Morning Comments June 2, 2022

Shutterstock 526530454 Soybean Fields

Yesterday saw a continuation of the sharp sell off in grains from the day before with wheat finishing down 46 and July corn down 22. Beans finished the day 7 higher after a sharp sell off early, thanks to renewed Chinese buying interest, mostly out of Brazil.

Traders continue to believe we are close to seeing some sort of resolution when it comes to shipping grain out of Ukraine's Black Sea ports. Turkey has stepped in as of late, working as a intermediary between Ukraine, Russia and the UN, also promising to police shipping corridors in the region. While the US remains staunch in its refusal to rollback any sanctions, it has promised to write 'letters of comfort' to countries purchasing Russian grain or fertilizer.

While the promised letters seem like a nice gesture, removing the worry of punishment from the West for doing business with Russia, many in the industry report it's not the fear of retribution that is causing a pause in business but the inability to transact or ship cargoes once purchased. Many companies are refusing to insure Russian ships or service Russian ports, creating numerous logistical headaches. 

Interesting to note yesterday that Egypt's government buying arm had 16 offers in its most recent wheat purchase tender, well above the average amount of offers seen previously. Russian wheat was very present in the pool of supply, with Egyptian officials confirming Russian supplies will cover a large portion of their tender needs. Romania and Bulgaria were the other two suppliers of note. 

Egypt has received a lot of attention as of late, as they import over half their yearly wheat needs, doing it mostly through a tender system as seen yesterday. Russia had been a major supplier for Egypt ahead of the war, with many believing that would be forced to come to an end due to sanctions and possible shipment issues. Yesterday's tender provided the world a bit of insight when it comes to global supply availability in the sense that we're not necessarily lacking supply by any means, though the availability of cheap supply is another story.

In other supply news, the Ukrainian Grain Association updated their new crop production outlooks for the country, giving an optimistic outlook all things considered for the year ahead. 

Estimated new crop corn production increased 3 mmt from early April estimates to 26.1 mmt, though still substantially lower than last year's 37.6 mmt of production. The group believes the country will be able to export upwards of 15 mmt of corn in the coming year thanks to large beginning stocks on top of production. If realized both the production estimate and the export projection would be much larger than current USDA figures.

Well followed brokerage firm Stone X updated their Brazilian production outlooks yesterday as well, increasing their soybean crop outlook by 1 mmt to just under 125 mmt. They caught some folks off guard by increasing their corn production outlook as well, even in the face of a pretty substantial drought in some portions of Central Brazil. At 116.8 mmt the Brazil crop would be over 30 mmt higher than a year ago, and a new record.

After the close we got updated demand figures from the USDA. Soybean crush came in slightly above pre-report estimates, though inline with pre-report expectations. Of note, both oil and meal supplies came in much higher than anticipated, with soyoil supplies coming in above the high end of pre-report guesses. 

The significant increase in byproduct availability is weighing heavy on the cash values received for those products, while the increased pace in crush and a surprise late season export program has pushed basis above historical averages. The two components combined have taken a significant amount of value out of crush margins, with values falling nearly $1.60 from late April figures.

Ethanol figures continue to show solid demand across the country for ethanol, with grind coming in at 3 year highs. We remain ahead of the pace needed to meet current USDA projections for the marketing year, though many in the industry feel we will begin to see a bit of slower production this summer with a reduction of gasoline demand due to rising prices.

Speaking of ethanol, the EPA is expected to announce blending requirements Friday. Reuters reported an expected increase in 2021 requirements from what was initially proposed late last year pushing RINs hire on the day, though most don't anticipate the announcement to provide much in the way of surprises.

Looking ahead, the tide is shifting again in outside markets with some Fed officials saying the bank could be tackling inflation for months if not years ahead. Both JP Morgan and Bank of America cautioned consumers of an impending economic slowdown yesterday, with the head of JP Morgan likening our current economic condition to waiting on the arrival of a hurricane.

Markets are finding support early this morning, with wheat and beans currently over 10 higher, while corn is up a couple across the board.

Corn up 2 to 3

Beans up 10 to 15