Morning Comments October 18, 2021

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We saw a strong recovery in values Friday after the recent price break seems to have encouraged some of the demand we've been missing. 

The soybean market led the move to the high side after a flurry of Chinese business was reported Friday morning. It appears as though upwards of 10 boats were traded out of the PNW for a deferred timeframe with some Gulf and Brazilian cargoes booked as well.

The Chinese crusher has been battling negative margins for months now as concerns over a resurgence in ASF pushed hog farmers there to liquidate herds, crashing pork prices and limiting meal demand. Recent reductions in crush due to the country's energy pinch has improved the value of soy byproducts, with the recent drop in value of beans helping solidify that move back to the black. 

The Chinese government has also stepped in, buying thousands of tonnes of pork for government reserves effectively establishing a low in the hog market, prompting some to increase herd sizes.

In addition to better crush margins, we are also seeing corn and wheat in the country trade at an equal value for the first time in recent memory. The expectations of decent harvest supplies combined with big imports has dropped domestic corn values from record highs seen in May. Wheat on the other hand, has seen an increase in demand around the world, with concerns over production pushing it to near decade long highs. The shifts in value we are seeing has led some to feel corn feeding returns in a big way. 

All of this, of course, helping to support values after a general removal of supply side concerns for soybeans and corn has put all of the attention on whether or not we will meet current demand expectations set forth by the USDA.

As one expert put it, we are out of stories in this market. We have a pretty decent idea that production is in line with or could possibly be larger than current USDA estimates. The million-dollar question now becomes what does demand look like, with all of that focus really coming down to what China is going to do in the weeks and months ahead.

Overnight we learned 3rd quarter growth for the country was slower than expected, coming in at 4.9% vs 5.2% expected. Industrial production rose at a much slower pace than expected as well, coming in at 3.1% versus expectations of 4.5%. Coal values in the country continue their move into the stratosphere as colder than normal temperatures in some regions are pushing the winter heating season to an earlier start than normal.

Over the weekend we had some continued Sabre rattling as China said anyone helping Taiwan would be seen as an enemy (paraphrasing of course), with the U.S. making it clear Taiwan is an ally. We are also continuing to hear of issues with Evergrande, though it appears as though China will do all they can to protect their citizens from this default letting it instead impact executives of the company and outside investors. 

Overall, we continue to be at the mercy of the outside market, supply chain disruptions and a pure uncertainty over just what is happening in every facet of the global economy. 

Looking ahead, we will get updated export inspection figures this morning with a continued expectation of growth in shipments as we get loading capacity back online slowly but surely. We will also get updated crop progress numbers this afternoon with limited pace expected for the week last week due to rain.

Weather looks open for just about everyone this week, hopefully encouraging a big week of progress in both harvest and winter wheat planting.

Corn steady to higher

Beans 1-2 lower