Morning Comments June 29, 2022

Combine and Tractor in the field for Soybean Harvest

Support in the soybean market and entering oversold territory ahead of Thursday's report helped corn and wheat find buyers yesterday. At the end of the day we saw July wheat up 17, with KC up 11 and Minneapolis down 7. July corn was 15 cents higher with December up 6, while July soybeans were up 33 with November up 30.

In addition to support coming from dip buyers this week, we are seeing some enthusiasm return to the market regarding Chinese demand, as the country seems to be loosening its Covid policies and working to return back to normal. Claiming it has contained the disease we are now seeing Shanghai reopen dining services, with theaters and other areas for public gathering looking to resume operations by the end of the week.

Travel from Shanghai is no longer marked as concerning in a citizens travel log either, basically reopening the country to many residents who were unable to leave the city prior to the changes. 

Government officials in China continue to battle a struggling housing sector, with other major economic issues remaining apparent as well. Overnight leaders said they will help to subsidize citizens impacted by high fuel costs if the global oil price exceeds $130 a barrel. 

At the same time however, other leaders are quick to say the government will remain cognizant of the risk of inflation and do all that they can to avoid pitfalls 'seen in the West.' An interesting dichotomy of messaging, to say the least.

Here in the US a rally in soybean products has helped processor crush margins rebound from recent lows. Record crush margins were seen throughout the spring, with a sharp drop at the start of the month taking values down over $1.50 in a matter of weeks. The drop in margins increased the likelihood of shutdowns or slowdowns in August, providing support to both soybean meal and soyoil.

The subsequent strength in products and weakness in basis has helped support crush margins, with average values rallying 88 cents over the last few days. While the improved margins are welcomed, the increased volatility is not, prompting many in the industry to begin practicing a more conservative trading strategy, moving to more back to back business until we get a clearer picture of new crop. This type of strategy may keep product values strong, but likely limits bean basis strength in the interior.

Over in the Black Sea, we are seeing limited progress when it comes to achieving anything in Ukraine as the Russian offensive continues unfazed. Farmers and agribusiness in the country are doing all they can to prepare for the upcoming harvest, with wheat harvest just beginning in the Southern oblasts. Spring planting is considered completely finished, with acres coming in 20% lower than last year, an astounding feat considering early expectations had upwards of a 70% loss in production penciled in.

Government leaders continue to struggle with how to implement temporary storage plans and move grain, with the Polish ag minister accusing others of providing limited help. With wheat harvest just getting underway and fall harvest only a handful of months away the clock is ticking on how interior grains get moved or stored. 

Looking ahead we will get EIA data for last week and this week later this morning as the energy department had some type of systems failure and was unable to provide last week's figures on time. Insight into ethanol production will be key as margins are starting to slip and some basis levels are starting to weaken indicating a potential slowdown in production could be on the horizon.

Weather-wise we continue to see the CPC calling for above normal temperatures with above normal precipitation for much of the country in both the 6-10 and 8-14 day forecast. There continues to be indications of heat trying to work its way back into much of the Corn Belt the last half of July, though there continues to be limited agreement as to whether it is accompanied with decent moisture or not. We will likely see some position squaring today ahead of tomorrow's major USDA report.

Corn steady to 1 higher

Beans 3 to 5 higher