Morning Comments August 18, 2022

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Wheat took over the leadership role to the downside yesterday as questions over global demand begin to weigh heavy. Chinese buying interest sent soybeans higher on the day, closing up 9, while corn was caught in the middle, finishing 2 higher.

Financial data released yesterday was mixed with retail spending seemingly stagnant on the month but showing the resiliency of the consumer in the face of increased prices. Interesting shifts in spending are being seen, with discount stores seeing a sharp increase in purchases and big box stores like Target seeing a downturn.

Fed meeting minutes were also viewed as mixed, with officials remaining very cognizant of the need to increase rates to a level that slows demand and lowers prices, but aware that doing so too aggressively could have a far more adverse effect than intended.

Perhaps the biggest takeaway from July’s meeting is the flexibility officials agree is needed, leaving all options on the table as they continue to monitor data. The market is currently pricing in a 50 basis point rate increase for September, with traders looking forward to next week’s retreat in Jackson Hole, Wyoming for more insight.

The wheat market fell apart yesterday on indications global demand isn’t as great as earlier perceived. Traders had been pricing in the likelihood of US wheat becoming competitive in the global market and renewed business with an Iraqi tender many were sure the US would win. High prices are doing their best to cure high prices however as government officials in charge of the purchase chose to cancel the tender citing high prices.

The absence of Egypt’s government buying arm during the recent drop in prices has become concerning as well as many are beginning to wonder what type of trades are being done behind closed doors as trade flows and relationships have seemingly changed.

Limited demand and movement out of Ukraine has pressured European wheat futures as well, with Matif wheat breaking its support at the 200 day moving average overnight and falling to its lowest level since January.

Looking ahead, we continue to monitor trade relations with China as officials from the US and Taiwan announced the planned kick off of formal trade negotiations this fall. The US-Taiwan Initiative on 21st Century Trade was unveiled in June, with officials saying the first step in determining what needs to be negotiated is complete, with 11 topics up for discussion when talks kick off in a few weeks.

Taiwanese officials claim the goal is a free trade agreement between the US and Taiwan. This combined with recent legislation that prohibits any companies receiving government funds for expanding chip production from doing so in China has created major angst amongst Chinese leaders. China has been clear about their desire to become leaders in the chip industry with this move clearly threatening that role. Overnight China again threatened ‘resolute measures,’ though obviously after a similar threat leading up to the Pelosi visit, US officials seemingly remain undeterred.

In other news, we will get updated export sales this morning, with traders expecting decent sales in soybeans and marginal sales for corn and wheat. Ethanol production yesterday showed a drop in production as expected, with an uptick in supplies. Oil futures jumped on news the strategic reserve has fallen to its lowest level since 1985 but seemed to struggle when it came to holding gains.

Markets are lower this morning, with energies higher.

Corn down 4 to 8

Beans down 8 to 12