Morning Comments January 31, 2022

Combine and Tractor in the field for Soybean Harvest

The inflation trade has seemingly kicked into overdrive as we see outside money continue to pour into ags, with speculators pushing their long positions back up to levels not seen since we hit highs last May. On the week last week, we saw March soybeans gain over 50 cents, March corn gain 19, with wheat finishing up 5 or so, even in the face of a mid-week rout.

From a fundamental standpoint, traders continue to point to the reduction in Indonesia palm oil exports and a concern over Argentina production potential as reasoning behind the run-up in values. Palm oil has been running hot for a while now, setting new record highs fueled by reductions in production due to environmental issues and labor. 

The recent cut in exports by the world's largest exporter has only further stoked fears of food scarcity, though many market watchers would have a hard time telling you what exactly the reduction means long-term. 

Forecasts for Southern Brazil and Argentina continue to show signs of dryness in the 8–14-day forecast, though we have seen drier 8–14-day forecasts roll forward a touch wetter as of late. According to officials in Argentina, the recent rains have gone a long way when it comes to stabilizing crop potential and limiting the short-term impact of the drought, but there is still a good portion of the growing season left and forecasts continue to lean dry for February. Good news is it appears major heat risks are limited, helping to maintain reasonable soil moisture if rains remain present, even if spotty.

Over the weekend we saw further evidence of a separation when it comes to messaging from the U.S. and Ukraine on the Russian threat. Ukrainian president Zelensky reiterated his message from a week ago, saying the Russian threat to Ukraine was no greater today than it was the year prior. He went on to say the rhetoric from the U.S. is beginning to cause unnecessary financial harm to the country. 

The U.S., however, continues to maintain the threat is real, saying Russia is now moving medical tents and blood supplies as well as additional troops to the border. Putin continues to maintain this troop movement is an exercise and that he has no intention of invading Ukraine. 

Late in the week last week a well-followed group put forth a thesis that any type of sanctions impacting Russia's access to the SWIFT transaction system, a global banking tool, could severely impact global supplies of food and energy. They used Iran as an example of this, pointing out that after the country's access to the SWIFT system was cut in 2012 their crude exports dropped 46%. 

This alone will keep traders on their toes as Russia accounts for over a third of Europe's energy needs and is the world's largest wheat exporter.

Looking ahead, we will likely continue to see outside buying interest as volatility in stocks continues to grow. Most traders recognize that inflation is only likely cured by a recession and that's not something we are currently seeing on the horizon, though we are beginning to see consumer confidence and spending starting to drop.

We will get updated export inspections this morning at 11:00 a.m. Eastern. The river market is a mess with Covid, weather, and a massive northbound freight book limiting available empties and driving freight costs through the roof. This mess we're seeing in movement is creating some interesting and potential false indicators in the cash market that will likely take weeks, if not months, to sort out. 

From a technical standpoint, corn and beans are a buy, trading to new contract highs with limited resistance, though gains like these generally see some level of profit taking eventually. Keep cash values on open bushels in mind and don't be afraid to peel some off to reward the market. New crop values are trading at new highs as well.

Corn up 1 to 2

Beans up 13 to 15