Morning Comments April 13, 2022


Markets were stronger yesterday as has become the trend on inflation data days as of late. Breakdowns in Russia/Ukraine peace talks provided some tailwind as well. For the day we saw wheat close 23 cents higher, corn finish up 13, and beans 19 higher. 

Russian president Putin declared peace talks between Russia and Ukraine had hit a dead end early in the day yesterday, saying Ukraine had changed their concessions and were no longer willing participants. He went on to add that military action was going as planned, saying the country's goal had been to 'help' the people of the Donbas region all along.

As expected, we continue to see Russian forces consolidate and focus their attention on the Eastern Ukrainian region already partially under the control of Russian backed separatists. As we have discussed before, the Donbas region is rich in raw commodities and highly industrial. In addition to the raw goods found, securing the region would provide Russia a land bridge to the Crimean peninsula, also securing 2 ports along the Sea of Azov. 

With the breakdown in peace talks, concern is beginning to grow that the conflict could go on indefinitely. While the Ukrainian ag minister now believes 70-80% of sowable land will be planted this Spring, the fact that exports cannot resume out of ports until aggression has ceased will keep available supply pent up. There is also concern that once Russia secures Donbas into Crimea, it could push further west looking to choke Ukraine off from the Black Sea.

The war in Ukraine is being pointed to by the Biden administration as being behind the 8.5% year-over-year increase in consumer prices, with the president calling it "Putin's Price Hike."

While core inflation data came in lower than expected thanks to another major drop in used car values, food and energy costs soared. At 8.5%, inflation came in slightly higher than expected and was the biggest jump seen since December 1981.

While some analysts believe this will be the peak of inflation, others aren't as convinced. 

On the grain side of things, President Biden confirmed the emergency authorization of summer e15 sales, saying this approach is different from the Trump administration's as it is only an emergency authorization with its necessity reviewed by the EPA every 20 days. 

Total demand for ethanol is expected to grow 25 to 50 million gallons overall, equating to 8.5 to 17 million bushels of increased corn demand using current conversion rates. 

We find ourselves at a very important pricing point for front month corn as $7.75 has been the high end of corn moves in this new phase of price action. Traders are starting to question what kind of demand destruction, if any, the moves in China to restrict Covid will have. 

We continue to see hog margins collapse for the Chinese producer as hog futures hit record low values and feed costs remain elevated. We have heard reports recently of feed mills simply shutting down as logistics are a mess and trucker availability to ship product remains non-existent. 

How they are able to simply shut down plants and keep animals fed remains a mystery at this point, with many questions currently being left unanswered. 

Looking ahead, we will get updated energy information this morning and again will be looking at ethanol production and stocks. Stocks remain near the highest level seen since peak Covid lockdowns, though the slight reduction last week was seen as a positive sign. 

Weather-wise, we are seeing some much-needed moisture work its way through the Western Corn Belt and parts of the Southern Plains, though many in the Eastern Belt will be disappointed to hear that below normal temperatures and above normal precipitation is in the cards for the next two weeks.

Corn steady to 2 lower

Beans down 4 to 5