Morning Comments April 28, 2022

Aerial Farm Land

What started out as a relatively mundane trading day saw corn launch to new contract highs on rumors of Chinese purchases, with soybeans trading double digits higher as well on a reversal of a reversal from the Indonesian government. On the day wheat finished marginally lower, soybeans were up 22, with July corn up 11 and December corn 6 higher.

As mentioned, corn turned sharply higher mid-morning on talk China was in to purchase 1.2 mmt of corn for July-September shipment. This would be the largest old crop chunk purchased in some time, and perhaps more remarkably would be done at largely negative margins.

It is interesting to note that outside of talk regarding Chinese interest, other export conversations have nearly all but stopped as a recent surge in the dollar has made us relatively uncompetitive in the world market. 

Currently China has no phytosanitary agreement when it comes to Brazilian corn, meaning it can't import corn directly from the country. Some anticipate an agreement will come shortly as Brazil looks to still produce a relatively large crop, even in the face of some expected production reductions due to a recent stretch of dry weather.

That recent stretch of dry weather also lent support to the market yesterday as many private weather groups pointed out just how dry Mato Grosso has been this month, with the Brazilian state experiencing its driest April in 17 years. Of course, in Mato Grosso in April dry is relative as a good portion of the state received 2-4" of rain, though unfortunately it all came at the start of the month with the last two weeks showing limited moisture and the next two weeks expecting the same.

In addition to excitement regarding potential Chinese demand, soybeans rallied on another switch in Indonesia's palm oil export policy. Of course, the market was rocked last Friday on the surprise announcement Indonesia would ban palm oil exports, with a reversal of market direction on Monday as officials said the ban would apply to only refined, bleached, or processed products. 

However, the government yet again clarified its position yesterday, saying the ban applied to all palm oil products. Many analysts and industry experts feel the ban will only be able to last for a short time as storage capacity in the country is already limited and the revenue from palm oil exports is too great to ignore. 

However, the uncertainty that continues to stem from market disruptions like these will send those who can find replacements to other suppliers, giving more in price for certainty regarding supply. 

Ethanol production figures released yesterday showed a slight uptick in weekly production, with a bit of a decline yet again in stock numbers. Gulf stocks continue to see reductions with Midwest stocks also seeing a bit of a decline. Industry experts talking to the transportation board grilling railroad executives this week claimed the poor rail performance is behind the recent downturn in ethanol production as the inability to move finished product has kept grind levels below what margin would dictate should be produced. 

Looking ahead, we will get updated export sales figures this morning, with traders expecting a big flash sale announcement confirming yesterday's Chinese purchases to follow shortly behind at 9:00 a.m. Eastern. 

As mentioned earlier, the dollar index has rallied significantly over the last several weeks, now trading to its highest level since 2017. 

Overnight we saw the Bank of Japan not only stick to its policy of monetary easing, but vow to double down, sending more money into its economy, hoping to help its currency find support. Just the opposite happened with the yen hitting fresh 20-year lows versus the dollar overnight. 

While production remains the key focus and weather remains less than perfect throughout both North and South America, concerns over what a strong dollar could mean to commodity demand long term is far removed from the current discussion, but definitely bears watching.

Corn up 4 to 7

Beans up 2 to 3