Morning Comments August 10, 2022

Combine and Tractor in the field for Soybean Harvest

Beans were able to maintain much of their early morning strength, closing 29 higher as continued dryness in the Western Belt and rumors of more buying interest from China had buyers back in the market. Corn closed 7 higher, after stopping at an important resistance level on the charts and falling back. September wheat struggled to maintain strength but managed to close up 2 on the day. 

Grain traders continue to position themselves ahead of Friday’s USDA supply and demand update, as more private analysts and groups release their production estimates. With condition ratings falling off more than expected Monday, some analysts are looking at an even greater reduction in corn yields than the current average estimate of 175.9 seems to be showing. 

According to one expert in the industry, though overall condition ratings have a limited bearing on final yield, historical indications would indicate current conditions would likely point to a 174 national yield. A loss of 3 bushel per acre from current production estimates, with all other things left unchanged would give us a 246 million bushel reduction in overall production, taking new crop carryout down to 1.22 billion, or similar to what we saw at the end of the 2020/2021 crop year.

Of course, a reduction in production and subsequent increase in price is very likely to have an impact on overall demand, potentially leaving us with an unchanged carryout projection from current levels once all adjustments are made. 

Traders are also anticipating a reduction in soybean yields in Friday’s report of around a half a bushel per acre. This reduction would equate to a 35 million bushel loss in overall production, if acreage is left unchanged from June’s figures. With the USDA releasing an update to acreage after their July resurvey in North Dakota, South Dakota and Minnesota, an adjustment to acreage remains a wildcard. 

The weather moving forward remains dry, something the waterlogged areas in the Eastern Corn Belt are grateful to see, though it is very much the opposite in the dry parts of the Western Corn Belt. Temperatures do appear to turn a bit more conducive to production though, with below normal temperatures expected to spread across much of the center of the country in the 6-10 and 8-14 day forecast. 

Heat remains across Europe and throughout parts of China raising concerns about production potential. Corn prices in both local markets have moved much higher over the last several weeks, as traders work to assess what a localized drought in the face of a realignment of global grain trade looks like. 

With production hiccups now being seen across parts of the Northern Hemisphere, the need to keep Ukrainian and Russian grain flowing grows. Ukrainian officials are optimistic after the first full week of grain shipments has been relatively successful. The joint task force of Turkey, Russia, Ukraine, and UN representatives laid out the final plan for grain shipments on Monday, with a 10 nautical mile safety buffer noted and insurance groups saying it is up to the industry and the markets to direct movement going forward. 

As it stands currently Ukrainian grain traders believe they can move 2 mmt by truck and rail, with 2.7 mmt of grain moving that way in the month of July. Adding an estimated 3 mmt of sea capacity over the next couple of months could realistically put Ukrainian exports at the high end of their pre-invasion range, though one would have to believe some of the rail and truck routes will be far less cost effective if ports remain open. 

Looking ahead we will get updated CPI data this morning, giving us insight into what consumers saw for prices of goods and services in the month of July. Traders anticipate inflation will show signs of slowing versus the data seen from June, though it is expected to remain at multi-decade highs. Chinese inflation data this morning showed a big jump in year over year prices relatively speaking, though at 2.7%, consumer price increases in China remain somewhat the envy of the world. 

We will get updated energy information this morning as well. Analysts will be looking at that data closely to see if the recent drop in gasoline prices has stimulated demand after last week’s data showed demand falling to Covid affected levels. Ethanol production is expected to remain stout with steady stocks.

Corn 2 to 5 higher

Beans steady to 2 higher