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The new week started out with a gap lower open and a moderately lower close. Futures are within 20 cents of the prior major lows. Polling continues to show increasing chances of a Trump presidency. That has added to export concerns. Though near term US soybean export sales are strong, bears can suggest that is simply action before the election. Brazil holds a pricing discount from here on out.
Export Concerns:
There was not an overnight export sale announcement this morning. Last week's total was strong at 1.083 million tonnes. That would imply this Thursday's weekly report will run a strong 2.2 - 3.4 million tonnes. The five year average for that week is 1.1.
Last week's weekly export sale, 2,151,743 tonnes, was +20% vs. average. The week before was also strong at +15%.
Officially, sales are still behind USDA's goal. We have slowly made up some of the deficit and are still making sales. This week's report will also be positive. But some skeptics may note these sales may be intentionally strong ahead of the election. What happens after that time is a question. Given Brazil's pricing, the Mississippi and other factors we remain moderately concerned.
Brazil holds a clear price advantage of $11 to $26 per tonne for delivery in any of the next four months. This is separate from their $10 to $15 shipping advantage.
The Brazilian real has depreciated 18% since the start of the year. Current prices are right near the peak depreciation value of the year from August. A depreciating real is a deterrent to US exports.
The bearish Mississippi River story remains in play. Current levels in Memphis, -9.1 feet stage height, are forecast to drop to -10.1. The river is getting close to the -10.4 low level from 9/24. Barge restrictions kicked back in at -5.0.
The trade also remembers that USDA lowered US soybean export hopes in each of the prior two years. The original 2023/24 US soybean export projection was lowered -125 million bushels from August to August. The 2022/23 crop saw eventual revisions totaling -175 million.
On the political side Allendale does not tell anyone how to vote. There are other market advisors that do so. Respectfully, they do it terribly. Allendale will certainly discuss how politics may impact agricultural markets though. The Trump/Vance campaign is said to have picked up support in recent weeks. Some mainstream news organizations suggest they are not just winning the electoral college vote but also the general national vote. Let's go over the possible things Trump has suggested. We fully agree his words do not mean action.
Bears can also note the first two years of the first Trump presidency were involved in a trade war with China. In the 2017/18 marketing year, Sep ‘ 17 - Aug ’18, US soybean export to China were 1.036 billion bushels. That dropped to 493 million and 593 in the next two years. That was a -43% to -52% export hit.
A study paid for by the National Grain & Feed Association and the American Soybean Association suggested a second trade war similar to the first two years of the last one would discount US soybeans by -$0.60 to -$1.00 per bushel.
Futures are priced with some type of 25 - 50 million bushel psychological export discount. We can't argue against that view right now. We'll give bears a small nod here. Is it unreasonable to suggest the market may move this psychological discount to 50 - 75 million?
Other:
Crop Progress will be out this afternoon. The trade expects the US soybean harvest to have advanced from 81% complete last week to 91%. The five year average for harvest as of Sunday will be 81%. This is the fastest harvest since 2010.
AgRural estimates Brazil's soybean planting at 36% complete. That is just under last year's 40% pace. Much of the prior planting deficit has been made up. We are not ready to suggest any shift for acreage in various crops yet. This is still early in the season.
First Notice Day for futures is on Thursday.
A closely followed South American meteorologist noted positive comments to crops ahead in Argentina. German Heinzenknecht of Applied Climatology Consulting, noted “The final days in October will be dry, but we'll see a return to rain in November…that should cover top farmland with around 100 millimeters (4 inches) of rainfall.” Regarding La Nina he agree with a reigned in concern. “Maybe we'll see some December interference from La Nina, but it won't lead to extreme risk. There could be some dryness, but that's more due to regional factors that could see quick corrections.”
The US ag attache to Brazil released a positive view of Brazil's coming crop numbers. He suggests the coming 2025 soybean harvest will run 161 million tonnes. That is under both USDA's view of 169.0 and Conab's 166.05. It is also lower than all private estimates we have collected since September. The attache looks for a +1.1% increase in current plantings from last year. USDA sees them +3.1%. He sees their coming exports at 102.0 mt, under USDA's current 109.0. He suggests the completed 2024 harvest at 152.0 with exports of 97.0.
Falling soybean futures prices have enabled another moderate tightening in Midwest basis levels. Central Illinois soybean basis has narrowed from -0.54 fall lows on 9/17 to now -0.33 on 10/25. This is better than the -0.41 average level of the five most recent heavy supply years. In these years there is typically further tightening into December, another 0.09. In this specific case we do not suggest rising basis is from any bullish news (massive demand pull or smaller than expected harvest numbers). Farmers are discouraged and have stopped selling cash beans. That is the story.
USDA Old Crop: On September 30 the Grain Stocks report released finalized old crop ending stocks. They were found to be 2 million higher than the prior estimate, now 342.
USDA New Crop: The new crop balance sheet started with a 2 million bushel increase to beginning stocks. On this report a light -0.1 revision was noted for US yields, now 53.1. Production was lowered a slight 2 million bushels, now 4.582. The supply story is still hefty. It is still a record, over any prior year. It is also a full 492 million over last year’s total supply. That leaves demand as the remaining variable. New crop ending stocks were left unchanged from the prior month’s 550 million. Our models suggest a stock level of 550 million would imply futures at $10.05. Renewed export risk has the market trading a larger stock than 550.
Outside Market Factors:
The Bureau of Economic Analysis will release its first estimate for the completed US Q3 Gross Domestic Product on Thursday. Q1 was estimated at +1.4% year over year. Q2 was better than expected at +3.0%. This will help influence planned interest rate cuts by the Fed as well as US dollar values.
The Department of Labor reported September retail inflation. The rate of retail price action, the Consumer Price Index, fell from +2.5% year over year in August to +2.4% in September. This was just over the trade's estimate of a fall to +2.3%. Markets maintain their current view that the Federal Reserve will lower short term interest rates -0.25% at the next November 7 meeting of the Federal Open Market Committee.
For soybeans our focus for currencies is not the US dollar index. This is what people refer to as “the dollar”. The dollar index is the US dollar against a basket of EU and Japanese currencies. Instead, our focus is the dollar against the Brazilian real. The real depreciated 18% against the dollar since the start of the year. Monetary policy is not the driver of US grain prices. It is a light background influence though, in this case negative.
Weather:
Brazil now has two weeks of near normal rains. Last week's was 0.8 inch vs. the 1.3 average. This near-normal rain will transition to above normal. Forecast rainfall over the next two weeks ahead will run 1.2 - 3.9 inches. The average rain over two weeks for this time of year is 2.8. Brazil plants soybeans September - December.
Argentina saw two weeks of normal rains then last week, double the normal rains at 1.8 inch. The two week forecast shows 1.0 - 3.1 inches for all areas. For comparison, the two week average is 1.8. Argentina plants soybeans November - December.
Concern over La Nina has been sharply reduced over the past two months. Drew Lerner notes the US NOAA forecast for ENSO, temperatures in the Pacific Ocean east of Australia, is more aggressive than others. ENSO is at El Nino when it reads +0.5 or higher and La Nina at -0.5 or lower. The latest official ENSO reading for June/July/August was +0.1, down from the big El Nino peak in December at +2.0. Drew is now favoring the Australian Weather Forecasters model. That suggests a light dip to -0.4 or -0.5 by December then a rise. In other words, expectations for La Nina in Argentina's January yield determination period are not strong. La Nina, if it is around in January, does have a tie to lower yields. Seven of the past 11 La Nina's gave Argentina below-trend yields (one unchanged and three above-trend). It is not reliably tied to yield losses for Brazil.
Pricing:
Economic Value: Allendale's pricing models suggest 200 million ending stocks implies 1400 futures, 250 stock implies 1295, 300 implies 1230, 350 implies 1160, 400 implies 1110, 450 implies 1080, 500 implies 1040 and 550 would see 1005.
Similar Year Study: A composite of price action in other years with similar balance sheet characteristics often give us a map for the shape of a year's pricing. It worked incredibly well last year. It has done a decent job this year. In these years, from a spring peak of 1230 ½, a drop to 1032 summer lows would be projected. Our recent trade has met, and exceeded, that target with a move to 955. In prior commentaries we noted the next move would be +8.9% from that low. That would imply 1040 before expiration. This goal was accomplished.
Trading Range Study: November soybeans typically post a good sized trading range between January 1 and expiration. Over the past 20 years that range has been from 133 ¾ to 811 ¾ cents. Earlier this year we started out with a view of a 200 cent wide range as a reasonable starting point. From the January 1 price high of 1237, to this recent low, we now have a 282 wide range for 2024. We have met our view of a reasonable minimum trading range.
November Soybean Seasonal: 2024 November soybeans are following the general seasonal 15 year pattern quite well. This year's peak on May 7 was a little earlier than the June 8 peak from the 15 year analysis. If we shift 2024 price 22 trading days early then will the fall low, normally October 3, be pushed up to late August/early September. The low was made on August 16.
Chart: Prices are now within 20 cents of prior major lows from August, 955. On that 8/16 day there is also an intraday gap to the 957 close. First support to that pathway would be last week's 968 ¼ lows. Today's trade was tough with both a gap lower open as well as a high confidence close near the day's lows. For a minor rebound this week that leaves a minor target to the 10/25 close of 987 ¾. Bulls are not in control. The open upside gap at the 7/5 close of 1129 ¾ would not be considered realistic. ...Rich Nelson