Morning Comments July 11, 2022

Shutterstock 526530454 Soybean Fields

All three markets rebounded in a big way on Friday as ideas of the recent sell off being overdone ran headlong into a bullish weather forecast. At the end of the day we saw September wheat finish 55 higher across the board, with September corn up 24 and December up 27. November beans ended the day 31 higher.

The GFS put a blowtorch into its late July forecasts for both Europe and the US on Friday, with models showing temperatures soaring to all-time highs across parts of the UK and France, while heat is shown spreading north out of Texas here in the US. 

With the US heat expected to come with little in the way of rain according to models, many traders flooded back into the market on Friday, pushing us 57 cents above Tuesday's lows in December corn and 94 cents above the low hit Tuesday in November beans at the close. 

Traders continue to battle with meteorologists on just what to expect, with many finding any kind of forecast to fit their bias. At this point, it appears the heat is moderating a touch compared to where we started the weekend, with forecast highs for Des Moines on Sunday, July 18th falling from 101 degrees in Friday afternoon's forecast to 88 as of this morning.

Unexpected rain is falling across a large portion of South Dakota, Nebraska, and Iowa this morning as well, with it now expected to remain relatively intact as it works towards Illinois, Indiana, and even into Michigan. None of this precipitation showed up on on the morning's QPF, bringing the extent of the dryness in the extended models into question.

At this point it appears much of the heat will be accompanied with clusters of storms, however where those storms drop moisture and how high temperatures soar will have a major impact on production.

Outside of weather, videos and pictures of Ukrainian wheat fields allegedly being burned by Russian troops were plentiful across social media over the weekend. Reports of hundreds of acres of fields burning throughout the Zaporizhzhia Oblast hit the news over the weekend. This region is on the front lines of battle, bordering the Donetsk region where Russian backed separatists have been battling the Ukraine army since 2014. Solid estimates of how much grain has been lost to the fires has been difficult to pin down with several small fields across the front lines reportedly burning.

In other news, Friday's job numbers showed no sign of a recession, actually coming in better than expected. At 3.6% unemployment, job openings remain plentiful and wages continue to grow--albeit still at a slower pace than inflation.

The strength in employment data lends confidence to the idea we could see increases in rates without a major downturn in the economy, though many still contend the consequences of high energy and material costs will begin to weigh heavily on the industrial sector in the last half of 2022.

Speaking of energy costs, Eurozone inflation continues to soar, with the manufacturing sector, especially in Germany coming under pressure. It is estimated the energy costs of a German manufacturer in 2023 is nearly double that of what it was in March. Households in the UK will feel the pinch as well, with costs expected to be 65% higher than what was seen last year.

With Russian officials cutting gas flow to Germany via the Nord Stream 1 pipeline due to maintenance and fears they will not turn it back on, Eurozone officials are working on a plan B in order to get country's the energy supplies needed before winter.

Many contend the cut to gas flows and deliberate sabotage of wheat fields is a sign Russia is on the ropes and willing to pull out all stops, while others continue to see these things as signs we are nowhere near a peaceful resolution. Either way, Ukraine and Russia will remain a major unknown in the market for quite some time.

Last week's excitement over China backing away from its Covid Zero policy was short lived as rumors began to fly over the weekend that we could see restrictions put back in place in Shanghai, with talk of potentially more lockdowns in Beijing. Other cities throughout the country have seen restrictions and lockdowns as well, showing that Covid policy will remain strict yet somewhat undefined for the foreseeable future.

Looking ahead, markets gapped higher on the open last night in a bullish chart set up before falling off a touch. We still have corn, soybeans, and wheat trading double digits higher at the time of this writing, with crude down $2. The dollar is trading higher this morning as well.

We will get updated export inspection data this morning. With corn and soybeans seeing net cancellations in Friday's sales figures, shipment pace is becoming that much more important. Crop conditions will be released after the close, with traders expecting a bump in conditions after last week's widespread rains.

Corn up 19

Beans up 19