Morning Comments July 20, 2022

Corn closeup

Markets were down hard yesterday to start before recovering on a drier midday run of the GFS and ideas we are oversold, even in the face of weaker seasonals for corn and soybeans. On the day we saw wheat close unchanged, corn close down 15 with November beans 22 lower. 

We continue to operate in uncharted territory when it comes to all that is happening in the world and what it will mean when it comes to grain prices. Much attention has been placed as of late on record heat across many parts of the Northern Hemisphere and what it means for grain production as well as renewable fuels.

Reports indicate President Biden is likely to announce a "Climate Emergency' in the coming days, possibly opening the door to executive action when it comes to oil drilling, carbon intensive infrastructure, and major investments in renewable energy. Some feel this could have implications when it comes to renewable fuels as well, with the obvious focus on renewable diesel and ethanol.

In addition to what it could mean from an environmental policy standpoint, many feel the heat and dryness will have major implications on corn production in the region. Romania was one of the largest European corn exporters last year and is now warning heat and dryness has caused irreparable damage to their corn crop, likely cutting their production outlook from a year ago. 

The same is being said for French production with concern reductions in outlooks will become commonplace to finish the summer pushing Matiff corn up 16% since the start of July.

Egypt's grain group GASC passed on their tender for wheat yesterday. Though on paper one could argue US SRW is the cheapest in the world, yesterday's offers to the group were far more expensive than many had expected. The increase in offered values versus posted figures should come as no surprise in the cash market as carry coming back into the wheat market has made it more attractive to elevators with space, limiting pipeline flow and making the replacement cost of those bushels sold much higher.

GASC announced late yesterday they will pursue direct negotiations with trade groups instead, with updated prices on actual values traded anticipated to be released today or tomorrow.

Speaking of global wheat movement, Russia is now questioning the likelihood of a grain corridor out of Ukraine, pushing for even more of the sanctions they say are impacting grain exports to be rolled back. Russian leaders also threatened a greater invasion into Ukraine, saying the two regions currently being targeted aren't the only ones that will see battle. They further warned the West providing Ukraine with long-range weapons would prompt an even more aggressive approach.

China continues to battle Covid, with Shanghai now requiring all citizens to get tested once a week until the end of August and warning anyone found not submitting to testing and to have been found to transmit the disease will face prosecution. In addition to their struggle with Covid concern remains regarding what is happening in China's real estate market. 

Mortgage boycotts have now spread to 91 cities. With property development accounting for 1/5th of the Chinese economy and real estate accounting for nearly 70% of household wealth, how officials handle this situation will have major long term implications. 

Looking ahead we will get updated energy information this morning, with traders expecting another increase in oil supplies and a potential decline in gasoline demand. Ethanol production is expected to be a touch lower on the week as well, with a slight build in stocks.

Weather-wise the Climate Prediction Center has much of the country transitioning over to warm and wet from the 25th of July through August 2nd. Many believe the ridge imposing incredible heat across the Southern Plains stretching up into the heart of the country will move further to the west and break down a touch allowing much cooler and hopefully wetter conditions to prevail.

Corn down 1 to 2

Beans down 8 to 12