Morning Comments March 1, 2022

Grain Corn Pile Closeup

Corn and wheat both managed to recover the bulk of their Friday losses yesterday as we saw both markets trade back up limit higher throughout the day. Beans were much stronger as well, as we begin to assess what a long, drawn out conflict could mean to global grain supplies.

As we discussed long before the conflict began, both Ukraine and Russia are responsible for a large amount of wheat exports into the global market, with Ukraine also supplying the world with a substantial amount of corn each year. As it stands now, sanctions and a removal from the SWIFT banking system has made it all but impossible to purchase Russian wheat, while Ukrainian exports were confirmed as stopped indefinitely, with officials saying shipments will not begin again until the Russian aggression stops. 

Ukrainian traders estimate Ukraine still has around a quarter of its wheat crop earmarked for exports shipped, with around half of its corn left to move. When it comes to old crop shipments, it is easy to see who is most affected as China still has several million tonnes of corn purchased from Ukraine, but not yet shipped. 

In addition to Chinese corn purchases, we are also seeing Egyptian wheat buyers struggle as their government group released what could only be described as a poorly timed tender. Results showed prices surged since their last tender and offers have fallen from a dozen or more to a handful, pushing the group to cancel for now.

In addition to concern over when or how supplies will ship, we are around 6 weeks or so from the kickoff to the 2022 planting season in both countries. An inability to finance or receive supply could significantly impact the Russian farmer who has around 30% of their typical wheat production left to plant. And in Ukraine, it is obvious fighting in certain regions will limit the ability of life to return to normal, even if we were to see farmers able to obtain the necessary inputs.

The concern that fighting continues for several more weeks, or worse yet months, is valid and will likely keep markets supported until we see signs of a resolution. 

At this point, the world continues to work to punish Russia, as their currency falls and their stock markets remain closed. Citizens are beginning to speak out against the aggression, as are Russian billionaires seeing their assets frozen and their net worth tank, but Putin appears to remain steadfast in his dedication to take over. 

We did see talks take place between delegations from both countries yesterday, though with Russia amping up air attacks shortly thereafter it appears little progress was made. Talks between delegates are expected to take place again later this week, though at this point it appears Russia is continuing to flood Ukraine with troops as it doubles down on its desire to take the capital city of Kyiv.

Outside of geo-political developments we got updated export inspections yesterday. Bean shipments continue to come in above the amount needed each week to meet USDA expectations, though we did see a significant drop in loadings compared to the last handful of weeks.

Corn shipments exceeded the amount needed to meet USDA expectations for the third week in a row, coming in at 60 mbu on the week, versus the 58 million or so needed. Chinese shipments were down a touch from last week, but still above the average we've seen so far this marketing year, coming in just over 13 mbu.

Wheat shipments were down from the 4-week average, but still okay considering. It is interesting to note that U.S. wheat is still around $100/tonne too expensive when looking at other GASC offers in the Egyptian wheat tender.

Looking ahead, we are seeing some very interesting moves taking place in the outside markets. With the developments we've seen in the Black Sea, the global economy feels far more fragile than it did just weeks ago as we try to digest what this could mean long-term. 

Many traders feel the European Central Bank will be unable to make any sort of major move when it comes to rate hikes, even in the face of runaway inflation. Here in the U.S. many members of the Federal Reserve feel the United States will be more isolated from the major economic shifts we are likely to see in Europe, but some seem more hesitant to make any type of aggressive move as it is obvious we are in unprecedented times.

As of this morning's writing we are back up to near where May corn topped out last week, with July forward not trading nearly as strong as it had even a week ago thanks to shifts in spreads. November beans are still off from last week's highs, but working their way back towards $15.

Don't forget to use these rallies as an opportunity to get caught up on sales you wish you would have made when we were limit down last Friday. Selling small increments of your ownership or expected production in a scale sell approach is really the best way to manage the emotion and volatility we are currently facing.

Corn up 20 to 25

Beans up 35 to 45