Morning Comments March 21, 2022

Beans 062419

Values are recovering to start the week after a poor finish for both May corn and wheat Friday, as well as a lackluster soybean trade. It is interesting to see a large increase in buying for new crop corn and beans as folks start to recognize the need for a shift in risk premium from old crop to new. 

The Russian attack on Ukraine is nearly a month old now and there appears to be little in the way of progress when it comes to achieving peace. Headlines last week lurched from positive to negative and back again, with the Kremlin claiming this morning Ukraine is not trying hard enough to compromise. 

Ukrainian president Zelensky claims he is open to direct negotiations with Putin but says a failure in accomplishing peace during those talks would likely result in a much wider war. At this point it appears Russia has changed the way it is approaching the offensive as of late, increasing attacks on civilian neighborhoods with the hope a loss in life and important infrastructure will force Ukraine to surrender. 

Global superpowers are now debating whether to place sanctions on energy supplies. Many European leaders are hesitant to take such steps as doing so will have a direct effect on their consumer prices as they rely on Russia for nearly a third of their energy needs. 

India announced Friday they will buy Russian oil using a direct rupee to ruble transaction.

Looking at grains, we continue to watch South American weather forecasts as the Safrinha crop in Brazil is mostly planted. Recent rains have helped stabilize Argentina's crop prospects, though lower than expected yields from the first round of corn has prompted some officials to anticipate another slight reduction in output expectations in future reports.

It is interesting to note though that many Argentina farmers rolled the dice, holding off on planting early corn due to drier conditions. As a result, nearly 70% of the corn crop was put in the last half of December, potentially late enough to have caught the early bout of January rain and finishing in the wetter March. How that will impact overall production potential though will remain to be seen for another handful of weeks. 

Here in the U.S., it appears the Canadian Pacific railroad locked out its staff who are also now officially on strike per the Union and CP leadership. While this disruption won't impact movement within the U.S., it will impact cross border traffic. According to industry experts 70% of U.S. potash comes out of plants in Saskatchewan hauled by the CP. 

Nutrien representatives said the bulk of their needs have already been delivered, indicating the strike won't impact their supplies, though every retailer in the country is likely holding their breath. The strike is also likely to impact Canadian feeders as a much larger amount of corn than normal has been rolling north from the U.S. to offset production losses from last year's drought. 

Looking ahead, it is likely this week will be even more volatile than the last several as we try to understand what the geopolitical and economic developments mean both short and long term. We have never been in a scenario where it feels like every Black Swan that could happen does and unknowns seem to lurk behind every corner. 

We are seeing the increase in uncertainty, volatility and risk forcing our traditional players to the sidelines, with many experts noting the massive drop in open interest across the board in commodities. Both oil and wheat are trading at multi-year highs with open interest at its lowest level in over 5 years. Corn and beans open interest is also at multi-year lows. 

Open interest is the depth at which the market is trading, or as one market watcher explained, hypothetically on a normal day you would have 300 people in the pit stepping in to buy or sell at any given moment. Now imagine 250 of them are gone and the 50 remaining are looking to buy with limited selling taking place. Thin markets tend to create wider than normal bid/ask structures, resulting in big moves with limited contracts being traded. It's a recipe for massively wild swings and the perfect market for target orders as a farmer. 

We will get updated export inspections this morning. We continue to struggle with logistics and the ability to move grain as railcar loadings fall off and performance continues to get worse. We saw a dip in corn bushels shipped last week as a result and will be watching this week's numbers closely in hope we don't see a trend develop. 

Though it is early in the year, the real concern becomes how we manage to meet demand expectations if we can't move the grain from where it is to where it is wanted. 

Corn up 10 to 15

Beans up 20 to 25