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Tuesday, October 28, 2014
FC Morning Grain Market Commentary for 10/28/2014
AM Comments 10/28/14
Tuesday, October 28, 2014, 8:10 AM Submitted by: Dustin Weiner
It was another surprising night last night in the grain trade as the futures markets rallied sharply again on what looks to be a new round of fund money entering the market. The phones here have been steadily ringing with questions as to why?? These questions are valid and somewhat tough to answer because as we look at the fundamental picture laid out in front of us, we have record world stocks of soybeans and a record U.S. soybean crop in front of us – and rallying markets. It is hard to make sense of that for sure.
First glance, this rally yesterday appears driven by soybean meal. Strong soymeal basis in the eastern U.S. has helped push the December meal contract up to levels it hasn’t seen since June and Dec meal is now only $20 off the contract high! There are a couple reasons for this move, generally there is strong demand for meal but the slow pace to bean harvest in the East is making it hard to find. Yes, according to yesterday’s harvest progress report the US is 70% harvested on beans but Illinois is only 63%, Indiana is only 50% and Ohio is only 50% complete. Those three states are approximately 25% behind their average pace which has that part of the country struggling to fill the pipeline. The second factor that needs mentioned is the transportation situation. Meal basis in Illinois is over $50/ton higher than it is here in parts of Iowa. You would like to think you could just rail meal from West to East to take care of that gap. Unfortunately if you tried to do that today, you would pay big money for the cars AND with slow service you would struggle to get the cars in time to make a difference. So instead you panic a bit and pay whatever it takes to get the meal (hence the historic meal basis levels). This of course drives meal prices higher which takes soybean prices higher – then the funds get involved as they bail out of their short futures positions and here we are. High prices in a year where the U.S. looks to be flush with soybeans (eventually).
Weather… parts of the eastern Corn Belt had some small rains come through last night but overall the weather forecast looks excellent for harvest progress in the US for both corn and soybeans. The soy complex could feel a lot different later this week or early next as harvest finally pushes soybean onto the market.