By Karl Setzer

 As harvest progresses, we are starting to see a divergence in U.S. cash markets, which is not uncommon. Cash bids in the Western Corn Belt are now slightly firmer than those in the Eastern Corn Belt. There is more concern over yields in the WCB which is favoring those bids, along with the fact the market is trying to draw more bushels into the Pacific Northwest for export. Bids in both regions are firmer than normal given an unwillingness of farmers to make sales and will likely remain so.

Even with active harvest taking place we are not seeing much basis pressure this year. Export basis is steady as deliveries to terminals remain sluggish, especially at the gulf. Soybean basis at interior locations is under light pressure as sales of that commodity have been more active recently. Corn basis is actually firming as buyers continue to push for coverage, especially with favorable processing margins.

One strong source of support for domestic basis values has been ethanol production. Energy values have been on a considerable rally in recent weeks which in turn has supported ethanol manufacturing. Several oil drillers took operations offline when COVID broke out and have yet to return to full capacity. This has created fuel shortages and supported renewable fuels, even with higher production costs.

South American weather is becoming more of a factor of interest in price discovery. Widespread rains have fallen across Southern Brazil and Argentina recently and more is in the forecast. This has pushed plantings ahead in both countries, even in regions where rainfall has been sparse. Given last year’s sparse moisture we will need to see consistent rains this year to produce the size of crops being estimated. This is especially in Argentina where soils were heavily depleted of moisture.

These elevated rainfall chances and events have caused analyst to bump their South American crop estimates higher. The most notable of these is the winter corn crop in Brazil, where production is now estimated at 30.5 million metric tons (mmt) compared to the previous estimate of 29.8 mmt. The question now is if the current weather conditions will last enough to benefit soybean production in Brazil, and especially the Safrinha crop that was devastated by drought last year.

One country that is not seeing favorable weather conditions is Russia. Russia has suffered from a severe drought which cut its wheat crop to a point where exports are again likely to be lowered from their current estimates. Some outlooks are calling for 5 mmt fewer wheat exports this year which will greatly favor other exporting countries, including the United States. Russian farmers have also indicated they may scale back on winter wheat plantings to further tighten global stocks.

Trade is placing more interest on potential acreage in the United States next year, especially on corn. There are concerns that high input costs will reduce U.S. corn plantings, which is totally possible. Higher returns for other crops may deter corn plantings, especially in wheat production regions of the country. We may also see a shift in corn acres to cotton in the south as that commodity has rallied to ten-year highs recently.

The Vietnam government has announced it will be lowering its import tariffs on U.S. frozen pork, wheat and corn. Vietnam claims this is being done to increase trade relations between the two countries. While this may be true, Vietnam also needs to rebuild its commodity reserves following the country’s massive COVID outbreak. New import tariffs will be 10 percent on frozen pork, 2 percent on corn and totally removed on wheat. No date was given on when these changes may take place.

Inflation remains a primary factor in today’s markets, including the commodities. Inflation is driving up the cost of raw products used in manufacturing. This includes vegetable oils and cotton, but also the cost of grains needed to produce livestock. This inflation is also bringing managed money investors to commodities and causing volatility to build. While this has been welcomed by commodity sellers, it is causing consumer spending to decline.

We are starting to see more interest on global freight rates. As energy values rally, so does the cost of moving commodities from one country to another. This has some buyers opting to secure coverage from sources with lower freight rates rather than just the lowest priced commodities. This has shifted some buyers away from the United States, especially with a sharply higher U.S. dollar.

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