AgMaster Report 10/14/2020
After a $2.15 run-up (865 – 1080) since mid-Aug & a neutral WASDE report from the USDA last Fri at 11am, a correction was certainly in order – but we expected it shortly after the report was issued – not the following Monday! Nonetheless, a 50 cent drop occurred due in large part to an overbought condition, rain forecasts in South America, harvest pressure & producer selling! But harvest pressure is quickly waning due to excellent harvest weather as of this week with 61% in (avg-42) – many expect it to be wrapped up this W/E! And exports keep rolling -Tues inspections 2.157mmt – if we can rally DURING HARVEST, how about after!
While Nov Beans broke 50 cents, Dec Corn’s correction was much shallower – only 12 cents (399-387)! But the same culprits – overbought, harvest pressure, moisture in S/A & a stronger dollar! Still the 80 cent rally since the August WADSE – most of it during harvest- has got everyone’s attention! Of course, we expected harvest pressure to at least stall the mkt but it didn’t! And the reasons for this mkt action make sense – insatiable China demand, a shaky start to the South America planting season, an improving economy (new highs in the NASDAQ) & an historically cheap price (still in the threes)! Plus extreme dryness in Russia is boosting Dec Wht – and spilling over to the Dec Corn! This morning, Chinese Jan Dalian Corn Futures traded at a record high of $9.71! Corn harvest is proceeding rapidly – 41% in (avg-32) not that its been an impediment to the mkt so far! We suspect the flooding damage in China is much greater than expected – they are also aggressively increasing their livestock herds – both of these are feeding exports – & S/A corn is no lock! Simply – there is no margin for error!
Dec Wht was able to withstand the sharp corrections experienced by its sister mkts Nov Beans & Dec Corn this week due to weather challenges globally! First the Black Sea Area continues to be an issue – with extreme dryness in Russia adversely impacting their recently planted winter wheat & too much rain in the Ukraine doing the same! As well, dryness in the US Central Plains is hard on our WW! Offsetting those positives is a record global carry-out – hanging over the mkt! Though we expect wht to follow corn & beans higher should they continue to rally after harvest!
Dec Cat is stuck between a rock & a hard place – languishing in the sideways range (107-114) it’s been in since Mid-July! The threat of increasing production into the 4th Qtr & the highest average weight in 5 years – is being offset by reasonably good demand. However going into the 4th Qtr, domestic demand may fall off – as Covid interruptions could well take a bite out of normally seasonal robust year-end “D”!
While Dec Hogs & Dec Cat are sister mkts, their charts bear no resemblance to one another! It all boils down to price structure & S/D fundamentals! Dec Hogs are trading at a $10-12 discount to cash – for one thing & secondly are the welcome beneficiary of a massive Chinese appetite for our pork supplies! This has enabled the mkt to stage a $19 rally (48.50 – 69.50) since Aug – & most recently a $3.50 rally from Tues’s lows to new highs today after closing a down-side gap on Tues!