Morning Comments March 17, 2022

Black Dirt

We hope we're nearing the end of the conflict in Ukraine as talks seeming to be closer to reaching a compromise pressured wheat much of the day yesterday, pushing May to close limit down. Spillover pressure on corn was evident as well, with May corn closing down 28 on the day, while May beans were down 9. 

There was lots of talk yesterday morning regarding a deal on Ukrainian neutrality and potential progress towards peace had many traders exiting commodities bets. As one analyst pointed out, it is as though we're back to trading trade war headlines as the market will make big moves in an instant with the right tweet. 

While Ukrainian representatives have been relatively quiet on what the deal being agreed upon actually entails, they continue to remain upbeat that talks are continuing and the hope for peace remains. On the flip side, though the Russian delegates involved in the talks are clear progress is being made, other Russian leaders seem intent on not only continuing the war in Ukraine, but threatening the West and Western allies.

Overnight the deputy chairman of Russia's security council said Russia has the right and the power to put all enemies in their place, while this morning the Kremlin is walking back talks of progress saying some of the headlines regarding compromise are true, but not all. 

It appears some of the more inflamed talk from Russia could have been driven by President Biden referring to Putin as a "war criminal" late yesterday, with the Kremlin this morning saying the U.S. has practiced many of the acts they are accusing Russia of doing.

In addition to questions regarding progress towards peace, we will continue to watch how other major countries in the global economy handle their approach to Russian commodities as the conflict continues. As we had discussed early in the week, India is looking into ways the two countries can transact with one another in their respective currencies in order to purchase oil and other raw materials. 

Overnight China's commerce minister made it clear they will act in what their government feels is in its best interest, stating that China will continue to do normal economic and trade business with both Russia and Ukraine. The commerce minister went on to again condemn the use of sanctions, promising to do whatever it could to protect Chinese firms from any fallout that would come to them for continuing normal business. 

This after the U.S. threatened to punish any group found circumventing sanctions in place and U.S. Security Advisor Sullivan met with his Chinese counterpart to reiterate the threat earlier this week.

Looking at what is happening from an economic standpoint inside of China it should not come as a surprise their government will do all that it can to keep raw material costs down and supply flow more than adequate. At the start of the week traders estimated nearly 2 trillion of wealth had been lost in Chinese stock indices since the start of the year.

As you may remember, changes in regulatory behavior regarding wealth and loans had impacted China's property development sector extra hard, with the Evergrande debacle and other similar tales. In addition to concerns over risks in property, traders were also concerned regarding the scope of damage that could be done if sanctions were to make their way to Beijing, not to mention fallout from the return and rapid spread of Covid. 

Late Tuesday China's Finance Minister put forth plans promising stability, regulatory clarity and monetary easing to stoke growth and protect economic interests, putting a floor under their markets and sending the Hang Seng stock index soaring from 2008 lows.

Interesting to note, China is moving towards more monetary easing as other central banks around the world look to tighten their monetary policies. Yesterday Fed Chair Jerome Powell confirmed the U.S. Central Bank’s desire to cap and reduce inflation in an expedited manner. Though the 25-point increase came in as expected, the talk after the announcement seemed to create more in the way of headlines.

Powell believes the bank will raise rates another 6 times this year at each of their remaining scheduled meetings. Target rates by the end of the year are expected to be around 1.75 to 2% with additional increases expected next year, taking us to nearly 2.8% by the end of 2023. 

He went on to say that the risk of a recession isn't 'particularly elevated' though the yield curve is beginning to say something very, very different.

Looking ahead, we will be watching this morning's export sales report as traders are expecting another big week for corn sales. Rumor has it many smaller lots of business are being done as buyers simply flip their physical corn longs from Ukraine to U.S. origin. 

Many fear we are nearing peak export capacity soon, however, and with the Canadian Pacific railroad likely locking out nearly 3000 employees Saturday morning it may become even more difficult to move grain from where it is to where it is needed. 

Volatility is set to continue as each new headline seems to change the situation.

Corn up 8 to 10

Beans up 8 to 10