Morning Comments April 7, 2022

Agronomy Young Soybeans

Markets took a bit of a breather yesterday after a strong start to the week and a bit more in the way of hawkish insight from the Fed than some folks were expecting. On the day we saw Chicago wheat down 7, corn down 1-3 depending on the contract month, and beans down 11. 

Progress when it comes to achieving peace in the Black Sea region remains limited as Russian troops continue their withdrawal from Northern Ukraine, choosing now to focus on the contested areas in the eastern part of the country it seems. 

As expected, another round of sanctions was announced yesterday, targeting those close to Putin including his wife and daughters. The effect thus far seems minimal as areas still being targeted by Russian aggression continue to battle. 

Meanwhile over in China, we are seeing a continuation of lockdowns with millions of Shanghai citizens still unable to leave their homes. Food distribution into neighborhoods has been impacted greatly by the recent round of lockdowns, with many citizens claiming food deliveries are nearly impossible to schedule, having to turn instead to neighborhood bulk buying from warehouse distributors.

Confirmed cases in Shanghai reached a new record high yesterday with over 17,000 people testing positive for Covid. Some are questioning whether mass testing sites are behind the surge and if lockdowns are going to end up doing more harm than good, but the government remains steadfast so far in its zero Covid policy.

We are seeing some interesting dynamics when it comes to domestic grain prices and demand because of the recent Covid developments. For the second week in a row, government soybean auctions have seen less buying interest than expected, with less than half of the bushels offered being purchased. One region had absolutely zero buying interest for a lot offered, as crush margins remain poor and hog producers continue to struggle.

There are some concerns that we could see reductions in fertilizer use or availability due to lockdowns, though some feel the government will intervene if it feels as though food production or availability becomes too challenged. 

Here in the U.S., we got additional insight into the thoughts of the Federal Reserve with yesterday's release of minutes from the March meeting. Traders were surprised at the hawkish tone from nearly every member as it appears not only will we see interest rates increase in each remaining meeting this year, but the Fed is also looking at reducing its balance sheet by up to $95 billion dollars a month.

Dubbed Quantitative Tightening, or QT, the move would in essence work to reel in some of the money flow we've seen into the economy in a way not tied to interest rates but working to achieve the same goal. 

Speaking of interest rates, a 30-year mortgage rate is now at the highest level seen since 2011. The increases in rates partially responsible for a surge in percent of income tied up in a new home purchase, with the average level now above 30% and at its highest point for the American homeowner since 2006.

In addition to news from the Fed we saw another round of strategic oil reserve releases announced from IEA members. The 60 million barrels of oil released from international reserves will be added to the 180 million barrels announced by the Biden administration last week. As a result of the influx of reserve supplies, as well a surprise bump higher in domestic oil stocks, we saw crude trade below $100 a barrel yesterday, hitting its lowest level in nearly a month. 

On the ethanol side of things, production was off a touch on the week, hitting five-week lows, with stocks down a touch as well. Gasoline demand is a bit concerning however, down to nearly two-month lows. 

Looking ahead, we will get updated export sales this morning. Traders are expecting to see another good week of corn sales, with soybean sales expected to remain stout as well. 

We will get an updated supply and demand report tomorrow, though the anticipation regarding this month's WASDE feels incredibly muted in the face of everything else currently taking place. 

Consolidation is likely the name of the game today, with traders buying time until we get a better feel for what weather is going to do into the end of the month and what tomorrow's numbers say. 

Corn down 1 to 2

Beans up 5 to 7