The US harvest is advancing with numbers approaching record production. However, we are noticing on the CBOT an accelerated resistance by funds and financial institutions to prices above USD 4.70/bushel. This support goes against the market fundamentals pointed out by USDA itself, with a near-record crop and sharply higher stocks this business year. Moreover, there are strong Brazilian exports in the second half of 2023, undoubtedly removing demand that could be flowing into the USA through key importers such as China and the Middle East. The price movement seems to align the corn curve, at full harvest, with that of wheat, as if it were waiting for some price jump for this commodity that could positively influence corn. So, we enter a situation in which, with the US losses, soybean prices fall, and corn, with its harvest close to a record, finds support.
The US harvest reached 23% of the planted area last week. Something between 30 and 35% should be a normal rate this week. There has been no information that could provide a vision of additional productivity cuts in this season from what is already expected. Unsurprisingly, the USDA October report, to be released on the 12th, will have as the main adjustment the update of stocks from the last business year, 22/23, to the figure of 34.8 mln tons adjusted by the quarterly stocks report on September 30. This should adjust the stocks for the current business year, 23/24, to 56 to 54 mln tons. No strong changes are expected in the productivity level projected in this supply and demand report.
Despite this, the market on the CBOT operates against fundamentals. Undoubtedly, US wheat stocks are not high, however, Russia has been achieving record monthly sales and meeting all world demand. Of course, future factors could bring recovery movements for wheat prices, such as some selling restrictions by Russia to protect its domestic demand. Despite all these indications, wheat continues to make lows for the December contract on the CBOT, showing that there are no supply problems in the short term. So, for wheat to find highs, some new fact needs to emerge, which is not yet described in fundamentals.
This decline in wheat prices has brought an important variable for corn. Corn is getting expensive compared to wheat. The fact that wheat continues to fall while corn remains above USD 4.70/bushel establishes an exchange ratio of 1.17 bushels of corn for 1.0 bushel of wheat. Historically, this balance ratio is 1.4, which means that corn would have to put prices below USD 4.30/bushel on the Chicago Board of Trade to rebalance the historical level. The bottom line for wheat comes down to Russia’s export decisions. For corn, all that is needed is the advance of the harvest and the reduction by funds of the action to technically support “high” prices.
The rise in oil prices this week, after the episode in Israel, could be an indicator for prices and the exchange rate. Rising oil prices are now expected to accelerate inflation in the United States and Brazil. In Brazil, the situation is more problematic because, with the exchange rate devalued, a new rise in oil prices will represent an immediate rise in inflation. The movement could be another indicator to influence decisions about interest rates on November 1 and the entire commodities market.
Follow the Safras Agency on our website. Also follow us on our Instagram and Twitter and stay on top of the main agribusiness news!
Copyright 2023 – Grupo CMA