Morning Comments March 25, 2022

Taube Corn Pile

Markets were weaker throughout the day yesterday as focus shifts a bit away from what is happening in Ukraine and towards what is taking place in respect to the global economy. To end the day, wheat was down 20, corn was down 9, and beans were down 18.

Actual progress when it comes to reaching peace between Russia and Ukraine remains limited, with both sides vowing to continue the battle. President Biden continues to meet with European leaders today as the group works to create another round of sanctions, this time working to target energy products.

As mentioned yesterday, President Biden is promising to provide resources to make it possible for the EU to shift away from Russian energy products, though this morning's promise of 15 billion cubic meters of LNG is around 10% of the typical yearly amount the EU imports from Russia, leaving quite the gap left to make up.

Interesting to note, the lack of demand from certain countries hasn't necessarily created the financial hardships many in the West had hoped for as other countries not involved in sanctions around the world are more than happy to purchase cheaper Russian products once they can navigate the currency conversion.

Reports are continuing to surface of many deals being transacted between Russia and China by private companies. With reports of Russian wheat being offered significantly below other world offers, it is likely only a matter of time before China finds themselves tapping into the estimated 15 mmt or so of unshipped Russian supplies. 

Speaking of Chinese demand, we are continuing to see a surge in Covid cases as Omicron's asymptomatic presence in many is wreaking havoc on China's Zero Covid policy. Case numbers in Shanghai reached a new record yesterday as the city continues to lockdown residential neighborhoods and limit unnecessary economic activity.

The surge in cases and subsequent increases in lockdowns or just general lack of social interaction out of fear of contraction is likely to impact meat demand, according to Chinese consultancy group Sitonia Consulting. The group highlighted the drop in restaurant revenue since the start of 2020, and the subsequent impact it is having on meat demand in their morning report. 

They contend Chinese consumers now choose to stay home with a diet more centered on rice or wheat as opposed to the meat cuts offered in many restaurants pre-Covid. Lockdowns are also causing issues when it comes to delivery services, with grocery delivery reported to be days out now, if consumers are lucky enough to get a delivery spot at all. 

The increase in cases has impacted an estimated 80% of the Chinese economy and created weird moves in grain and soybean meal prices in the country. Fear of quarantine has slowed truck traffic as just recently a soybean crushing plant was shut down and all workers quarantined after a trucker tested positive. 

The reduction in production has caused a spike in domestic soybean meal prices though, bringing some crushers better margins. Improved margins prompted a sharp increase in purchases as well, with several cargoes of Brazilian beans reported sold for May and June as the Brazilian farmer has become a more aggressive seller as their harvest moves to over two-thirds complete. 

The slowdown in the Chinese economy is just one of the many reasons outside traders are beginning to become more concerned over what takes place in the global economy in the weeks and months ahead. Many heads of major banks are now anticipating a massive move higher in rates, with one anticipating 12 to 15 hikes, while another used the term “rate shock.”

Most leaders of major investment groups agree, as do markets, with treasury markets now pointing to a recession and other indicators pricing in a nearly 77% chance of a 50-point rate increase in May. 

Looking ahead, Fridays have been days of traditional sell-offs recently as many traders don't want to carry long risk into the weekend out of fear of the unknown. With markets having traded lower for much of the week it is possible today could be an outlier, though early indications appear risk-off may be the name of the game. 

Export sales yesterday were disappointing to many, and we've seen Gulf bids fall off a bit recently as traders haven't really seen the major shift in global demand to the U.S. that was initially anticipated. While it is early yet and many that need physical product may remain optimistic a quick resolution is still possible, we will continue to monitor what is happening in the market as the world adjusts to losing a major grain supplier. 

Corn steady to 2 lower

Beans 4 to 6 lower