Morning Comments July 25, 2022

Agronomy Sprayer

Wheat sold off hard Friday, down 47 and trading to its lowest level since February on reports of a grain corridor deal being implemented and a general risk off feel. Corn was down 9 in sympathy with wheat, though not down as hard thanks to support from soybeans which were up 14.

It took less than 24 hours for the grain corridor deal signed Friday to come under fire, literally, as Russian missiles targeted the Odesa port Saturday morning. Several missiles were fired by Russia, with a handful shot down by Ukraine and two hitting their targets, initially falsely reported as a grain terminal.

Comments from Russia were limited early on, with condemnation coming from leaders and industry groups around the world. After initially denying any role in the attacks, Russian officials soon clarified they were targeting a military installation and that it fell within the constraints of the agreement as it was not involved in any active loading or transportation at that time.

Soon after the attack Ukrainian officials pledged to continue with implementation of the agreement as the backlog of grain is great and harvest is on track to be better than initial expectations.

Of course many are questioning the validity of the agreement and what it may mean for overall shipments as some believe sourcing shippers and insurance will be nearly impossible. Others contest the support being offered by the EU and US will prompt some to push the envelope of safety in the name of food security and profits.

Outside of what is happening in the Black Sea we are continuing to monitor developments in China as Covid continues to spread and economic concerns grow. Lockdowns, restrictions and mass testing are becoming a part of everyday life for many in China with the government continuing to push its Covid zero policy, as relatively untouched so far Shenzhen is now pushing businesses to move to 'closed loop' production. 

As we had seen in Shanghai, closed loop production basically locks employees down on site, allowing for the continuation of work without the risk of outside contamination.

In addition to Covid concerns, issues with companies and capital are becoming more prevalent with a large Chinese hog producer rumored to be liquidating its herd and dealing with dead hogs as it cannot access enough capital to purchase feed.

Issues in the property market continue to grow as well with the CEO and CFO of beleaguered Evergrande resigned Friday on reports they were involved in a scheme to hide financial issues and shift capital. With an estimated $300 billion in debt needing to be restructured the departures and likely subsequent investigation into questionable business practices is less than ideal. 

Other property developers are struggling as well with an estimated 1.4 trillion yuan in capital needed to finish the homes sold but incomplete. The concern over what the property market looks like long term has pressured home prices for 10 months straight, putting a significant amount of personal wealth at risk. 

Here in the US we will get updated export inspections this morning with us needing to ship 67 million bushels of corn, 34 million bushels of soybeans and 15 million bushels of wheat each week to meet USDA projections.

We will also get updated crop progress figures after the close with some downturn in conditions expected, especially in the West where heat and dryness has been prevalent. Over the weekend we saw rain fall across a good portion of the Corn Belt, with more chances through some of the driest portions of the Plains and Midwest throughout the week.

What happens after this stretch of moisture and coolness is coming into question, with models pointing to a very hot and dry start to August though uncertainty remains. 

Looking at the week ahead we will be watching weather, Black Sea developments and macroeconomic news as Fed Chair Jerome Powell will update rates on Wednesday and we get more developments in European energy policy. It's likely to be another volatile week.

Corn up 10 to 15

Beans up 10 to 15