Morning Comments May 12, 2022

Corn Emerging 360X240

The markets rallied on higher-than-expected inflation figures and weather concerns yesterday, recovering a decent chunk of recent losses. On the day we saw July corn finish 13 higher, with December up 16. July beans were up 14, with November up 17, while concerns of continued heavy rain limiting planting in the Northern Plains saw Minneapolis wheat close 38 higher with Chicago up 20 and Kansas City up 25.

CPI data released yesterday morning showed inflation figures for April were up 8.3% from last year. This was higher than the 8.1% expected though lower than the 8.5% figure seen for March. Much of the increase came via food and shelter though sharp increases in airline tickets and new cars helped to contribute to the increase as well. 

While the more optimistic analysts were quick to say yesterday's figures confirmed the possibility of inflation topping out with March's numbers, others were quick to say the Fed isn't doing enough and the economy continues to run too hot. Many continue to suggest figures in May have the potential to increase as well with gasoline and diesel shortages pushing prices there to record highs and no indication food or shelter costs will move lower. 

Concerns regarding an economic fallout from what is taking place in China seem to be growing as well, with the country's third largest property developer by sales missing an important debt payment and suggesting more will be missed. Sunac is said to be working to restructure its offshore debt as sales have plummeted 65% year over year in March and April thanks to Covid lockdowns and currency shifts increasing borrowing costs. 

Outside of what is happening in the global economy, traders will be watching today's USDA supply and demand projections closely as this will be our first real glimpse into what the agency is expecting in the year ahead. 

Old crop corn carryout is expected to come in a bit lower than last month as ethanol demand remains strong. New crop carryout is expected to come in lower for next year, down nearly 88 million bushels from current crop year estimates with the average trade guess of 1.352 billion bushels. It is interesting to note, however, when looking at report expectations, the range of production estimates is relatively wide when typically the USDA uses March acreage and trendline expectations from February's outlook meeting.

Old crop soybean carryout is expected to come in 35 million bushels lower than last month at 225 million bushels. Much of the reduction in carryout is expected to come from higher export figures as we have already sold more beans than the USDA is currently projecting. However, some analysts feel a portion of today's increase in exports could be offset by a decrease in crush as year-to-date pace indicates we won't make current estimates. 

New crop soybean carryout is expected to increase year over year with traders expecting new crop ending stocks to come in around 320 million bushels.

Old crop wheat figures are expected to see a slight uptick from last month as we are nowhere near meeting USDA export projections with only a few weeks left in the marketing year. New crop projections show a further decline in wheat carryout expectations as production is expected to be lower than a year ago thanks to drought in the Southern Plains. 

How the USDA handles global production and demand expectations may be the most interesting component of today's numbers as the situation in the Black Sea is no closer to ending than what it was a month ago. Russian wheat production remains on track to be a new record, with millions of tons of grain said to be sitting in Ukraine unable to ship. 

It is interesting to note that French officials reduced their export outlook in this week's report, indicating a reduction in global demand has been seen as higher prices have pushed some countries to pause purchases. Recent dryness in the country has become a major concern as well, though rainfall is expected to increase for much of their wheat belt next week. 

Chinese officials released their outlook for supply and demand as well, indicating they expect further decline in corn import needs next year, down to 18 mmt from this year's expected 20 mmt. If realized, this would be 5 mmt lower than current USDA projections. Soybean imports are expected to increase a touch as the hog herd recovers late this year into next year, up to 95.2 mmt, up from the USDA's most recent estimate of 91 mmt for this year.

Looking ahead, we will get updated export sales figures this morning, with much of trade focused on what the USDA will say at noon Eastern. We will have the figures once they're released. 

Corn steady to 2 higher

Beans 8 to 12 lower