Morning Comments March 10, 2022

Corn closeup

Nearby wheat futures continued to experience significant selling pressure yesterday exacerbated by a sharp sell off in crude on talk Ukraine was willing to find a compromise to stop Russian aggression. Corn and soybeans followed late in the day after the USDA report failed to provide much in the way of surprises and crude saw one of its biggest down days since April of 2020.

Talks between the delegates of Russia and Ukraine were held again this morning. Folks were a bit optimistic ahead of the discussions after Ukrainian leaders indicated they would be open to some type of compromise if that's what it took to get Russian aggression to stop. However, after this morning's conversation, it appears Russian leaders may have moved the goalposts a touch as talk of nothing but a full on surrender of Ukrainian leaders would be the only way Russia would cease operations. 

European countries continue to struggle with just what action to take as current sanctions and limitations of exports out of the Black Sea have sent already high food and energy costs soaring. 

Here in the US updated inflation numbers will be released this morning with most traders expecting figures to come in showing a 7.9% increase year over year. With the continuation of price increases, we are now seeing some economists suggest inflation in the US could hit 9% at some point in 2022. Increases in energy and food costs combined with geopolitical uncertainty has pushed consumer confidence to its lowest level in 10 years. 

Poor consumer confidence in addition to other historically accurate market signals are indicating the US could be heading into a recession, something no one expected at the end of 2021. While rate increases are the story currently with continued thoughts of a March bump followed by additional increases in subsequent months, deferred markets are now pricing in rate cuts for 2023 as economic signals continue to show it may be necessary.

Outside of geopolitical turmoil and central bank decision making, we got a USDA report yesterday that under normal circumstances would have been the center of attention. 

Number-wise there was little in the way of big surprises, corn carryout came in a touch lower than anticipated at 1.44 bbu as the USDA increased its demand outlook for ethanol, upping it 25 million bushels from last month, and exports increasing those 75 mbu from last month.

Globally there wasn't much in the way of major changes. The USDA lowered Ukrainian corn export expectations by about 6 mmt in this report, which is just under half what analysts in the country believe is at risk to be lost if aggression were to continue beyond just a few weeks. Global carryout came in a touch lower than expected as a small cut to Argentina production and other modifications put us at just under 301 mmt of world ending stocks versus just over 302 mmt in last month's figures. 

Soybean carryout came in 40 million bushels lower than last month on expected increases in export demand. At 285 million bushels carryout came in a touch higher than trader estimates, but down from last month and much lower than the figures we were discussing at the end of 2021. 

When it came to global figures the USDA made another big cut to their Brazilian production estimate, down 7 mmt from last month, though at 127 mmt the USDA remains one of the higher estimates out there. The USDA was able to offset 3 mmt of the loss in Brazilian production with a cut to Chinese soybean import expectations, citing poor hog and crush margins as a reason why. With many crush plants in the country shut down for much of March into April, this cut to Chinese demand wasn't necessarily a surprise.

Wheat carryout came in higher than pre-report expectations for both domestic and world ending stocks. While the USDA was far more aggressive in recognizing the effects of the war on export pace they were quick to point out that much of the wheat not exported this growing season by Russia or Ukraine would remain in storage, thus a subsequent increase in ending stocks for both countries and the world.

In addition to USDA data, we saw updates from China's Ministry of Agriculture and CONAB--Brazil's version of the USDA. The Chinese Ministry of Agriculture does not agree with the USDA's thoughts when it comes to imports for the country, keeping their estimate elevated and above 100 mmt, though analysts in the country were quick to say they expect ministry numbers to eventually gravitate closer to USDA expectations.

CONAB released their production outlook early this morning lowering Brazilian production again from last month, cutting it to 122.8 mmt, lower than the USDA and on the lower end of ranges. They left corn production unchanged. 

Looking ahead we will of course continue to monitor the situation in the Black Sea. It is growing increasingly likely that this war could wage on well into spring and beyond, with a whole boatload of ripple effects likely to be seen for many years to come. 

We've started to see more countries gravitate towards issuing limitations on ag exports in an attempt to cool domestic inflation with Indonesia being the biggest, upping the percentage palm oil exports need to keep on hand for domestic demand to 30% earlier this week. Many smaller producers on the global scale have also announced restrictions to exports as well.

We will get updated export sales this morning at 8:30 eastern.

Corn up 15 to 20

Beans up 20 to 25