Morning Comments August 3, 2022

Dairy cows standing in a field at sunset

Markets were weaker yesterday on uncertainty regarding what China's next steps will be after Speaker Pelosi's stop in Taiwan and wetter extended forecasts. On the day we saw September wheat down 25, December corn down 15 and November soybeans down 19. 

Speaker Pelosi landed in Taiwan around 10:45 pm local time to a flurry of activity as fighter jets scrambled and air raid sirens reportedly wailed. China condemned the action, reiterating its warning that those playing with fire will be burned and saying that whatever happens to Taiwan going forward is the fault of the United States. 

The White House distanced itself from the Speaker, saying Pelosi was independent in her decision. The UN also condemned the trip, as tensions in the region and around the globe are already heightened.

Overnight, China announced economic sanctions and restrictions on thousands of Taiwanese ag products, as well as tariffs on imports. China is Taiwan's largest trade partner, with the sanctions targeting some of their biggest export products. 

In addition to the economic sanctions we are seeing military drills taking place all around the island, in a first of its kind move. Missile tests and other military exercises are happening in close proximity as well, with concern the drills could go on for days or even weeks, potentially disrupting shipping and supply lines.

Chinese officials continue to contend the US will also be punished, though it is unclear exactly what type of punishment that may be, or what type of plans they may have. 

Outside of what is taking place in the Taiwan Strait, we continue to monitor progress in the Black Sea when it comes to Ukrainian exports. As reported, the first ship of Ukrainian corn to leave ports since February arrived safely to its initial destination yesterday, with other ships set to sail in the coming days. 

Overnight officials reported three ships are now in the line up to arrive at ports for loadings in the next couple of weeks. This would be a major lift to the export outlook as many analysts feared lack of shipping capacity due to insurance restraints and lacking crew. However, with officials saying they are targeting to load and release a ship a day, the current rate would only equate to around 1 mmt of grain shipped by sea a month, less than half the initial target.

UN food experts and other analysts are seeing an interesting trend develop in global wheat demand, with the last half 2022 global wheat needs expected to see the biggest year over year drop in decades. High prices have pushed consumers and producers in certain regions to replace wheat in their flour needs, choosing instead to source more regional, drought tolerant crops.

The use of tapioca and broken rice, as well as consumers simply curbing their wheat demand in general is believed to be responsible for an expected 5-8% decline in global wheat needs for the last half of the calendar year. The decline in demand is evident as prices fall from record highs set in the first half of the year and some global cash traders report limited inquiries. 

Here in the US we are starting to get private yield estimates ahead of next week's USDA supply and demand report. StoneX released their survey based estimate yesterday, putting the US corn yield at 176 with beans at 51.3. Both figures seem to fall well within the expectations of traders, with the overall yield estimate range seemingly setting up between 173 and 178. Beans are a bit harder to pin down this early of course, as August weather is key to production potential.

Speaking of August weather, traders will be closely monitoring a band of showers that has developed over Eastern Nebraska and Western Iowa as yesterday's high temperatures really took the crop backwards in some places. It is interesting to note incredible disparities in overall July rainfall, with only 32 as the crow flies miles being the difference between record high July rainfall in Decorah and record low July rainfall in New Hampton, Iowa. 

Looking ahead we will continue to monitor developments with China. Some believe nothing will come of the Pelosi trip aside from some sabre rattling and sanctions, while others caution ripple effects from this will last for weeks, if not months or years. Overnight markets are mixed so far, with wheat stronger after yesterday's sell off.

Corn up 2 to 4

Beans up 3 to 8