Morning Comments July 12, 2022

Sillouette Sunset Location Rail

Grains and soybeans struggled to hold Sunday night's gains as wheat rolled over and midday weather models turned a bit wetter. To end the day we saw wheat down 35, with December corn up 5 and November soybeans up 8.

The global economic outlook seems to be as unclear as the extended weather forecast as we struggle to understand what risks lie in front of us. In China, demand signals remain mixed as government economic intervention and stimulus are running headlong into societal changes spurred by Covid lockdowns and the fear of another round. 

Thoughts that the Chinese government was backing away from their Covid Zero policy was short-lived as we see upwards of 30 million people still under some type of restrictions due to Covid concerns. Overnight a city of 300,000 in the country's steel hub was locked down after the discovery of one case. In Beijing, in-restaurant dining is less than 80% of what it was before lockdowns, with taxi drivers in Shanghai struggling to cover cab rent with reduced business.

Elsewhere we are seeing signs of a significant economic struggle as energy and other costs continue to surge, pressuring margins in business and working to change spending habits for consumers. As we mentioned yesterday a significant majority of the spike seen will be centered in Europe, with German manufacturing expected to feel the brunt. 

The worries over a very European Union-centric period of stagflation and its effects on the bloc's economy have pushed the Euro to trade at parity with the dollar for the first time in 20 years. 

In other news, we got updated export inspections yesterday with corn, soybean and wheat inspections all coming in below the amount needed to meet USDA expectations. While we need to ship around 63 million bushels of corn a week, we shipped just under 37--though one bright spot was a surge in Chinese shipments from their recent pace, at over 15 million bushels loaded on the week. 

Soybean shipments came in just above 13 million versus the nearly 32 million bushels needed to ship each week. Wheat shipments were only slightly below what's needed, coming in at just over 11 million.

We got updated crop progress figures after the close, with the amount of corn and soybeans rated good to excellent down 1 point on the week, while traders were expecting a slight increase. The biggest drops by state were seen in TN, MI, MN and MO for both crops as dry pockets are starting to become more evident.

Looking ahead we will get an updated world and domestic supply and demand update today at noon eastern. Ahead of the report traders are expecting old crop corn carryout to come in relatively close to last month, with soybean carryout expected to come in close to unchanged as well. 

New crop corn ending stocks are expected to come in slightly higher than last month on the uptick to acres in the June 30th report, while soybean carryout is expected to be around 70 million bushels lower thanks to the cut in acreage and some subsequent declines in demand. Wheat ending stocks domestically are expected to come in a touch higher than last month due to the slight increase in acres seen in the June 30 numbers as well. 

Globally corn carryout is expected to grow slightly from last month, with new crop carryout expected to come in close to unchanged. Soybean carryout is expected to remain unchanged for old crop with a slight reduction in new. Wheat adjustments in the global pipeline are expected to be minor though traders will be watching to see if the USDA reduces French production as early yield reports there have been disappointing.

Outside of USDA numbers we will continue to monitor economic developments and weather. Forecasts continue to show heat building into the heart of the country, with the ridge sliding west and parking itself over Texas. Models continue to struggle with identifying summer convection and the development of ridge riding storms, possibly overdoing the dryness concerns, but until rain falls in any given location the risk of drought expansion remains.

Corn down 14

Beans down 31