Morning Comments August 16, 2022

Sillouette Sunset Location Rail

A recovery in wheat and decent July soybean crush figures helped pull the markets off their lows yesterday, though all three still managed to close lower. At the close we saw Chicago wheat down 5, December corn down 14 with November beans losing 42.

The big news to start the day yesterday was the much-needed rain falling across the driest portions of the Western Corn Belt. The debate over yields and final production will last well into next year, but these rains and the cooler, wetter forecast is helping traders feel comfortable with the idea production has likely stabilized, with some talk of increased bean yield potential tossed in for good measure.

In addition, to talk of moisture and improving forecasts to finish the growing season, traders remain acutely aware of the situation in China. Rumors of energy shortages leading to production slowdowns in the Sichuan province of China were confirmed overnight, with Apple and Toyota both confirming the cuts may have impact on their local production.

Energy shortages combined with Covid Zero policies and a population with a good share of their capital tied up in property investments that have fallen in value for the last 11 months is getting the attention of traders and analysts around the world. Many are beginning to push for more stimulus after the surprise cuts to rates yesterday, while others say that will have limited impact on economic growth with household borrowing falling to 15-year lows.

Overnight Chinese officials pushed a plan that would guarantee onshore bonds issued by certain private property developers. This move could help stabilize the industry by injecting much-needed capital to these developers through investment tools, as opposed to the government supporting the entire industry.

In other news, we continue to watch what is taking place in the Black Sea as the shipment pace out of Ukrainian ports picks up. Several boats mostly loaded with corn have left the three ports covered by the grain corridor deal over the last 2 weeks, with upwards of 21 new boats scheduled to land before the end of the month.

Crop production outlooks for the Ukrainian corn crop continue to grow as the bulk of corn production is outside of the area mostly impacted by the war and weather remains conducive to production. With extreme drought being seen in France, England, and Germany, the European Union will likely step up to take a good share of available exports, with the hidden bright spot of the war possibly being seen in the new logistical infrastructure put together over these last 6 months facilitating larger shipments via land and rail than seen prior. 

Here in the US, export inspections were disappointing yet again for corn, with the US needing to ship over 80 million bushels a week and inspections showing 21 million. At face value using only inspections one would argue the USDA needs to cut export expectations for old crop significantly in upcoming reports. However, census data, or a ground truth back up to weekly inspections shows a wide gap between actual shipments and weekly inspection figures. The discrepancy is mostly being seen because of the large increase in Western Canadian imports this year versus years prior but is something to keep an eye on as we wrap of the crop year and look ahead to quarterly stock estimates due out at the end of September.

NOPA crush came in below trader expectations but indicated that USDA crush demand projections appear to be in line with reality.

Looking ahead we will continue to monitor geopolitical and macro-economic developments as news impacting the markets as a whole is not difficult to come by. We will get housing data today, with many feeling that industry is the canary in the coal mine when it comes to overall economic health.

Corn down 4 to 8

Beans down 5 to 10