Morning Comments August 31, 2022

Grain Bins

Corn and beans both managed to find support and recover into the close Tuesday after initial sell offs to start the day. Wheat never really caught a bid, giving up a decent chunk of Monday’s gains. At the end of the day December corn was down 6, November beans were down 5 and December wheat was down 22.

Major news was limited, but overall market sentiment felt heavy as traders begin to weigh the economic consequences of the Fed aggressively raising interest rates with no intent to pivot to lower rates until signs of sustained decreases in inflation are seen. Yesterday morning’s jobs data further cemented these concerns with a strong job market likely pushing the Fed to be even more aggressive with policy moves into the end of the year.

The market is now pricing in a 76% chance the Fed hikes rates 75 basis points in September, this up from 53% just a week ago. In addition to strong words from Jerome Powell regarding price stability, several prominent members of the Fed have been adamant in their support of aggressive monetary tightening. 

European leaders are clear they have similar intents as well, with Goldman Sachs warning UK inflation could surge to over 20% by next year if a solution to high natural gas prices is not found. 

High energy prices have encouraged suppliers who haven’t been as prominent in the global oil market to resurface as of late as well, with Libya increasing production and exports, Iran working with the UN and the US to strike a nuclear deal and Venezuela even discussing the possibility of coming back online. 

The increase in production potential and concerns over demand in the West as monetary policies shift and in China where the economy is struggling, and Covid Zero policies keep oil demand soft pressured crude in a big way yesterday with WTI dropping over $5.00 on the day.

The global grain market is showing questionable demand, as well as Brazilian corn offers, remain soft and limited storage availability is starting to be discussed in certain regions. The concern over the long-term economic outlook and what demand will look like in the months ahead at these pricing levels is keeping buyers much more hand to mouth than was seen in late 2020 and throughout 2021.

Here in the US, traders are still discussing yield potential with one prominent analyst dropping his yield projection to 170 bushels per acre, down 3 bushels from last month. From a historical performance standpoint, this analyst tends to come in a handful of bushels below the USDA final figure each year, but it is likely after last week’s Pro Farmer tour came in as low as it did other groups will drift lower in their estimates as well.

Interesting to note we had no named tropical storms in the month of August this year. The last time this happened was in 1997.

Looking ahead, grain market direction is likely to remain heavily influenced by outside market sentiment and trade psychology. Crude was down big yet again overnight, now having lost nearly $8 since Monday’s close. Pressure there is spilling over into ag markets with overnight weakness seen in grains as well. 

We will get updated energy information this morning with traders looking closely at gasoline demand to try and get a feel for consumer sentiment. Gas prices have fallen several weeks in a row with wholesale prices hitting January lows.

The fundamental picture remains somewhat blurry with uncertainty over production keeping the market supported in the near-term. Concern over demand however is likely to keep buying capped as uncertainty over the economy is likely to keep speculators from heavily entering grains ahead of harvest. 

Corn down 8 to 10

Beans down 10 to 15Growing