Morning Comments March 16, 2022

Grain Bins

Wheat found buyers for a second day after last week's sell off and continued concerns over Russia and Ukraine made futures look cheap in contrast to recent highs. Strength in wheat spilled over into corn, while soybeans spent much of their day lacking direction. To end the day, May wheat was up 58 cents, May corn was up 9, and beans were down 11.

Negotiations continue between Russian and Ukrainian delegates, with Russian representatives saying some of the framework needing to be agreed upon is close to being completed. It appears at this point Russia is pushing for a neutralized and demilitarized Ukraine, saying it would like the country to follow the Austrian model. In addition, of course, Russia insists Ukraine not join NATO or any other Western Bloc that could threaten Russian interests. 

According to some sources Ukraine appears willing to compromise so long as an immediate cease fire and troop withdrawal takes place. 

The market seems conflicted to a certain extent with the developments as what is being discussed and what is taking place on the ground in Ukraine are two very different things. As one expert put it, "though the negotiations sound positive, the fighting is still ongoing," leaving it as anyone's guess what happens next.

As we mentioned yesterday, Ukrainian President Zelensky will address Congress this afternoon continuing to request a no-fly zone over Ukraine as well as additional economic and military aid. 

The world financial markets will be watching what happens with Russia this week closely as well, as millions of dollars in interest payments on the country's debt is due today. According to Russian officials, the debt will be serviced, though due to their lack of access to currency markets it will be serviced in rubles, something experts say goes against the terms of the bond.

It is estimated Russia currently has over 640 billion dollars in gold and foreign currencies it no longer has access to, though U.S. officials believe a portion of it is still held in Chinese currency and at Chinese banks, providing some liquidity. 

After the meeting between the U.S. national security advisor and his Chinese counterpart earlier this week, officials said it is clear China is still working to provide some level of support to Russia, though they continue to do so at arm's length. 

Speaking of China, officials there continue to do what they can to contain the spread of the Omicron variant. Mainland China reported a drop in cases from yesterday, crediting stringent lockdowns and testing as a way to control the spread of the disease. 

The concern over Covid and the impact of lockdowns has prompted a significant drop in traffic throughout the country, with traffic down 36% year over year in Shanghai on Tuesday with a 26% drop in Shenzhen. Even areas free of restrictions are seeing folks stay closer to home, with Beijing traffic down 25%.

Looking at ags, we got updated NOPA crush figures yesterday with February soybean crush coming in as expected. Oil stocks were the big surprise, coming in at their highest level in nearly two years. 

We continue to watch what is happening in the spread between interior basis values and export hubs as transportation issues and continued logistical snarls are making it difficult to move grain from where it is to where it is needed. 

The current logistical headaches are only likely to be further exacerbated by a possible strike on the Canadian Pacific railroad. The CP handles a solid portion of grain movement west of the Mississippi with grain being its largest customer. Though the earliest the strike can happen would be Friday, it appears as though it is almost a guarantee as both parties remain far apart from an agreement and CP officials threatened a lockout before the strike could happen.

With our logistical capacity already stretched to its breaking point, it becomes difficult to see how much additional export strength we could see, at least until movement gets better sorted out.

Looking ahead, we will get the big decision from the Fed this afternoon as well as minutes from this week's meeting. Most folks are betting on a 25-point rate increase, with some saying 50 points is possible, though not likely. It is hard to imagine what could be viewed as a surprise from today's minutes, though many will be scouring the transcript for signs of what should be expected in the coming months.

We'll continue to focus on what happens with peace talks as well as what the Fed has to say, while also getting updated energy information mid-morning. 

Corn down 3 to 4

Beans up 10 to 15