Morning Comments July 14, 2022

Beans 062419

The post CPI grain bounce we've grown accustomed to was a little less exciting this month, with big morning strength sold off into the close. To end the day we saw wheat close down 3 after trading 36 higher at one point. December corn closed nearly 9 higher though, with November soybeans up 6.

Yesterday's CPI figures showed a larger than expected jump in consumer prices paid in June. Ahead of the report traders were expecting June's inflation figures to come in around 8.8% but federal data showed prices increased 9.1% in June, another 40 year high. The increase in prices was mostly seen in energy, food and rent, but all indicators were up significantly versus a year ago on the month.

Yesterday's report came on the back of a surprise overnight 100 point hike by Canada's central bank as it too works to cool multi-decade inflation. With expectations the Bank of England will also work to increase rates in a similar aggressive fashion, thoughts a global economic slowdown is becoming nearly unavoidable are on the rise.

After the numbers were released the Atlanta Fed President told a group 'everything is in play' saying price stability is the major objective above all else. Futures markets are now pricing in an 80% likelihood of a 100 point increase in this month's meeting, with a 75 point hike considered nearly a lock.

Some caution the use of yesterday's data when it comes to a more aggressive Fed policy approach for a couple different reasons. First and foremost many say June's data is backward looking, pointing to the massive drops in prices seen across a whole host of commodities from the start of the month to now. 

In addition to saying the information is outdated, many point to Fed research recently released showing the risk of a recession based on the current policy timeline at 35%, but a more aggressive approach to rate increases and quantitative tightening sends that risk to 60%.

In addition to worry about how the world's central banks will work to combat inflation, we are now seeing the second phase of China's property crisis underway. As you may remember several Chinese property groups began to struggle late last year as changes in regulations and issues sourcing funds brought their ability to pay back debt in doubt. The ensuing financial struggle resulted in the stoppage of several construction projects, leaving many homes undone and buyers paying mortgages on undeveloped properties.

Recently Evergrande, one of China's largest real estate development groups, estimated there are nearly 2 million home buyers with almost 600,000 unfinished apartments at risk. After seeing limited progress in construction and recognizing that they may never see their promised property developed, many of these home buyers have begun to boycott their mortgage payments. Experts estimate the full extent of this risk at nearly $6 trillion with complete uncertainty as to how officials will be able to stop this type of financial calamity from spreading.

In other news, reports this morning indicate an agreement has been reached when it comes to opening Ukrainian Black Sea ports for grain exports. Early details indicate Turkey will play a major role in the facilitation of said agreement, responsible for checking ships upon entry and providing resources to the UN as they monitor and track progress.

Details indicate three Ukrainian ports would be opened, Odesa, Chernomorsk and Pivdennyi, with Ukrainian officials responsible for escorting the convoys of ships carrying grains out of their waters. Many remain skeptical the deal will become reality as at this point it doesn't appear as though Russia will get much in the way of concessions, however it is possible private concessions have been established to help grease the wheels of progress.

Looking ahead we will get updated export sales figures this morning. There were rumors circulating again yesterday of Chinese corn buying interest, though any confirmation of that would show up as a 9am eastern flash and would not be in last week's numbers. 

Weather will continue to be a dominating factor with talk of an active storm track developing from Iowa north and to the east. Temperatures are still expected to be incredibly hot with dryness continuing in the Southern Plains, putting much of those crops not under irrigation at risk.

Corn steady to 3 lower

Beans 12 to 15 lower