Morning Comments July 21, 2022

Grain bins dryer

Another day with corn and beans under pressure as forecasts continue to introduce rain and cooler temperatures in the 6-10 and 8-14 day outlooks. Wheat managed to trade a bit higher as harvest pressure starts to subside and traders realize the grain export corridor out of Ukraine likely remains months away. To end the day we saw wheat up 7, December corn down 5 with November soybeans down 26.

The world appears to have fallen into some sort of disarray as it seems each day we have a new political or economic conflict brew. Overnight the Italian Prime Minister resigned, the second such major European leader to do so in the last month as inflation runs rampant and politicians seem to be struggling with the consequences of their policy decisions.

Of course, it does not appear as though economic conditions will improve across much of Europe as high energy prices are likely to remain entrenched as political leaders struggle to come up with a punishment for Russia harsh enough to stop the aggression in Ukraine.

Russia remains mostly unfazed, maintaining large shipments of energy products and other commodities out of the country, marked now for China, India, Brazil, and others they deem 'friendly.' In addition to maintaining a relatively healthy export pace, we are now seeing Russian leaders work towards holding referendums in captured Ukrainian cities as well. These votes are expected to be held by September 15th and are expected to provide Russia with what they believe is a legal claim to the territories in question.

We also heard from cargo insurers yesterday regarding the likelihood of opening a grain export corridor out of Ukraine. Insurers have a couple of important requests they say will need to be fulfilled before providing insurance to the ships in question. It should come as no surprise they are seeking ships that have naval escorts and that there is more in the way of guarantees regarding the demining of the corridor than they have seen thus far. 

In addition to what is happening in Europe and the Black Sea, China continues to struggle when it comes to battling Covid and supporting the real estate market that accounts for roughly 20% of their overall economy.

Mortgage boycotts have now spread to 305 projects across the country, with the value of the mortgages affected estimated at just under $300 billion. As we have mentioned the issues at hand stem from a government crackdown on over-leveraged property developers, limiting their access to capital and forcing the slowdown on over 200 million square feet worth of projects across the country.

Chinese officials floated the idea of a 'mortgage holiday' on these unfinished projects Monday, though no official plan has been announced. With some 90% of Chinese real estate sales tied to unfinished properties many worry this will negatively impact home sales going forward as consumers may no longer feel comfortable taking the risk.

Here in the US we got updated energy information yesterday with gasoline stocks coming in higher than expected as the American consumer continues to slowdown their driving due to high prices. The average gasoline demand for the last 4 weeks is hovering just above 2020 Covid-impacted levels, and is the worst after that since 2000. 

Ethanol production was up slightly, with stocks lower on a drawdown in the Gulf. Ethanol margins remain extremely poor at this time, though we have seen limited signs of a slowdown in production so far.

Looking ahead weather patterns look poised to shift in a big way after the weekend, with cooler and wetter conditions expected across much of the country. There was talk yesterday of signs we could turn back hot and dry as we work into August, but so far, as we have been saying, model performance that far out has been poor.

We will get updated export sales this morning with traders expecting limited old crop business and meager new. The USDA reported a flash export sale of 136,000 tonnes of new crop soybeans to China yesterday, though those won't be seen in today's report. 

Corn down 6 to 8

Beans down 10 to 15