Morning Comments February 10, 2022

Soybean Field Sunshine

The USDA report released midday yesterday was nothing more than a speed bump for corn and soybeans as they soared to new contract highs, despite what could have been considered a neutral to bearish report at face value. Wheat followed to the high side as well.

Looking at the numbers from the USDA yesterday, there is nothing that would stick out to your average market watcher as a surprise. In beans, the USDA left their export outlook for the U.S. unchanged and bumped soybean crush up 25 million bushels to drop our carryout down to 325 million bushels. Traders had been anticipating a drop to around 310 mbu, but the lack of adjustment higher to old crop exports has market bulls thinking ending stocks could potentially fall even further than the 310 they were estimating ahead of yesterday's figures.

Globally we saw the USDA make a historically large, though conservative in the face of private estimates, adjustment to the Brazilian bean crop, taking it down to 134 mmt from 139 last month. The head of the World Ag Outlook Board made it clear in his follow up report that though they recognize early bean yields were irreparably damaged by hot and dry weather, late rains helped to stabilize crop potential.

On the global demand side of things, the USDA's only real major adjustment was to Chinese imports as their domestic crush demand looks like it will fall off a bit from last year. As we've talked about numerous times prior, both hog and crush margins in China remain negative, weighing heavy on growth potential at least in the short-term.

With all of the adjustments made we saw global ending stocks come in slightly below expectations, though not off by much. 

Domestic corn figures were left completely unchanged yesterday, keeping carryout at 1.54 billion bushels. Globally, few major changes were made to the balance sheet, with global ending stocks coming in slightly lower than last month on a smaller Brazilian production outlook but again higher than pre-report estimates.

Domestic wheat saw reductions to outlooks for food, seed and export demand, bringing carryout in slightly higher than expected and up a bit from last month. Some minor adjustments were made to global demand with carryout coming in lower than last month and below pre-report estimates.

Outside of WASDE numbers we got updated ethanol production figures yesterday as well, showing reduced production on the week, the impact of high ethanol stock levels and low grind margins. We did see ethanol stocks fall off though, with a decent drawdown at the Gulf, indicating exports. Midwest stock levels fell from recent record highs, back to levels seen 2 weeks ago.

Looking ahead, we will get updated Brazilian production estimates this morning from Brazil's version of the USDA. CONAB was slow to make any major adjustments last month, keeping their estimate around 140. Further cuts are expected today, with the extent perhaps giving us some insight into what they are thinking when it comes to both acreage and yields.

Of course, as with yesterday, any cut that's less than extreme will likely be viewed as conservative and shrugged off by current market participants.

In addition to updated Brazilian production figures we will get updated CPI data this morning. We saw some interesting insight from select members of the Federal Reserve yesterday, walking back some of the more hawkish expectations of rate increases. One member said they feel a 0.50 increase in March would be too great, while another member said we're on the 'cusp' of inflation easing.

This morning's Consumer Price Index data for last month should give us some insight into whether or not we are seeing easing inflation, likely sealing the deal on what folks will come to expect ahead of next month's meeting and subsequent decision.

We will get updated export sales figures this morning as well. Much of yesterday's move in corn was credited to yet another round of rumors regarding Chinese corn buying. According to market chatter, 2-3 mmt of corn was sold to China out of the PNW yesterday. Like last month's rumor, nothing in the cash market aside from spread action would indicate a major deal was done, but now we wait for a sales announcement.

Soybean sales are expected to be stout on the week as China has been in hedging their bets somewhat aggressively when it comes to protecting themselves from a reduction in available Brazilian supplies.

For now, it appears we will continue to roll, with beans breaching $16.00 on the overnight.

Corn up 5 to 6

Beans up 24-30