Morning Comments May 19, 2022

Grain bins dryer

What started out as a relatively mundane Wednesday turned into a pretty ugly rout in outside markets that only exacerbated fundamental selling on talk of better European weather and the possibility a humanitarian agreement can be met, opening up Ukraine's Black Sea ports for grain exports. At the end of the day we saw July wheat down 46, corn down 19, with November soybeans down 26. 

Up until recently there had been a relatively vocal pocket of traders who were skeptical of just how aggressive the Fed could be when it came to monetary policy. Many claimed that even a hint of stock market weakness would spook those behind rate decisions, forcing them to quickly change direction. However, it has become clear that is unlikely to be the case, with Powell stating on Tuesday that pain will likely come with adjustments and that is something they're willing to risk for the sake of price stability.

In addition to Powell's words, the White House claimed the stock market is not something they watch from a day-to-day standpoint, removing the idea outside market weakness would prompt them to walk back tough talk on inflation.

In addition to the realization the Fed is unlikely to save the stock market in the short term, we are seeing surprise earnings come from what had previously been seen as bullet proof retail giants. Disappointing results for Amazon, Walmart, Target, Lowes, and others has introduced a new wave of concern, as consumers are changing their spending patterns and stores are facing massive freight cost increases while also finding themselves awash in goods customers are no longer looking to buy.

In addition to concerns over what is happening in the outside markets, we are seeing an interesting conversation develop centered on Russia and Ukraine, with many world leaders working on a plan that would create a humanitarian-style corridor for grain exports out of Ukraine. 

The head of the UN is getting involved now, saying it is time we figure out a way to allow unhindered access to Russian grain and fertilizer into the global market as well, with Russia in turn allowing Ukraine access to their ports to ship into the Black Sea. While initially the conversation seemed to be limited, the UN chief claimed talks went well and were well received.

Overnight, the Chinese announced their desire to work with Russia, looking to buy crude from Moscow for the national reserves. Russian crude values have fallen off substantially as of late as the EU has been working on an embargo plan. A lack of easy access when buying supplies has limited outflows from Russia as well, slowing production as their storage fills. This deal would provide Russia with an out when it comes to their supplies, as well as a large influx of much needed cash. 

India is reportedly looking to continue to source a large amount of crude from Russia as well.

It will be interesting to see if we start seeing similar government to government trades start to take place when it comes to wheat supplies, as the Russian wheat crop is set to be a record this year. Current production estimates put the Russian crop up anywhere from 9 to 12.5 mmt higher than last year's crop; this on top of record high ending stocks for this crop year. 

Early export estimates are up 5-7 mmt from last year's levels, with many traders believing Russia will do away with export taxes and restrictions after they are set to expire at the end of June. 

Elsewhere, reports out of Indonesia indicate the government will yet again roll back its palm oil export ban, effective Monday. Farmers had begun to protest the ban as palm oil processors had stopped buying palm fruit due to full oil storage and an inability to process. 

Here in the U.S., we got updated ethanol production figures yesterday, with production on the week relatively unchanged from last week and stocks down slightly. One additional highlight from yesterday's report is the indication logistical snarls that had pushed Midwest supply numbers to record highs and left some Eastern refiners running on fumes look to have been resolved. 

We will get updated export sales figures this morning. With last week's numbers as disappointing as they were, traders will be hopeful we see a bump in this week's figures. 

Outside markets look poised to move lower again this morning, with energies down early as well. We will likely see another day of volatile and emotional trading. 

Corn down 4 to 6

Beans mixed- up 2 to down 2