Morning Comments November 18, 2021

Boxholm harvest

As a well-followed market analyst said after the close yesterday, "the last month has proven you don't need a big fundamental reason to get a big move in futures." 

Yesterday we saw soybeans break out above what has been a strong technical resistance level for 6 weeks now, encouraging new buying and pushing us to the highest levels we've seen since just prior to the September 30th stocks report. 

Of course, as we have discussed, China has been in buying beans relatively heavily recently and while traders are disappointed and cognizant of the fact our export window is quickly closing, the fact that China has been buying a decent chunk of cargoes each week for the last handful of weeks makes them feel optimistic about future demand. 

Domestic hog prices in the country have found tremendous support as well, helping to improve hog margins and put a floor under meal demand at least in the near-term.

Important to note, after yesterday's move higher in beans, January beans are now trading the 3rd highest level we have seen for this time of year since 2010. 

Beans may have been the commodity seeing the big price moves to the high side, but much of the day was spent discussing energies and just what is taking place in that market as a whole, including what is happening when it comes to ethanol.

Crude oil has fallen to its lowest level since the beginning of October as the Biden administration has started to make moves to lower crude prices. While at this point much of what we're seeing is hypothetical at best, the idea the administration will do what it takes to prevent prices from moving much higher from here has given buyers pause and encouraged those with winning positions to move to the sidelines. 

We saw reports yesterday that the administration was working with China and a handful of other countries trying to put together an organized release of supplies from each country's strategic reserves. Some oil analysts are a bit puzzled by a move this large with oil prices trading in the low 80's, with some concern that the move could potentially backfire, angering OPEC+ and its member countries. 

In addition to chatter of strategic releases and talk the administration will have the FTC investigate gasoline prices, we are seeing actual fundamental changes in the market as Gulf production is starting to come back online after being ravaged by Hurricane Ida. 

Over on the ethanol side of things, traders there are becoming concerned over critically low stock levels in areas needing ethanol supplies in order to make gasoline able to be sold to a consumer. Logistical snarls have thousands of gallons of ethanol sitting in tankers on rail lines across the country. 

The inability to move product from where it is to where it needs to be has been responsible for a large part of the run-up in ethanol values seen in recent weeks. Yes, demand is decent, but the reality is refiners in areas where product hasn't been flowing as well as they would like to see have been forced to double if not triple their coverage in the hopes something they buy actually shows up.

According to insiders in the industry, the situation is getting pretty dire for some and warrants watching. However, it is imperative to remember the supply pinch is entirely nearby at this point, and once refiners are covered with physical production arriving at their doorstep, those extra purchases are likely to be cancelled as they are overbought.

Over in wheat, we saw Russia celebrate winning a couple large wheat tenders recently. Interesting to note, the celebration took place when their government continues to push the wheat export tax they are charging to record high levels, with further increases anticipated in the coming weeks.

There was a lot of talk that China was in buying French wheat again, with rumors working their way through the U.S. market about further Soft Red Wheat inquiries here as well. Ukrainian exports have been massive as of late, with much of their export capacity booked through the first part of next year.

Traditionally this is the time of year where we tend to see a slew of government tenders from around the world, and this year is no different. However, with all of the attention being placed on Chinese demand, Russian supply constraints and production issues in North America every new tender issued feels like a massive increase in demand and likely will continue to feel as such through the first part of next year.

Looking ahead, we will get updated export sales released this morning at 8:30 a.m. Eastern. With several flash sales of beans to unknown over the last week, bean sales should be pretty stout, with corn and wheat sales expected to come in similar to what we've seen the last few weeks. In addition to exports, we will be watching to see what energy markets do throughout the day as crude trades below its 50-day moving average with limited support in sight on the chart.

Corn 2 to 3 higher

Beans 4 to 5 higher