Morning Comments May 6, 2022

Sillouette Sunset Location Rail

Grains held their own remarkably well yesterday in the face of what was a pretty rough day for the outside markets. When all was said and done wheat finished 30 higher, corn was up 3 with soybeans up 6. 

Wheat shook off any sort of bearish outside influence and rallied hard for the second day in a row on concerns over Indian production losses and what that may mean for the outlook on exports. In addition to heat and dryness reducing crop size in India concern that a stretch of hot and dry weather in France will irreparably damage their wheat crop potential hit wires yesterday as well. 

Though the crop there is currently rated nearly 90% good to excellent, rainfall since last fall has run below normal, and the current forecasted stretch of heat with lack of rain could stress a decent portion of EU crop potential, with well followed meteorological firm Commodity Weather Group estimating 1/3rd of the crop will start to see moisture stress in the near future.

Dryness concerns remain throughout Central Brazil as well with analysts there starting to get aggressive on production reduction estimates. Interesting to note harvest in portions of Mato Grosso is expected to start in the next couple of weeks, some two weeks earlier than average, potentially indicating the damage is not quite as bad as feared if the crop was well advanced in maturity when moisture shut off. 

In addition to an expected early start to the second crop harvest, a quick run through of corn basis values shows weakness that is somewhat surprising considering the loss in production seen in the country last year. The same cannot be said for similar soybean basis values as the production hit seen in the south continues to keep bean basis levels at multi-year highs for the time of year. 

As mentioned, outside markets had a pretty rough day yesterday, giving back all of their post-Fed presser gains and then some. 

Bank of America expressed concerns regarding the Fed's ability to navigate a soft landing, with everyone cognizant of the fact that a spike in inflation has only been reduced without a recession one time prior, in 1994. 

With all of the additional moving parts when it comes to global economic conditions it's becoming harder to see how we navigate through this situation without some type of major slowdown, as officials are already predicting a pretty dire outlook for the European economy as a whole.

Speaking of Europe, energies have seen a resurgence as of late as EU officials work to finalize a deal that would place an embargo on Russian oil and energy products. Some leaders are struggling with jumping on board with the plan as inflation is already running near double digits and the removal of a large portion of supply will only guarantee higher prices. 

Nonetheless, officials continue to push to completely do away with Russian energy products by the end of the year, relying instead on other supplies and tightening global supply availability.

European officials are also working to restrict access to the SWIFT financial system for 3 large Russian banks. Analysts believe this move could make it difficult for countries continuing to source Russian commodities to do so, though one must wonder if we don't see this move work more to usher in an alternative to the SWIFT system if costs of other supplies become too high.

Looking ahead, weather here in the US looks like it will do an about-face, shifting from cold and wet to warm and dry nearly overnight. The shift is so extreme folks in the Great Lakes will see a nearly 40-degree jump in high temperatures in under a week, with rainfall expected to run below normal for much of the country from tomorrow through the end of the month.

This shift in pattern will open the door for relatively rapid planting pace, further testing logistics and likely patience this spring.

On the topic of planting, fertilizer producer CF Industries said in a call yesterday they expect corn acres to come in between 91 and 93 million acres, up from the USDA's 89.5 million. This outlook would agree with the outlook of many agronomic retailers throughout the heart of the Corn Belt still perplexed by the USDA's March estimate.

Markets will likely find themselves trapped between outside market feel and fundamental tightness to finish out the week. Concerns are starting to grow about the health of the global economy but we still have to produce solid crops across the Northern Hemisphere to meet baseline demand, we are likely to see a volatile range type trade develop as we work to see which side wins.

Corn down 10 to 15

Beans down 12 to 17