Perspective: Mid-Day Commentary for September 25

By: Arlan Suderman, Chief Commodities Economist

Mon, 25 Sep 2023, 15:30

Perspective: Mid-Day Commentary

Arlan Suderman

Chief Commodities Economist

September 25 - Stocks are mixed as we approach midday, despite strong Treasury yields that propelled the dollar index to fresh 10-month highs. That strong dollar created headwinds for the commodity sector to start the week. The dollar is trading at 106.2 at this hour as it surges to fresh highs for the move. Yields on 10-year Treasuries are trading near 4.51%, after setting fresh 16-month highs near 4.53%. Yields on 2-year Treasuries are trading near 5.11%. Crude oil prices are modestly weaker, while the grain and oilseed market is mostly weaker as well. The primary exception is Chicago wheat, which found a bit of a buy on Russia's overnight attack on Ukraine port facilities at Odessa.

USDA inspected 26.0 million bushels of corn for export shipment in the week ending September 21, along with 17.7 million bushels of soybeans, 16.6 million bushels of wheat and just 0.1 million bushels of grain sorghum. The portion of the above that was destined for China included 5.5 million bushels of corn, 11.1 million bushels of soybeans, 4.6 million bushels of wheat and 0.1 million bushels of grain sorghum. Demand on the world export market for U.S. commodities is very disappointing currently, especially for corn, but also for soybeans. This year's massive increase in Brazilian production displaced a great deal of demand for U.S. corn and soybeans. China expects to receive between 80 and 100 million bushels of Brazilian corn at its ports in September and October, with the flow continuing into December as well. Brazil's shipments of soybeans to China over the past six months have been staggering, allowing China to tuck away an estimated 10+ million metric tons of soybeans into its reserve for use when it deems it to be in its best interest. Argentina and Brazil have at least 180 million bushels of soybeans scheduled for shipment to China over the next three months, directly reducing Chinese need for U.S. soybeans.

USDA started to acknowledge this trend in its September WASDE crop report, reducing U.S. soybean exports by 35 million to 1.790 billion bushels. More cuts could be coming, if China chooses to pull from its reserves, or not if it chooses to keep those supplies in reserves. But unlike corn, I believe that USDA is under-stating domestic demand for soybeans as new crush capacity comes on line that investors will want to see pay for itself. The Renewable Diesel industry is gaining momentum, seeking oil as feedstock to produce fuel. As such, look for soyoil to increasingly drive crush here in the States. The graphic below shows our StoneX projection of crush capacity growth over the next several years. Historically, we tend to operate just below capacity due to downtime for maintenance, etc. As such, I believe that USDA is under-stating crush as much as 80 million bushels for the current year. I expect China to increasingly depend on Brazilian soybeans for its imports. The question then will be how the rate of decline in U.S. exports matches up with the rate of increase in crush activity.

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