Morning Comments February 25, 2022

Bin sunset harvest

In a bit of a buy-the-rumor-sell-the-fact type trade, we saw the corn market drop off from a limit up overnight move, with December corn actually closing lower on the day. Soybeans soared 81 cents higher on the March in the overnight market, only to close over a dollar off their highs, down 15 on the day, while November closed over 30 lower. Wheat managed to maintain a limit up trade, prompting an increase in their limits to 75 cents today. 

The entire attitude of the market seemed to shift a bit yesterday after an early morning announcement from China indicating they would not call what Russia did an invasion and would not put sanctions in place against their ally. 

In addition to sanctions not necessarily working as intended if one of the world's largest consumers refuses to put them in place, the fact that both the U.S. and the EU made it clear none of the punishments being delivered would harm gas flows or oil supplies leaves Russia wounded financially, but undeterred. 

Overnight we saw Russian forces working to take the Ukrainian capital of Kiev, with reports special forces were looking to capture Ukrainian President Zelensky and force an overturn of current leadership. Russia continues to insist a peaceful forfeiture of power and a neutralized Ukraine is all they are seeking, offering a surrender with 'friendly' terms numerous times throughout the day yesterday and again reiterating their intent overnight.

In addition to continued battles taking place, Russia's finance ministry announced early this morning that Russia is working on its own countersanctions for the West, planning to announce what those look like as soon as today. 

At this point, most regular day-to-day operations throughout Ukraine have been shut down, with the country's major grain handlers expecting a disruption in shipments to last indefinitely. Late yesterday Cargill announced a ship chartered to haul coal had been hit as it left Ukraine, while the crew is safe and accounted for, the concern of continued danger has prompted many grain buyers to wash out of cargoes owned out of the Ukraine in the short-term. 

What this means for global grain supply, especially in the face of massive Chinese demand, remains to be seen. Of course, traders anticipate an inability to load corn or wheat out of Black Sea ports will push them to U.S. markets, however a question over what our relationship with China looks like after this remains the 500-pound gorilla in the room. 

In addition to concern over how China's decision not to condemn Russian action will impact our relations going forward, there is also elevated concern, and according to experts, a higher-than-average risk that China will make a similar move in Taiwan.

To put it bluntly, we are watching a major shift in geo-political relationships and ties that will likely have a long-lasting and potentially detrimental impact for years to come. 

Outside of Black Sea developments, we got the first glimpse of what the USDA is anticipating to take place in the year ahead. Yesterday's figures were purely economic driven, with no survey or any sort of 'boots on the ground' type input, but still give us a starting point as to what we could see when it comes to supply and demand.

The USDA anticipates the U.S. farmer will plant around 92 million acres of corn this year. Using a trend line yield of 181 bushels per acre and making some minor demand adjustments, the USDA anticipates new crop carryout to come in around 1.965 billion bushels. 

For soybeans they expect the American farmer will plant 88 million acres. Using a trend line yield in soys puts us at 51.5 bushel per acre. With some increases to crush and seed and residual they expect carryout to come in at 305 million bushels, or relatively close to expectations for the current marketing year.

Looking ahead, we will continue to watch what happens with Russia and Ukraine. There are several scenarios analysts see playing out, with the worst case being this battle wages on for months creating major impact to commodity flows and turning the world on its head. 

As it stands now, we are likely to see consumer prices continue to be impacted, with inflation running rampant, however the question becomes whether or not Central Banks will have the ability to reign in the capital they have been providing to their economies or if their economies become too fragile to withstand that type of change. 

Weather-wise, in the words of well-followed meteorologist Eric Snodgrass, we have seen a massive pattern shift for at least the next two weeks in South America with Argentina and far Southern Brazil expected to see relatively plentiful and much needed rains fall, while northern areas see a much-needed flip over to drier weather allowing them to work to wrap up soybean harvest and finish planting safrinha corn.

Corn: 23 cents lower

Beans: 39 cents lower