Morning Comments August 15, 2022

Sillouette Sunset Location Rail

Corn and beans closed higher Friday and up on the week as talk of further production declines and a return of funds to the market buoyed prices. For the week we saw Chicago wheat finish up 30, December corn add 32, with November soybeans 45 higher. 

The data provided by the USDA on Friday did little to change the overall picture. The adjustment lower to corn production was welcomed by many traders, though now the division comes down to whether the cuts to production need to continue and whether we see further reductions in demand outlook offset those if they were to happen.

Speaking of demand, with the production picture becoming clearer, the outlook in demand growth and the supplies of our competitors now becomes the focus. Grain continues to flow out of Ukrainian ports, albeit slowly, with an estimated 14 ships having departed over the last couple of weeks and new ships slowly starting to arrive.

Russian exports have picked up the pace as of late as well, with analysts estimating wheat shipments out of the country could hit 4 or 5 mmt this month, up substantially from their pace shortly before the invasion and in the months after. 

Wheat crop estimates out of both countries continue to vary, though it appears the reduction in the Ukrainian crop is muted from earlier estimates. Russian analysts contend their crop is a record, with some estimates well into the 90 mmt range. 

The USDA left the Ukrainian wheat crop estimate unchanged at 19.5 mmt, down from last year’s 33 mmt crop, while they adjusted the Russian wheat crop 7 mmt higher to 88 mmt, up from last year’s 75 mmt crop. When all is said and done, overall production out of the region is nearly unchanged year over year, with the only question being if sanctions could limit purchases of Russian supplies. 

Overnight we got some troubling economic data out of China indicating inflation, the housing crisis and their Covid Zero policy is having a major negative impact on economic growth. Industrial production, retail sales and fixed asset and property investment all came in much lower than expectations, with the youth unemployment rate hitting a new record high of 20%.

The data was so troubling the Chinese Central Bank made an emergency cut to rates, something economists and analysts say will have a limited impact on the overall economy as borrowing has ground to a halt, with new credit growth falling to its lowest level since 2017.

Chinese property developers continue to struggle, with property investment in July falling over 12% year over year and new construction starts hitting their lowest level in a decade. The limited desire to invest in property has weighed heavy on Chinese home prices as well, with July marking the 11th month in a row of value declines. 

Looking ahead, traders will be watching what happens from an overall market sentiment standpoint as many contend we have gotten ahead of ourselves when it comes to counting on rate cuts coming early in 2023. We will get updated Fed meeting minutes from July Wednesday, with many traders contending that will give us better insight into what to expect when it comes to rate adjustments in September.

We will get updated export inspections this morning at 11 eastern, with traders hoping to see a big bump in corn and bean shipments in order to avoid any further trims to old crop export outlooks. There is still a much higher than normal level of old crop beans sold waiting for shipment, while we need to ship over 85 million bushels of corn a week over the next 3 weeks to meet USDA projections.

Updated crop progress figures will be released after the close, with traders expecting to see another decline in crop conditions—one that can be seasonally expected in corn but may come more from hot and dry conditions across the Western Corn Belt last week in beans. A large storm system is currently moving across portions of Nebraska into South Dakota with more expected to fall, though totals will likely disappoint. 

Cooler, wetter conditions are expected to finish August across the areas that have been hottest and driest these past couple of weeks, though for some the relief may come far too late.

Markets are down this morning, mostly on Chinese concerns, with a dash of cooler, wetter forecasts. Last week was positive from a technical standpoint, with today’s close obviously incredibly important when it comes to maintaining that support.

Corn down 15 to 20

Beans down 40 to 50