Morning Comments August 11, 2022

Grain bins dryer

The wheat market continued its march higher after hitting 8-month lows last week, closing 18 higher on the day and right at the $8.00 psychological resistance level in the Chicago contract. Corn found itself trapped between wheat strength and cooler extended forecasts, closing up 4 after failing to break out above recent resistance yet again. Soybeans traded much higher to start the day but fell back into the close, finishing down 1.

Traders continue to debate what the USDA is going to predict yield-wise in Friday’s updated supply and demand outlook, as heat and dryness has taken a toll on a significant amount of crops in the Western Corn Belt. As a result, traders expect slight cuts to yield estimates, with the average corn yield estimate coming in at 175.9 bushel per acre, down from 177 used last month. Soybean yields are expected to come in 0.4 bushels per acre lower at 51.1.

The average analyst estimate when it comes to domestic carryout shows expectations of lower new crop corn ending stocks, unchanged bean ending stocks, with a slight increase in wheat carryout. Similar adjustments are expected to be seen in global ending stock projections, though with the recent opening of the Black Sea grain corridor, it will be interesting to see if the USDA makes any adjustments to Ukrainian export expectations.

In other news yesterday’s CPI data came in slightly lower than expectations, showing no increase in consumer prices from June, with an 8.5% increase in prices versus a year ago. Traders had expected to see an 8.7% increase. 

The lower than anticipated consumer price data encouraged renewed talk of Fed pivots, with the market reducing its rate increase expectations for the September meeting and continued talk of rate cuts expected in 2023. Speaking after the release of the numbers two different Fed officials, including the infamously dovish Neil Kashkari said expectations of rate cuts are incredibly premature, reiterating the Fed’s commitment to getting CPI data closer to 2%.

Outside markets rallied and the dollar fell off on the news.

Energy information released mid-morning indicated a surprise jump in oil inventories, as 5.3 million barrels of oil made its way out of the strategic reserve into the supply pipeline. In addition to a jump in supplies, we saw continued signs of gasoline demand reduction, with high fuel prices pushing 4 week demand down 6% on the year, to the lowest level since the pandemic. 

High prices have encouraged production increases as well, with US oil production back to the highest level seen since April of 2020.

On the ethanol front we saw production fall off on the week, which is not a surprise as seasonal shutdowns tend to take place throughout August into September. Stocks were down a touch as well, though they remain elevated versus a year ago.

Interesting to note both Russian oil and wheat exports are now seen to be working their way back towards pre-invasion levels. There seems to be mixed messages when it comes to wheat export demand and/or production potential out of Russia though, with some arguing recent lofty production estimates well into the 90 mmt range may be exaggerated. 

The recently seen slow wheat export pace out of Russia does appear to be reversing however, with current loadings for the first 10 days of August putting the country on pace to ship 4-5 mmt of wheat for the month according to one well followed analytical group.

Looking ahead we will continue to monitor geo-political tensions. Ukrainian forces are embarking on a relatively large counter-offensive according to reports, with talk of sharp increases in Russian responses coming soon. Tensions will remain high when it comes to grain movement, likely limiting private business to a certain extent as physical traders may find the risk of the unknown when it comes to shipment far too expensive.

China has cut back on its military drills, claiming current activity in the region is now simply patrols. Taiwan says its continuing to monitor Chinese activity, remaining steadfast to defending its territory if attacked. President Biden is now reportedly rethinking his earlier plan to reduce the trade war tariffs on China that remain in place. 

Today will likely be a lot of continued position squaring ahead of tomorrow’s report. Not only will we get updated yield and demand figures, we will also get updated acreage numbers from the USDA for North Dakota, South Dakota, and Minnesota. 

Markets are a bit firmer across the board this morning, with December corn continuing to flirt with that $6.24 resistance level.

Corn up 2 to 5

Beans up 7 to 15