Morning Comments July 7, 2022

Grain bins dryer

We finally caught that pop in corn and soybeans we have been looking for, with both markets able to recover from an ugly morning to close higher. On the day we saw Chicago wheat closed mixed, with Kansas City and Minneapolis down 5-10. December corn closed 6 higher, with November soybeans up 7.

Much of yesterday's outside market focus was on the release of the Fed's meeting minutes from June. As expected, the minutes indicated members of the Fed are steadfast in their desire to control inflation and lower consumer prices, with an expectation of another 50-75 point rate increase in July relatively clear. 

However after the release of the minutes some analysts began to point to parts of the conversation that indicated a pause in hikes could be warranted at year end. Many continue to contend Powell and other members may talk tough now, but will be willing to make a quick about-face if a recession were to become evident or consumer prices begin to fall. Others also feel the minutes were outdated in the face of the commodity rout seen throughout the month of June and that opinions may be different at the end of July when the group reconvenes.

In addition to what is happening to control inflation here in the US and abroad, traders are watching what is happening in China as the government there bucks the global trend and continues to look into ways to stimulate its economy. Commodities caught a pop overnight on the announcement China is considering allowing local governments to roll forward 2023 debt issuance into the second half of this year, opening the door to nearly $220 billion worth of potential infrastructure spending.

This $220 billion would be added to the nearly $200 billion in stimulus put together by the federal government over the last few weeks. In addition to infrastructure stimulus, the city of Beijing announced nearly $15 million in coupons that will be sent to consumers to help stimulate restaurant spending as consumer spending there has fallen off significantly due to Covid concerns. Other stimulus programs designed to help the auto industry are in the works as well.

Interesting to note China's government acting quickly to talk down hog prices after a recent rally in pork prices prompted hog producers to look to expand production in the face of their first positive margins in months. After having purchased significant tonnage of pork to support prices these last few months, the government is now looking at releasing reserves to cool values. 

News is mixed out of Ukraine where we are seeing limited progress in just about every aspect of what is taking place there. Ukraine's Minister of Foreign Affairs is far from optimistic regarding a quick reopening of Black Sea ports, saying parties are steps away from putting together a deal, but they are the most difficult steps and likely to take weeks.

We are seeing temporary storage infrastructure and new logistic developments taking shape in order to help move the estimated 50-60 million tonnes of grain that will have to leave the country next year. According to Ukraine's ag minister there are 20 companies planning or actively building new transshipment facilities in new logistical routes throughout Poland, Romania, Hungary and Slovakia. 

Current plans indicate a need to move as much grain as possible as far as possible from the frontlines, especially as reports of stolen grain being shipped by Russia into "friendly" nations continues to grow.

Here in the US it is all about weather, with heavy rain falling or expected to fall across much of the driest parts of the Eastern Corn Belt in the coming days. Areas across the Western Belt are expected to see continued moisture, with the bulk of the heaviest rains centered across much of Iowa. 

Cooler, drier weather is expected beginning early next week as the ridge moves to the west and northwest flow becomes more present. Questions remain as to what happens to finish out the month, with signs consistent that heat returns by month end but moisture signals are mixed. 

Looking ahead we will get updated energy data this morning with retail gas prices falling across the nation over the last week. Ethanol production is expected to remain stout, with another drop in stocks anticipated. 

As mentioned, markets are stronger this morning as we remain oversold in the face of possible spikes in Chinese demand thanks to a fresh flow of stimulus. 

Corn up 10 to 15

Beans up 30 to 35

7 Day Precip Forecast Rainfall totals 6 10 day 8 14 Chinese Meal Yr to date Malaysian Palm Oil Russia Ukraine 7 7