What We're Watching This Week - Oct. 3, 2016

After a Slow Start, Brazilian Soybean Growers Look to October Rebound

FARMING

This past week, soybean prices at the port of Paranaguá (PR) dropped to R$ 77.97 per bag or the lowest level this year. This was after the Mato Grosso Agricultural Economy Institute (IMEA) estimated that 1.2% of projected soybean plantings in Mato Grosso had been completed versus 0.6% a year ago at this time. While growers in Mato Grosso experienced spotty rainfall in September, weather models are calling for strong precipitation levels in the second-half of October and a return to seasonal climate conditions in November. Also, in the more southern state of Paraná, things look better, as 3% of soybean plantings had been completed compared to 5% in 2015. As a result, Brazil is still expected to see soybean production rise by 5% in the 2016-17 marketing season. We will be watching for the market outlook from the National Food Supply Company (Conab), on Thursday.

Hog Inventory Is Higher Than Expected Ahead of US Holiday Season

FOOD

On Friday, USDA-NASS reported that there were 4.0% more market-ready hogs in the US in comparison to the year ago period. This snapshot of September 1st inventory was well ahead of the average industry analyst estimate of 2.6%. While the breeding herd was inline with expectations, market supply was boosted by a greater-than-expected increase in sows farrowed and pigs weaned per litter in the past quarter. The Steiner Consulting Group points out that the September report has tended to overestimate market supply in the past—and then be corrected by the next report. Nevertheless, the news will likely put further downward pressure on red meat prices in the meantime. We will be watching to see how cattle futures respond this week, as greater retail promotions of pork cuts in October could be another negative for cattle prices.

Weather Outlook Is a Risk to Australia’s Milling Wheat

CLIMATE

On Thursday, the Australian Bureau of Meteorology projected a 60% chance of above average rainfall from October to December. The country is currently forecasting that this year’s wheat output will rise year-over-year by 14% to 28.1 million metric tons – nearly a production record. Although heavy precipitation would help pastureland and overall vegetative conditions, Australian growers are concerned that it could impact the final quality of the wheat crop in East Australia. Although moisture-induced risk of fungal diseases can be managed, the Aussie climate outlook fits into the overall global narrative - a greater amount of wheat harvest being downgraded from milling- to feed-quality wheat. We will continue to monitor Hard Spring wheat futures, as the global supply of milling-quality wheat wavers even as overall wheat supply remains abundant.

US Soybean Cash Basis Drops Sharply on River Closures

COMMODITIES

GeoGrains is reporting that soybean basis dropped by an average of nine cents per bushel last week. Basis at river terminals dropped by over twenty-two cents. They note that river terminals have been impacted by the closure of three Mississippi River locks in southern Iowa and northern Missouri. In Friday’s quarterly Grain Stocks report, USDA reported that on-farm soybean stocks were down 16% from a year ago, while off-farm soybean stocks jumped by 10% in the same period. Soybean use between June and August was 55% higher than the year ago period. As rains slow the US harvest in the Eastern Corn Belt, all eyes will be focused on the USDA’s crop progress report today.