Welcome to no-man’s land, or purgatory, if you prefer. That time of year where harvest is mostly complete and crops are put away across the Northern Hemisphere, while the Southern Hemisphere is just kicking off their production season. Typically, we find support in values this time of year as the natural seller (the farmer) tends to become somewhat disengaged, while end users usually look to add cheap coverage.

This year is no different, though we have seen some added twists and turns with all that’s happening in trade, an exceptionally dry finish to the growing season and the government shutdown taking away data points that we rely on. This week, I wanted to take a step back and assess where we sit now in the market structure and what that means as we head into the end of the year.

What is Cash Telling Us?

There has been a lot of talk about the cash market these last few weeks. The pop in bean basis post-harvest caught many by surprise, especially when considering all the horror stories about lacking space before the combines ran. In addition to thoughts yields were lower than expected, the soybean demand picture received a couple significant shots in the arm via a supportive EUDR determination, worries over a possible Argentina strike and China trade talks.

In many parts of the country, we saw values firm by as much as 40 cents as originators scrambled to source beans while corn was still being harvested and decisions on how to use storage space were still being made. This week though, we have seen the situation cool tremendously as we gain clarity on what may happen with China purchases and we find ourselves accidentally pricing our soybeans out of the global market.

While at first glance many have assumed the cooling of values is bearish to the outlook overall, I would venture that it’s actually what we needed to see to avoid losing the important demand sectors that are there to help make up for the loss of large exports to China. At this point we know—so long as they intend to follow through with the White House factsheet—that China is going to purchase 12 mmt or 441 million bushels of soybeans between now and the end of the calendar year. These purchases are not required to be shipped before year end though and will likely be done by either Sinograin or COFCO. Insiders believe they will be allowed to import these beans tax free, with most of them going into government reserves.

When looking at what this means for the overall export outlook as we move forward, it’s likely we will see the USDA keep their current projections unchanged. 1.685 billion bushels of exports has around 15 mmt or so baked in for China, with a significant drop from last year already expected. Others around the world are working to pick up the slack left by China, so long that is, as we are still competitively priced.

The stabilization of values and the recognition that we are not running out of beans any time soon will likely keep us treading water pricewise until we get more clarity on yield in next week’s crop production and balance sheet update.

Looking at corn, things are a bit more interesting this week. Harvest is complete across much of the countryside, with South Dakota, parts of Minnesota and portions of the Southern Plains the only areas we’ve seen so far really struggling to get the crop put away. Anecdotal reports indicate that handling was down more in corn than expected in Illinois, Indiana, Iowa and now Michigan, something that was likely caused by many different contributing factors. Looking at basis, what is posted and what is being paid is exceptionally wide in many parts of the Eastern Corn Belt, with some areas looking at a 50 cent spread between what the buyer is wanting to pay and what the commercial elevator is willing to sell size for.

When it comes to what is causing the limited movement and wide basis spread, many originators and merchandisers will talk about increased on farm storage and they’re not entirely wrong. Farmers have invested in the ability to keep grain out of the pipeline when prices are the worst and lines are the longest, and they will continue to do so as we move ahead. This complicates things because traditional market incentives like firming basis and spreads does little to garner movement, especially in the two months directly after harvest.

Increased on-farm space is not the only thing keeping basis supported though, as exceptionally strong demand across all sectors is helping keep values firm and allowing for more disappearance of bushels. Tax changes in the recent bill that helped bring clarity to 45z will have ethanol plants running at full capacity so long as they have tank space for the finished product. For some in the ethanol space, margins are expected to grow by as much as 35% if they have the carbon infrastructure in place and are selling into certain markets.

Feeders are making money across the board as well, even in the face of some recent falling meat values. For those in livestock, booking corn around these levels is a no brainer, with increased deferred purchases being seen by the feeder as well.

When talking about positive margins for feeders and ethanol players, it’s not just the US seeing these opportunities. Ethanol production and feed margins are positive endeavors around the world, something that is keeping US export demand even more stout than already expected as well, as it’s not just the US end user looking to secure supplies.

The only problem with corn right now when it comes down to it, is where final yields will land. Many had grown comfortable with the idea yields are going to be closer to 180 than 185 until this week when more than one private entity kept their expectations elevated. A yield swing of 10 bushel to the acre with the acres the USDA says we harvested this year will influence production by over a billion bushels, making next Friday’s numbers that much more important. 

Overall, on the cash side of things, we are seeing signs that the crop is put away and there are places with less ownership than planned but for the most part the pipeline will be covered. Now it’s just a matter of how quickly the grain moves from where it is to where it is needed, with flat price likely having a big say in that.

Lack of Government Data Has Us Shooting Blind  

While cash seems to be calming, there are a lot of things happening that could have a major say in futures movement. Unfortunately, many of these important inputs have been delayed by the government shutdown, leaving us clueless until they reopen.

Of those, the biggest hole is export sales figures each week. While export inspections show us we are shipping the corn, wheat and beans being purchased, with corn shipments 64% greater than seen a year ago and wheat well ahead of typical pace, we are unable to see who is buying what for deferred shipment. We are also not getting the daily flash sales that would help confirm these rumors of China business or wash outs, leaving the market to gyrate accordingly.

In addition to the lack of export sales, we are also missing updated CFTC commitment of traders reporting on positions and trader activity for the week. While it is far from perfect, the data gives us a general idea of who is buying commodities and who is selling, while also providing insight into how much room is left in either position. From fund length or lack thereof to how the commercial is positioned when it comes to farmer selling throughout the week, a missing CFTC report has everyone guessing on which market participants are doing what from one day to the next.

The lack of reporting opens traders and farmers alike up to certain sets of assumptions, potentially influencing money flow in a way it wouldn’t otherwise if the numbers were circulating.

The lack of data is not only affecting ags though, with many outside markets beginning to show signs the lack of clarity is getting to them. This week we had several pieces of important economic information released that were compiled by private entities in the hope it would provide clarity to traders. What was released though did not, with talk of high car repossessions, low job openings and a report indicating we could be seeing the largest October of layoffs since 2003.

While none of this has been confirmed by government reporting, the worries that it’s accurate have brought the spooky vibes back to Wall Street. While a poor job market will help reinforce the need for another rate cut, it will also likely reduce the recent resurgence of the popularity of the inflation trade.

In the end, the sooner we get the data back the better. A couple of weeks without it is livable, but we are quickly reaching the point where the surprises we get after reopening could provide far more volatility than we’re prepared for.  In the meantime, at the very least we can continue to watch cash for indications.

Next week I will update you on what the USDA has to say post-report and what it means as we look towards the end of the year. As always, don’t hesitate to reach out with any questions and have a great weekend.