Morning Comments January 19, 2022

Soybeans Farnhamville

What looked like a set up for a relatively large sell-off for the first day of the trading week fizzled out as the day wore on yesterday. Wheat led the way back higher, rallying 25 cents and bringing corn back to higher into the close. Beans finished lower on the day, though well off their lows.

Though rainfall has worked its way back into Argentina and portions of Southern Brazil, traders continue to argue over the extent of the damage to production potential that has been done. One private analyst argues that over 35 mmt of production potential has been lost in South America as a whole, while others argue that number is exaggerated. 

With harvest really just beginning across the region, it will only be a matter of weeks before the cash market shows us what really has happened when it comes to production. While offers out of Brazil have firmed significantly as of late, they still remain well below U.S. offers, especially as we roll out into the summer months. 

It has also been reported the Brazilian farmer is a much slower seller of their crop than usual as they missed out on much of the big run-up in values last year and remain bullish futures in the short-term. 

As expected, with forecasts turning wetter for the driest parts of Southern Brazil and Argentina, traders are now turning their attention to the below-normal precipitation forecasts to the north. However, as we discussed earlier this week, below-normal is incredibly relative for the region as the 8-14-day forecast still calls for 1-3" of rain across Northern and Central portions of Brazil.

While South American weather is the easy and obvious fundamental aspect to discuss, it feels incredibly obvious to many market watchers that the support we're seeing, especially in corn and wheat, is coming from concerns over Russian/Ukraine tensions with a continued push on the inflation trade.

The White House said yesterday they feel a Russian attack is imminent, saying it could happen at any time. Military experts watching equipment and troop movement in the country say an attack is likely to happen sooner than later, with many in the region thinking it could happen within days. 

Secretary of State Anthony Blinken made an impromptu trip to Kyiv, Ukraine early this week to meet with Ukrainian President Zelenskyy and other top officials before heading to Geneva to meet with his Russian counterpart at the end of the week. 

Russia continues to push their list of demands that seems to grow by the day, with the Kremlin pointing fingers at Germany overnight, saying they are playing politics with the Nord Stream 2 pipeline. 

Many NATO members have pledged support to Ukraine, with many sending money, supplies, and troops to help fortify the country's defense.

Experts feels Friday is the Biden administration's last chance to solve the crisis diplomatically before these tensions turn into conflict, though based on the posture of Putin, a diplomatic resolution seems unlikely without some type of major concessions from the U.S. and NATO. 

With Russia and Ukraine supplying a large portion of wheat and Ukraine supplying a large chunk of corn to the world pipeline, continued tensions will keep support under this market.

In addition to geo-political strife, we continue to see the inflation trade roll on as we work our way through the first month of the new year. Oil traded to 7-year highs yesterday, continuing higher overnight. Lumber traded to a new high for the March contract last week, before falling off slightly to start the week. Cotton and other softs remain strong as well. 

Traders are already arguing that no matter what The Federal Reserve does in its next move, it won't be enough, while others are pointing to China's recent cut as a reason to sit tight. China's president recently called on other global leaders and central banks to hold off on rate increases, warning a move to increase rates too quickly would be detrimental to the global economy. 

Looking ahead, we will spend much of our day continuing to monitor what is happening in the Black Sea region. Covid developments in China need to be watched closely as well, as the country continues to try to push its zero Covid policy with what we're beginning to see as limited success. 

Corn up 4 to 5

Beans up 13 to 14