Morning Comments July 26, 2022

Soyplus Truck Entering Loadout

Corn, beans and wheat all withstood midday selling pressure to close higher yesterday. On the day we saw wheat close up 11, well off its overnight highs, but still strong. Corn closed near its high, up nearly 20 cents on the day, while November soybeans were up 30.

Weather forecasts became the center of attention yesterday as excessive heat is expected to build into much of the heart of the country, with temperatures into the 100's expected across the Southern Plains up into Iowa next week. This is the second such forecast for major heat to build, with the first one being a relative bust last week outside of the Southern Plains. 

Meteorologists continue to struggle with how much rain is expected to accompany the heat as well, as much of the rainfall associated with this type of pattern tends to come through late day thunderstorm development over top of the ridge. Of course with excessive heat rainfall will be necessary to keep the crop stable and maintain relatively decent production potential.

Crop progress figures showed a larger than expected drop in conditions after the close last night, making the upcoming weather that much more important as 61% of the nation's corn crop is rated good to excellent, with 59% of beans rated the same. Though these figures mean very little when it comes to USDA yield projections, traders will argue the trend through the month of July is important historically when it comes to above or below average final yields. 

In addition to watching weather we will continue to watch what is happening in the Black Sea as Russia has cut gas flows to Germany through their Nord Stream 1 pipeline, sending energy prices soaring and European natural gas values back to early March highs. The Kremlin claims the cut is due to needed maintenance across the pipeline, with several turbines in need of repairs.

The cut to flows comes at a vital time as gas stores across Europe remain well below historical levels when seasonal builds should be happening ahead of big winter demand. Members of the EU agreed to a voluntary cut to energy demand this winter, with some claiming upwards of 15% of their overall demand will be cut. Of course looking at the claim, the why is obvious as prices continue to spike higher, but the how remains unclear.

Russian officials say that gas flows will fall to around 20% of capacity beginning Wednesday and lasting until repairs are complete, adding that sanctions against the country are making repairs difficult if not nearly impossible. 

In addition to what is happening in energy we continue to monitor progress when it comes to grain shipments out of the region. Even in the face of the missile attack Saturday, Ukrainian officials claim grain shipments out of their ports will resume this week with ships leaving the Port of Chornomorsk Wednesday while others will depart from Pivdennyi and Odesa within the next couple of weeks.

The Ukrainian Grain Association believes we will see 3-4 mmt of grain exports a month over the next couple of months, with shipments by sea accounting for 1-2 mmt of that each month. This remains well short of the 5-6 mmt they were shipping prior to the invasion, but still far better than nothing leaving the country as many had initially feared.

Speaking of grain shipments, China and Brazil announced yesterday they are revisiting their conversation regarding corn shipments and their phytosanitary agreement. Initially it appeared as though any type of corn purchased by China from Brazil would have to wait until next year's crop was harvested as proper tracking hadn't taken place throughout the growing season this year.

However, whether it be price, demand or common sense it appears the two countries may work out an agreement that would allow 22 crop year bushels to ship. With Brazil expected to produce nearly a billion bushels more than they did a year ago, cash values have fallen off significantly with export offers well below current US values.

Looking ahead, we have a lot going on both in the outside markets and internally with weather dominating much of the conversation this week into next. Heavy rain is expected to fall throughout the week in some of the driest portions of the Southern Corn Belt, but with limited moisture expected across the north. Whether the heat build maintains its strength in upcoming model runs will likely influence price direction in a big way over the next several days.

The Fed is expected to make another 75 point rate hike tomorrow, with many expecting second quarter GDP data set to be released Thursday to show we have officially moved into a recession. Issues in China as well as how the EU will manage through winter months with questionable gas supplies will remain present in the market as will extreme volatility. 

From a marketing standpoint now would be a great time to enter targets on pricing levels you may wish you would have taken advantage of the first time around. Having standing orders will help capture significant bursts to the upside that could come from an explosive market set up like we're seeing.

Corn up 15 to 20

Beans up 17 to 22