as well. Agronomically, such a finish tends to result in smaller corn and soybean kernels that results in lower yield.
Crops don’t always read the textbook on the extent of the losses. Sometimes losses are greater than the textbook would suggest they should be, and sometimes they’re less. Purely from a textbook standpoint, I wouldn’t be surprised at all to see the corn crop slide into the 160s bushels per acre, with soybeans possibly below 47 or 48 bpa. But I haven’t gone that low yet because I still lack data to suggest that is the case this year. Data on small seed size can’t be achieved until fields are sampled and / or harvested. USDA spent the past week sampling corn and soybean fields across the country, and it will release that data a week from today on September 12th. It will combine that data with a producer survey to construct its September production estimates. As such, the September report should provide our best look at how this year’s crops survived this year’s highly variable conditions that saw big swings in temperatures, extreme rainfall events, but that was dry overall – especially as the crops were in the grain fill and pod fill stages of development. This year’s yields are a critical component to the balance sheet, but the market is also focused increasingly on the slow start to the new marketing year export season. It’s been a slow start for soybeans, but it’s been dismally slow for corn to this point.
The start of the Brazilian planting season typically starts on September 15 in Mato Grosso and surrounding areas. That’s because local policy doesn’t allow planting earlier than September 15 to break the Asian rust growth cycle. Growers petitioned Mato Grosso to allow for September 1 planting this year so they could harvest beans sooner, and they were granted such. There have been some showers in the region as well, but the monsoons have not started yet in Center-West Brazil. Most farmers anticipate waiting until the rainy season starts before actively planting. Forecasters believe that could still be four to five weeks away yet. Brazil can still grow a big soybean crop with late planting. They’ve done it before. The greater risk for late planting soybeans is that it delays harvest, which in turn delays planting of the safrinha corn crop, raising the risks that it would not make grain before the monsoons end. This past season’s safrinha corn crop was planted late, and it produced a record crop because the monsoons continued later than normal this year. But that’s more the exception than the rule. We’re currently keeping our eyes on China’s corn crop, where excessively wet conditions in northeast China may have hurt the crop. Stocks are currently considered tight in China as they wait on the start of this year’s harvest. Brazil has plenty of corn to ship following a big harvest, but it would help if Chinese demand were to pick up the pace to absorb some of those bushels.
Meanwhile, Brazil continues to actively ship soybeans to China, with shipments extending later than usual this year due to the massive crop it harvested this past season. Chinese buyers were very active last week, purchasing 45 – 50 cargoes, up from 35 cargoes the previous week. A little over half of the cargoes were for October and November shipment. China has coverage for 9.5 million metric tons of soybean shipments in October thus far, with 3.1 mmt of that total coming from Brazil at a time when the U.S. typically has full market share. China has coverage of 3.4 mmt of November shipments, with at least 1 mmt coming from Brazil. StoneX Brazil estimates that the Brazilian farmer still has 36 mmt of soybeans to sell. Obviously, not all of that will go to the export market, but it does suggest that Brazil will continue shipping soybeans all the way into the new calendar year when it begins harvesting its next crop. Brazil soybeans remain competitively priced, but they also have an edge because they do not need to go through the Panama Canal to reach China. Chinese buyers remain quite concerned about the delays and added costs of going through the Canal this year.
