Morning Comments January 7, 2022

Red Barn Behind Field

The markets spent much of the day weaker yesterday as the Fed appears to want to take a more aggressive approach to combating inflation. Old crop corn finished a touch higher on the day, though, as continued chatter of potential Chinese buying interest makes the rounds.

The minutes from December's Federal Reserve meeting were released Wednesday, indicating officials feel rate increases from the Fed could start as soon as March, with up to 3 increases expected this year. On top of the stoppage in bond purchases we know has already happened, reducing the flow of money into the system, rate increases and a potential reduction of current bond ownership is now on the table when it comes to cooling rampant inflation. 

With crude topping $80 again, lumber trading back to early May highs, and agricultural commodities trading at multi-year highs, it appears the Fed may have its work cut out for it, as ideas inflation will cool by the second quarter are beginning to look farfetched.

In addition to outside market pressure, we got updated export sales figures for the week, with all of them coming in below pre-report expectations. Again, many traders were quick to point out last week was a holiday week, though again it is easy to look back to last year's volumes and see that had a limited influence on sales. Corn sales for the week came in at 256,000 tons, down 80% from last week and the 4 week average, this compared to nearly 750,000 tons sold the same week last year.

Soybean sales were a marketing year low, coming in at 383,000 tons. China was in for the lion's share of purchases again, though most of those bushels were switched from 'unknown.' Interesting to note, we tend to assume sales announced to unknown are Chinese purchases, however, we saw switches out of unknown this week for Spain and the Netherlands, showing that isn't always the case. 

Wheat export sales came in at just under 49,000 tons, also a marketing year low.

Beyond export sales and Fed talk we saw continued cuts made to Brazilian crop estimates. One private analytical group came in with the lowest estimate yet, down over 10 mmt month to month, with an expected production figure of 131 mmt. If realized this would be 6 million metric tonnes lower than last year's crop. 

Other groups continue to contend the offset by better-than-normal northern production will go far in stabilizing overall production potential, keeping their estimates in the 138-142 range.

Forecasts continue to show continued heat and dryness throughout much of Argentina up into Uruguay and Rio Grande do Sul for the next 7-10 days. Models continue to point to a return to wetter conditions for the last half of the month, though it appears the expected pattern shift will rely heavily upon whether forecast models are right about the breakdown in La Nina conditions.

A break down would result in a pretty significant pattern shift, while a failure to do so would keep the areas struggling hot and dry for the foreseeable future. At this point we have seen a couple failed breakdowns over the last several weeks, though according to one well-followed meteorologist the model runs have been more consistent when it comes to this next shift. 

Looking ahead, we will continue to trade South American weather. We are several days from seeing any sort of measurable rainfall, keeping concerns elevated. Outside money flow and position squaring ahead of next Wednesday's report will keep things interesting as well. 

Corn down 4 to 5

Beans down 9 to 11