Morning Comments October 27,2021

Grain Lol Corn Free To Use

It was a bit of a wild ride yesterday as we started the day lower across the board and saw values push much lower, with corn down 6 before seeing a strong recovery midday and then relaxing into the close.

There is lots of talk of increased crush and ethanol demand thanks to the strength in energy values and subsequent strength in margins. Ethanol margins right now are near record highs for just about anyone in the industry, with most ethanol producers looking at positive margins out into the summer at current levels. 

With the strength in ethanol margins, many believe we will see the industry do its best to run at near max capacity. Doing so would increase the amount of corn used for ethanol upwards of 200 million bushels. 

It is interesting to note that folks in the currently bullish ethanol demand are ignoring any other potential adjustments to either the supply or demand side, instead simply are lopping off another 200 million bushels from projected carryout. Of course, it is entirely possible this could be the case and we could see carryout ideas start to shrink due to increased demand, but it is going to take us quite some time to see if that is valid or not.

One of the hardest parts of managing a demand-led rally like we've seen is it is always easy to assume demand is being underestimated with time being the only factor able to provide us insight into whether that is the case or not.

Current export sales on the books for corn are phenomenal, coming in much higher than we would typically see for this time of year. This is obviously keeping folks excited for sure, but as we learned last year shipping pace matters far more than contracts inked. With China being responsible for the lion's share of unshipped purchases, it is definitely vital we see shipment pace pick up when it's time for corn exports to shine in a month or so.

Speaking of exports, we continue to see China stepping up and making bean purchases, with more March beans rumored to have been sold out of the PNW yesterday. Many experts and market participants are cautioning some in the market, claiming that these purchases being made are simply being done to replenish government stocks after a planned release of 3-5 mmt of supplies before the end of the year.

Poor crush margins throughout the summer had private crushers in China sitting on their hands, limiting buying interest and unfortunately finding themselves short of physical supply now as we've seen crush margins improve significantly. This shortage in the market and the lack of ability to really get those supplies where they need to be quickly, has prompted the government to release some of the bushels they've had on hand for a situation like this.

The release of government stocks into the private sector is bridging the gap between now and when values are much cheaper and it makes more sense logistically out in March or so. The million-dollar question of course being how many additional beans will China buy beyond the replenishment of stocks and how many of those will be covered by Brazil.

Looking ahead, we will get updated energy insight this morning. Of course, ethanol production is expected to come in big. Stock levels will be the most important as they will give us indications of demand. Last week we saw a surprise reduction in oil supplies with an increase in gasoline demand. This pushing oil prices to the highest level since 2014 and prompting more to make $100/barrel price predictions. Stock levels and gasoline demand will be important to watch in today's figures as well.

We will also be seeing more central banks and governments announce their plans to manage runaway inflation. Talk now is we could see Canada, Australia and the European Central Bank look to make moves to reverse current monetary policy. Inflation has gotten too big to ignore now that energy is in the mix. How we see policy makers handle it will be key in where we see commodities head.

Corn down 3-4

Beans down 8-9