Sunday Scaries: What I am Watching This Week in the Grain Markets

The Sunday Scaries theme just seems to fit for now. With all that is going on in the market structure today, my Sundays this time of year are spent wondering how the Lions will disappoint me late in the fourth quarter and just what is going to happen when the grain markets open and the week unfolds.

This week I am watching a whole host of things, with logistics in the forefront of my mind. 

In a normal year—whatever that means, considering I don’t think we’ve had a year without some type of Black Swan event in the grain markets since 2018—late October is the slower time for market news. Typically, by this point in the growing season we have a good idea on what the supply looks like and are just working to put the crop that’s getting stored away, while we deliver and ship all that needs to move at harvest. 

The lions share of soybean exports move at this time, with loadings out of the PNW and Gulf accounting for the bulk of bean movement. Beans are more expensive and a bit more difficult to store and for those outside of the scope of any major bean crusher, the best basis opportunities tend to happen from September into January.

This is not the case this year however, as near record low river levels are wreaking havoc on our ability to ship out of the Gulf. Soybean inspections were surprisingly strong last week in the face of the river issues, but it is interesting to note shipments via the Pacific Northwest were three times the amount moved out of the Gulf. In a typical year we would see nearly an opposite split, with us even able to move nearly 10 million bushels more out of the Gulf last year at this time, that even with infrastructure damage from Hurricane Ida. 

The surge in shipments to the PNW have come via rail from the Western Corn Belt, with processors in the region suddenly finding themselves chasing bushels as harvest wraps up. This major shift in flow has already created some interesting spreads in basis—the difference between cash price and futures and an indicator of regional supply and demand—potentially sending some false signals to the market on crop size and demand in the short term. 

The end of harvest bean basis strength seen in the West is being more than offset by the record weak basis levels being offered by river terminals to farmers in the Eastern Belt. Our inability to ship normal capacity out of the Gulf has pushed our export offers higher as the cost of getting beans from where they are to our export channels has increased significantly.

The higher offers and uncertainty over shipment capabilities has caught the attention of Chinese bean crushers and has pushed domestic bean values in their country higher as concern over supply availability remains. 

It will be interesting to see how Chinese domestic values react in the weeks ahead, as the large chunk of bushels purchased out of Argentina last month are set to start arriving at ports. For now though, many crushers in the country are relying on government reserve sales and hopeful a plentiful Brazilian crop improves their margins that have been in solidly in the red for much of the last year and a half. 

Speaking of China, the twice a decade gathering of the People’s Party Congress is wrapping up, with Xi taking on his third term at the top. It has been interesting to watch the week unfold, as many Chinese analysts have noted important changes in attitude and likely conduct with Xi asserting himself as the head of the party and removing anyone thought to test his power from leadership.

According to reports Xi has made changes in the party’s charter, inserting his political ideology. Like his tenure at the top, the only other Chinese leader said to insert their political ideology into the party’s charter while in office was Mao Zedong. According to experts this is important as any opposition to Xi becomes opposition to the party. 

In addition to changes to the charter, Premier Li Keqiang has been removed from leadership. Li was one of the more boisterous members of China’s Politburo committee, questioning some of Xi’s economic decisions and a strong proponent of economic reforms. He was among four former committee members removed from power, with other leadership shuffles seen as the country’s current governor of the central bank, a chairman of the country’s banking and insurance regulator and the country’s economic czar are all set to be replaced.

This seems important to me in the weeks ahead as the Biden administration continues to put restrictions in place limiting China’s role in the global chip and AI industry. The Ministry of Industry and Information Technology in China held an emergency meeting with leading semiconductor companies this past week as uncertainty has gripped the industry after Biden’s most recent round of restrictions and sanctions were announced. 

These restrictions range from prohibiting China from buying American chips and the machines used to build them to limiting their ability to hire American workers. According to experts these sanctions will set the Chinese chip industry back years, with questions of if it will ever be able to recover. This is something thought to be devastating to a country whose economic plan has relied heavily on becoming a global chip powerhouse.

According to reports, the sanctions have been considered economic warfare by Chinese leaders, making the recent moves to consolidate power and influence by Xi that much more concerning. 

It has been interesting to me that many grain market analysts continue to ignore what the long-term impact of this major shift in our already tenuous relationship with China could mean for grain demand. Of course, China’s power to avoid our supplies will be limited if Brazil doesn’t produce the crop expected, putting that much more importance on South American weather.

I am going to be watching to see just what the formal response out of China will be in coming weeks now that the party congress is out of the way and the new set of leadership has been announced. 

Harvest is expected to march along throughout the week ahead, with many interesting domestic market developments to keep an eye on as well. Reports I will be watching this week include export inspections Monday morning, with crop progress Monday afternoon, ethanol production and stocks will be released Wednesday morning, with export sales Thursday morning to round it out. I will also be tracking flash sales announced by the USDA at 9 am eastern if business has been done the day prior. 

Overall, I feel like we’re likely to remain rangebound without a catalyst. However, with all that is going on in the world now potential catalysts are plentiful, with any strong conviction in market direction elusive. 

More Grain News from Barchart

• Nov Beans Held under $14
• Wheats Closed Mixed on Friday
• Fractionally Mixed Friday Close in Corn
• Coffee Prices Under Pressure on Improving Supply Outlook