Perspective: Mid-Day Commentary for September 1

By: Arlan Suderman, Chief Commodities Economist

Wed, 01 Sep 2021, 15:36

Perspective: Midday Commentary

Arlan Suderman

Chief Commodities Economist

September 1 - The tech sector surged to fresh record highs today, while the Dow pulled back amid modest selling pressure. The VIX continues to trade just above 16 as we approach midday. The dollar index is trading lower near 92.4, trading at its lowest level since August 6th. Yields on 10-year Treasuries are trading either side of 1.30%. Crude oil prices are 1% lower, while the Ags are mixed. This week's Ida-related selling led to chart-related selling in the grain and oilseed sector as momentum remains to the downside, while the protein complex was mostly higher in early trade. Active fund liquidation has eased in the live cattle futures market, while producer hedging has slowed as well, allowing for a bounce.

StoneX's Brazil team released its monthly customer survey based production estimates today. It reduced its 2020-21 total corn production total to 86.62 million metric tons, down from 87.14 mmt the previous month. Most estimates were near 110 mmt six months ago, but drought significantly cut the safrinha corn crop. Our team pegged it at 59.1 mmt, down from 59.6 mmt the previous month. USDA lowered its total corn production estimate for Brazil to 87.0 mmt on August 12th. StoneX Brazil pegs the 2021-22 soybean crop at 143.3 mmt, unchanged from the previous month, but up from 135.5 mmt the previous year. Planting of the 2021-22 Brazil soybean crop is expected to commence when the dry season ends, which producers hope will be by mid-September.

U.S. crude oil stocks fell by 7.2 million to 425.4 million barrels (excluding the Strategic Petroleum Reserve) in the week ending August 27, which was two days prior to Hurricane Ida slamming into the Louisiana coast, causing the evacuation of many oil platforms and the shutdown of major refineries. That put crude oil stocks roughly 6% below the five-year average for the end of August. Gasoline stocks rose by 1.3 million barrels, leaving them 2% below seasonal levels. Distillate stocks dropped by 1.7 million barrels and are now 9% below levels typically seen in late August ahead of the harvest demand for diesel. Ethanol stocks slipped to a seven-week low 21.1 million barrels, down from 21.2 million the previous week, but up from 20.9 million barrels in the same week last year.

Ethanol production fell to a six-month low 905K barrels per day in the week ending August 27, among production issues and difficulty originating corn in some areas. Both issues should ease over the next week or two. Last week's production pace was down from 933K barrels per day the previous week, and below the 922K barrels per day produced in the same week last year. Estimated corn used for the marketing year to date for the production of ethanol is 4.990 billion bushels, up 3.9% from the previous year's pace. Assuming that ethanol production maintained the same pace through the final four days of the marketing year would put marketing year corn use at 5.042 billion bushels, down 33 million from USDA's current target for old-crop corn. The graphic below shows weekly estimated corn use for ethanol production versus the previous year and versus the seasonal pace needed to hit USDA's target. You can see that there were times when the industry exceeded the pace and times when it fell below it, but ultimately, production fell off later in the marketing year as heat negatively impacted production, along with some processors struggling to originate corn. We will likely see exports fall roughly 35 million bushels short of USDA's target as well, resulting in a modest bump in old-crop ending stocks, while the primary focus going forward will be on new-crop ending stocks.

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