Good morning!
Soybeans sink on Brazil election results… As of 6 a.m. CT, November soybeans are down 15 ¼ cents and hit a two-month low in overnight trade. December soybean meal is down $6, with December soybean oil off 31 points. December corn fell 3 cents to trade at its lowest since mid-July. December soft red winter wheat was up ½ cent, with December hard red winter wheat down 1 cent. An unexpected win by President Luiz Inacio Lula da Silva in Brazil’s presidential runoff election Sunday was set to send the Brazilian real down sharply, contributing to a negative tone for soy complex futures (see item below).
In outside markets, oil futures were pulling back after surging last week on fears of a re-escalation of the Iran war. Nymex WTI crude was down 2.1% at $101.08 a barrel. The ICE U.S. Dollar Index was up 0.2%, while the yield on the 10-year Treasury note traded at 4.99%. U.S. stock-index futures pointed to a mostly lower start.
Lula’s stunning comeback… Lula eked out a surprise victory over challenger Flavio Bolsonaro in Sunday’s runoff presidential election to win an unprecedented fourth term. Lula had been largely written off by financial market participants after coming in second behind Bolsonaro in first-round voting on Oct. 5, sparking a nearly 5% rally in the Brazilian real and lifting domestic financial markets. Tightening polls indicated momentum had shifted toward the incumbent by the end of last week but financial and betting markets continued to price in a Bolsonaro victory. A firmer real means less revenue for Brazilian farmers, slowing sales. A weaker real has the opposite effect. A strong correlation between soybeans and moves in the Brazil real exchange rate with the U.S. dollar set the tone overnight. Brazilian real futures plunged over 10% ahead of the open of cash FX trading in the Western Hemisphere, with fund managers dumping soybeans alongside. The election outcome, however, wasn’t without controversy. Bolsonaro is calling for the election to be annulled after a Supreme Court judge extended polling hours at the last minute.
USDA acknowledges “processing error”... In a late Friday afternoon announcement, USDA’s National Agricultural Statistics Service said it “found a processing error that affected September corn plant populations, ear counts, yields, and production for Kansas and Nebraska.” The agency said the error also affected the September 10-state averages for plant populations and ear counts, along with U.S. corn yield and production forecasts. USDA, however, didn’t elaborate on what the error was. And while it corrected the error in the September data, USDA said its October corn yield and production estimates will stand. “The October forecasts published on October 9 were reviewed, validated, and have not changed,” USDA said.
Read: USDA Admits Corn Data Error in September Report, But Controversial 181.2-Bu. Yield Forecast Stands
Wet weather in the Plains… An upper-level trough over the Pacific Northwest will shepherd a front moving eastward to the Northern/Central Plains and trailing into the Great Basin by Wednesday, the National Weather Service said. The system will produce rain and high-elevation snow across the region through the forecast period, the forecast said, while low pressure over the Central High Plains will move northeastward to the Northern Plains/Upper Mississippi Valley by Tuesday morning before dissipating. The storm will produce rain over parts of the Northern/Central Plains into the Upper Mississippi Valley through Wednesday morning, the forecast said, with wet snow developing over the Northern Plains through Tuesday evening. Furthermore, showers and thunderstorms are forecast to develop along and ahead of the dryline over the Southern High Plains through Tuesday morning.
Center-west Brazil needs rain… Center-west Brazil needs significant rain to ease recent drying to reduce stress on planted crops, World Weather Inc. said in a Sunday forecast, noting that computer forecast models are suggesting scattered showers and thunderstorms will begin in the second half of this week and continue into next week. The precipitation is expected to be erratic and mostly light to occasionally moderate. The moisture will help induce better crop emergence and establishment, but it may fall short of the kind of generalized rain of significance that is needed for long term crop support, the forecaster said. Similar conditions occurred in areas southward into Mato Grosso do Sul; however, southern Mato Grosso do Sul, Parana and Sao Paulo were still benefiting from early month rainfall, World Weather said. Areas to the north; though, have been drying for well over a week to nearly ten days and the need for rain is steadily rising.
Fed expected to stand pat… Federal Reserve policy makers are largely expected to leave interest rates unchanged when they conclude a two-day policy meeting on Wednesday, though stubborn inflationary pressures mean additional hikes are widely expected in coming months. Fed policy makers have signaled that they’re not necessarily in a rush to deliver further tightening but have also signaled that inflation isn’t moving back toward the central bank’s 2% target quickly enough. “Were it not for comments by a few Fed officials in the inter-meeting period that they did not think a rapid pace of rate hikes would be necessary, we suspect that the market would be pricing in a much higher probability of a hike,” said Thomas Simons, chief U.S. economist at Jefferies, in a note. “We doubt the FOMC is going to surprise the market with a hike, but a 9-3 split decision with dissents in favor of a hike is likely to be viewed as a ‘hawkish pause.’”
India expected to extend duty-free cotton imports… India is likely to extend duty-free cotton imports for another two months through December, Reuters reported Monday, citing government and industry sources. The move could cut costs for textile mills, curb domestic prices and boost imports from the US, Brazil and Australia, the report said. India, the world’s biggest cotton producer after China, waived the 11% customs duty on cotton imports for five months from June 1 through October 31 to boost supplies during the lean season.
Palm oil under pressure… Malaysian palm oil futures dropped below MYR 4,800 per tone, reversing recent gains and pulling back in line with declines for Dalian palm oil and Chicago soybean oil, according to Trading Economics. Lower crude oil prices also contributed to weakness by reducing the relative appeal of palm oil for biodiesel production, while softer food-sector demand amid persistent inflationary pressures also weighed on sentiment, the report said.
Cattle to take cue from friendly COF report… December live cattle futures closed unchanged at $231.125 on Friday, while November feeders rose $1.20 to $3.48.125 ahead of the release of a friendly USDA Cattle on Feed Report that showed September placements dropped 12% from the year-ago level, well below expectations, while the number of cattle on feed on Oct. 1 were down less than 1% from last year. Cattle markets have traded near three-month highs in recent sessions, as tight supplies have once again materialized on the fundamental side, causing a rise in cash cattle bids from feedlots and packers.
Hogs continue to struggle… December lean hog futures rose $0.025 to close at $65.575 on Friday on mild short covering after hitting a contract low the previous day. Monday’s projected CME index price is down another 99 cents at $71.16. Friday’s national direct five-day rolling average cash hog price quote was $67.34. Rising energy costs and softer consumer sentiment have weighed heavily on pork, even as production runs slightly below year-ago levels.