General Overview: The U.S. fiscal stimulus bill to help the economy continues to remain in limbo. Both Treasury Secretary Steven Mnuchin and White House economic adviser Larry Kudlow said it would be difficult to reach an agreement and to “execute” a relief package before the Nov. 3 election. Meanwhile, President Trump pressured his Republican colleagues to offer more than the $1.8T that’s on the table to reach a deal with the Democrat-led House.
Even though the U.K. left the EU in January, a no-deal Brexit deal is hanging in the balance as U.K. Prime Minister Boris Johnson threatened at the EU summit to walk out of the talks. Johnson said to the presidents of the European Commission and Council that he was disappointed about the little progress on some key lingering issues. A failure to meet a Dec. 31 deadline could result in immeasurable economic consequences, especially during the coronavirus pandemic.
Corn: CBOT Dec corn futures broke above the psychological $4 mark and rallied to its highest level in more than a year, amid strong U.S. export sales to China and Mexico and dry weather concerns in Argentina. There is also speculation that China is importing larger amounts of corn after sustaining damage to its own harvest due to heavy rains earlier this year.
Elsewhere, ethanol inventories in the U.S. rose back above the 20m barrel mark, its highest since August as demand for gasoline has slowed. However, production increased by 14k bbl to 937k bbl, its highest production level since September. On the technical side, there was strong technical buying after the 50-DMA crossed above the 200-DMA, signaling a “golden cross” buy pattern, so traders were buying on dips. For the week, CBOT Dec corn futures rose 1.9 percent to settle at $4.02 ½ /bu.
Soybeans: Nov soybean futures hit an intraday high of $10.71 on the previous Friday before settling lower for the week on profit taking ahead of the weekend. There were some negative comments during the week from China’s President Xi Jinping, as he called on the country’s troops to “put all their minds and energy on preparing for war.” Nonetheless, China continued to purchase large quantities of U.S. soybeans this past week, and the USDA reported a 1.5 percent rise in its weekly sales for the week ended Oct. 8 to 2.63m tons.
Meanwhile, weather conditions in Brazil and Argentina remained very hot and dry, which could delay any early plantings, possibly resulting in more U.S. exports to China for the next season. In Brazil, temperatures remained in the 90s to 100s F, with some significant yield declines reported in Argentina. For the week, CBOT Nov soybeans fell 1.4 percent to settle at $10.51/bu.
Wheat: Wheat futures hit a six-year high amid dry weather conditions from Russia to the U.S. According to agricultural research firm SovEcon, the dryness in fields in Russia may reduce the next crop by as much as 10 percent if the young plants don’t develop enough to survive the winter. Argentina continues to experience drought-like conditions affecting about a quarter of their growing region, and many parts of Australia also remains very dry. The U.S. Plains and Midwest remain dry with below-normal temperatures in the 6-10 day timeframe.
Strong international demand is also supporting prices as wheat sales from France to China have tripled this year, and demand for Russian wheat has left some cargo ships waiting for grains to arrive at ports. According to the Federal Center of Quality & Safety Assurance for Grain & Grain Products, Russian wheat exports rose 6 percent to 14.7m tons as of Oct. 13, well exceeding last year’s pace. On the technical side, the 50-DMA crossed above the 200-DMA, setting up for strong technical rally. For the week, CBOT Dec SRW wheat rose 5.5 percent to settle at $6.26 ½ /bu.
Arabica Coffee: Arabica coffee futures drifted lower as some of the coffee growing regions in Brazil are expected to receive some beneficial rains through Oct. 20, according to Somar Meteorologia. The rains should be widespread from Sao Paulo to Minas Gerais and Espirito Santo. Also, coffee inventories at warehouses monitored by ICE rose on a jump in supplies from Brazil. For the week, ICE Dec coffee futures fell 3.9 percent to settle at $1.0725/lb.
In the U.S., the National Coffee Association reported that Americans are drinking more coffee at home, while 20 percent are drinking less away from home since the start of the coronavirus lockdowns. According to the report, the pandemic hasn’t changed how much coffee Americans drink or how often, but where they purchase it. Consumers are now buying more online, and using apps, rather than buying from grocery and big-box stores.
Cotton: ICE Dec cotton futures rose 3.4 percent for the week amid the USDA’s report that the cotton crop conditions of poor/very poor ratings rose 3 points to 30 percent due to Hurricane Delta. The good/excellent crop conditions remained unchanged at 40 percent from a week ago, while harvesting rose to 26 percent from 17 percent.
There are reports that China may be targeting Australian cotton amid increasing tensions between the two countries as they argue over the origins of the coronavirus outbreak. There were some rumors that Chinese mills have been told by government officials to stop buying cotton from Australia and to shift to Brazil, India, and the U.S. instead.
Sugar #11: ICE Mar21 sugar futures rose for its fifth straight week to a seven-month high amid fires in sugar cane regions sparked by the dry weather in Brazil, the world’s top producer and exporter. Slumping production in Thailand, the second-largest exporter, caused by dry weather also supported prices, and uncertainties surrounding the potential size of shipments from India also weighed on markets. Indian sugar mills are awaiting a decision whether the government will allow subsidies to export record volumes for a second year.
Meanwhile in Louisiana, the second-largest U.S. producer, sugar cane growers are still assessing the damage from Hurricane Delta, only six weeks after Hurricane Laura hit the same area. So far, the heavy rains and 90 mph winds did not cause “any significant detrimental impact,” according to James Simon, general manager at the American Sugar Cane League. For the week, ICE Mar21 sugar futures rose 1.4 percent to settle at $0.1443/lb.
Cocoa: Cocoa futures edged lower towards an 11-week low amid a slump in demand as Q3 cocoa grindings in Europe fell 4.7 percent, its lowest level since 2016. In the U.S., grindings fell 4 percent, while in Malaysia, grindings fell 16 percent from a year ago. There was some major technical selling as longs were caught on the wrong side as futures broke below the 100- and 200-DMA, triggering stop losses all the way down. There should be some support here after the sell-off as the 14-day RSI is right on the cusp of being in oversold territory. For the week, ICE Dec cocoa futures fell 2.9 percent to settle at $2,361/MT.
FCOJ: ICE Nov FCOJ futures gave up all of its earlier gains on profit taking ahead of the weekend and ended the week unchanged. The market initially rallied after the USDA released its latest U.S. orange production estimates for 2021, which showed a 10.6 percent decline to 109m boxes from last season. Florida’s production fell 15.3 percent to 57m boxes, and California’s fell 5.3 percent to 50.5m boxes. Florida’s Agriculture Commissioner, Nikki Fried, cited greening, which leads to defoliation, fruit dropping, and eventually to death as the reason for the drop in production.
Meanwhile, the futures curve inverted to “backwardation” as the front-month Nov contract rose above the Jan21 contract on near-term supply concerns after the report. ICE Nov FCOJ settled at $1.1510/lb, and the Jan21 contract settled at $1.1450/lb.
Dairy: The USDA reported for the week of October 12-16 that milk production rose steadily as Class I sales were up in the Midwest, Northeast, Texas, and Arizona. California Class I sales were steady while mixed in the Mid Atlantic. Cream availability was widely available for most of the nation, mixed in West and Midwest region, with some tightness in the East.
Cheese production remained active throughout the nation as fluid milk was balanced and available in most areas. Demand has been consistent on both of the retail sides, and government bids are keeping inventories manageable. The price gap between barrels and blocks continued to remain wide, though barrels are slowly bridging the gap. CME cash barrel closed at $2.2050/lb, and CME cash blocks closed at 2.72/lb.
Livestock: Lean hog futures gained for the week amid rising pork cutout values in the cash market. Many packers are expecting this firmness to remain for a while as pork cutout values are up 33 percent since the end of August, the highest since late May. Meanwhile, U.S. pork production for the week ended Oct. 17 fell 1.5 percent to 2.688m head from a week ago. On the technical side, open interest has risen significantly higher, and the 50-DMA crossed above the 200-DMA, setting itself up for possible short-term bull run. For the week, CME Dec lean hog rose 3.9 percent to settle at $0.69775/lb.
Live cattle futures fell for a third straight day leading to a weekly loss amid a falling cash market as both Choice beef cutouts and Selects fell. There was also some heavy technical selling as the Nov contract broke below the 50-DMA, which could easily test the nearby 100- and 200-DMA. Making matters worse, the USDA reported that weekly export sales declined 39 percent to 13.9k tons for the week ended Oct. 8. Nonetheless, slaughter numbers were up this past week with U.S. federally inspected beef production up 2.7 percent to 654k heads. For the week, CME Dec live cattle futures fell 3.2 percent to settle at $1.0895/lb.
Sources: Bloomberg, USDA, CME, CBOT, ICE, American Sugar Cane League, National Coffee Assoc., Somar Meteorologia, SovEcon
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