Morning Comments May 5, 2022

Agronomist In Soybean Field

Wheat was the leader to the high side yesterday as conflicting reports about India's ability to export helped bring in some fresh buyers. On the day corn finished a penny higher, beans were 10 higher with July wheat up 31.

As we discussed earlier this week concern was starting to develop in India regarding wheat production outlooks as an early start to summer heat pushed temperatures to triple digits throughout much of late March and into April. Officials from India's government acknowledged the production issues in the country yesterday morning, lowering their official production estimate from 111.3 mmt to 105 mmt, a cut of 231 million bushels. 

In addition to the news of the cut, one major news outlet reported that the government was also considering limiting wheat exports due to the reduction in production, crediting an anonymous source 'close to the situation.' 

Government officials were quick to dispute the claim, saying no such limits were being discussed, reiterating their prior stance that access to the world market was beneficial to Indian producers. Export offers have firmed as of late however as the reduction in crop potential has been realized, indicating that the market will do the job of limiting exports if that is in fact what is needed as we move ahead.

Outside of Indian wheat export news traders spent much of their day waiting for the Fed rate decision announcement and the ever important press conference that follows. As expected Fed Chair Jerome Powell announced a 50 basis point rate increase effective immediately, with a major reduction to the balance sheet slated to begin on the first of June. 

Stocks rallied late in the day as Powell reiterated his belief that the Fed will be able to create a soft landing for the economy thanks in part to a well timed reduction in the balance sheet, combined with rate increases. In addition to the two prong approach to shifting monetary policy Powell also did his best to calm fears that a more aggressive increase in rates could be coming, saying that a 75 point increase next month is not something the group is actively discussing.

Interesting to note that the Fed balance sheet of treasuries and mortgage backed securities is so large it will take nearly two years to unwind back to pre-pandemic levels at the monthly pace of reductions outlined by Powell yesterday.

According to experts, we can expect another 50 point increase in June and July with some believing a 50 point increase will be necessary in September as well. 

As mentioned stocks soared after the announcement, having one of their best days since May of 2020, while grains outside of wheat were relatively lukewarm at best. 

Looking ahead, China returned from its holiday overnight with more news of Covid cases being difficult to track in Beijing, and talk of potentially seeing more lockdowns. Traders continue to contest that the Chinese crusher is short and needs to come to the table with big import purchases, but the Chinese crusher continues to remain quiet on the world stage with negative margins limiting any kind of aggressive buying.

Fear of the unknown in provinces that haven't yet been impacted directly by Covid shutdowns is keeping folks buying hand to mouth as well, especially when one takes the inverse into consideration and recognizes what they can save by only buying what they need. Government officials will auction another 500,000 tonnes of beans today, with last week's sales total coming in just below 400,000 of the 500,000 offered.

We will get updated export sales this morning. Traders aren't expecting much in the way of big numbers but will be watching figures closely to try and better gauge what demand is going to look like in the weeks and months ahead. 

Weather-wise we are seeing a large planting window open up throughout much of the Eastern Corn Belt after tomorrow's bout of rain, with temperatures expected to skip spring and head straight to summer across much of the country. 

The Western Belt windows are likely to be much smaller, with areas in the Northern Plains plagued by drought last summer remaining cool and wet for several more days.

As mentioned yesterday commodities have seen a bit of a bump post-Fed announcement the last several meetings with traders pushing futures higher on the idea inflation is here to stay. Whether or not that remains true to finish the week will likely give us insight into how we will trade next week ahead of the May USDA figures.

Target orders remain the name of the game for the time being.

Corn up 3 to 5

Beans up 7 to 12