Morning Comments July 6, 2022

Soybeans

An ugly day across the board yesterday as the commodity sell off ramped up to start the week. When the market's closed we saw July wheat down 37, with Kansas City and Minneapolis wheats down 50. September corn closed 27 lower, while December was down 29. November soybeans were 79 lower.

The rout in futures prices wasn't isolated to grains, with crude falling nearly $11 at one point, after trading $3 higher overnight. Softs were off significantly as well, taking the Bloomberg commodity index to its lowest level since the end of February.

The mass exodus of managed money has been breathtaking, with November soybeans losing $2.00 in only three sessions, and September corn falling off over $1.60 in ten. A drop-in open interest confirms the expectations that traders are leaving. 

With an estimated 205,000 contracts or just over 1 billion bushels of managed money longs still present in corn, the risk of further liquidation remains. The same is true in soybeans, where managed money is estimated to be mostly underwater, with vegetable oil values around the world continuing to fall off expeditiously. Of course conditions at this point are grossly oversold, and remain primed for a bounce if we were to see a shift in the weather forecast, or start to hear a more dovish tone from the Fed. 

Speaking of hearing from the Fed, minutes from the US central bank's June meeting will be released today, giving us insight into the conversation that took place behind the scenes ahead of the June rate decision. Analysts will also look into the discussion to get an idea as to what the Fed's next steps will be and whether or not we can expect another 75 point increase this month.

Overnight we heard from another central bank representative, but this time from the Bank of England. BoE's Deputy Governor told the BBC in an interview that the bank is willing to do 'whatever is necessary' to keep the recent surge in consumer prices from getting entrenched in the economy. This sentiment echoes a similar pledge from US Fed Chair Jerome Powell in his testimony in front of Congress last month.

Fundamentally speaking, we got some updated export inspection data yesterday morning that was pretty disappointing overall. Corn shipments on the week were a 7.5 month low, coming in at only 27 million bushels, substantially lower than the 62 mbu needed to ship each week. Soybean shipments were the lowest seen since the start of the marketing year at 13 mbu shipped, nearly 17 million bushels lower than the weekly amount needed. Wheat shipments were 4 million bushels on the week, just over 10 million bushels lower than what needs to go.

Crop progress released after the close showed continued hot and dry conditions in the Eastern Corn Belt weighed heavy on ratings last week, with Kentucky and Indiana seeing double digit drops in corn and soybeans rated good to excellent versus a week ago.

Nationally the corn crop is rated 64% good to excellent, in line with ratings a year ago. Soybeans were 63% good to excellent in yesterday's conditions report, slightly better than last year's ratings for the week. Wheat harvest is progressing a bit slower than expected thanks to good yields in the east and pesky showers in the west. Spring wheat conditions are 50% better than a year ago, coming in at 66% good to excellent.

Looking ahead we are getting a bit of a pop in the overnight markets led by wheat. Traders have completely erased the war premium built in after the Russian invasion, though the war continues. Some question as to whether or not the move to the downside has been overdone, though it is obvious the value of risk premium changes if buyers become sparse. 

Whether or not the inflation trade truly is over likely holds the key to where these markets go from here. A continued exit of managed money and reduction in outside interest will continue to pressure these markets no matter the fundamental picture. 

Corn 1 to 2 higher

Beans 10 to 15 higher

Bloomberg Commodity Spot Index P168i 3 Rainfall totals