Morning Comments May 9, 2022

Cover Crop

Friday morning's outside market recovery was short-lived as better than expected job numbers reinforced the need for an aggressive u-turn in monetary policy in the weeks and months ahead. Grains and other commodities followed to the downside, with some bullish fundamental updates the only thing keeping wheat afloat.

On the day we saw July corn down 13 with December corn down 18, both snapping a multi-week gain streak. July beans were down 25, with November down 21, while wheat was mixed with Chicago 2 higher, Minneapolis basically unchanged, and Kansas City down 5.

A doubling down of Chinese officials regarding their approach to Covid and the attempt to lockdown until it is eradicated spooked on-lookers late last week and over the weekend. Prior to the most recent announcement, officials seemed focused on balancing their desire to maintain Covid with their need to keep the economy stable, however over the weekend talk of the economy was absent as officials reiterated their desire to maintain a zero Covid approach. 

Shanghai residents are now 7 weeks into their official lockdown with no end in sight. Over the weekend reports of entire complexes being forced to cancel delivery orders hit social media as another wave of even harsher lockdowns started, even in residential neighborhoods where Covid cases have hovered near zero.

Harsh lockdown rules remain in place throughout pockets of the country, even provinces where societal zero has been accomplished as well, with Beijing seeing another jump in cases today. Officials there have already shut down most restaurants and other sites where social interaction takes place, with schools and offices moving to a learn and work from home model.

The uncertainty regarding the government's next steps in containing Covid's spread, combined with snarled logistics is keeping the Chinese crusher and feeder buying and selling hand to mouth as no one knows what will be able to be shipped from where and whether they will even be able to get it when it is needed. 

Interesting to note Chinese government soybean reserve auction interest continues to decline with only 70,000 tonnes of the 500,000 tonnes offered purchased last week. The government will offer another 300,000 tonne chunk of beans this week, though results are expected to be poor again as crushers have a large amount of Brazilian beans purchased late February into March set to arrive in May and June.

In other news, today is May 9th, the much rumored target date for Russia's victory celebration, with no victory to celebrate. Putin is said to have addressed his citizens with nary a mention of Ukraine or the war the country is waging, while Zelensky addressed his citizens claiming soon the Ukrainian people will have another important victory to celebrate. 

From an agricultural perspective traders and analysts from around the world continue to contend the longer the war rages on the worse the situation gets for the world end user as an estimated 25 million tonnes of grain remains trapped in Ukraine according to the UN. 

Spring planting pace continues, as do exports though both are happening at a more limited rate than seen prior to the invasion. Russian troops continue to attack targets in far Eastern Ukraine, with limited advancement seen, while missiles are reported to have fallen throughout parts of the Odessa Oblast, home to Ukraine's most important export hub.

The lack of progress in Ukraine and what it could mean for global supply and demand has shifted back into focus now that it appears the Indian wheat crop won't be the savior government officials and traders had once hoped it would be.

Heat in March took a large chunk off of production potential, though government officials are slow to adjust official yield estimates, it appears as though they are operating with at least a 6 mmt cut in projections from their February outlook currently.

Using an adjusted 105 mmt production outlook still leaves the door open for up to 10 mmt of exports according to some traders, up from current year expectations of 8 mmt or so. However, others feel interior cash prices indicate an even smaller crop, with some claiming 95 mmt or less and a potential need for imports eventually. 

Here in the US, the Oklahoma Wheat Council said the recent rains came too late to help dryland wheat, estimating production potential in the state is about half of what they were able to produce last year. 

Looking ahead it will likely be all about weather and outside markets this week as improved forecasts will help to push planting pace forward for a large portion of the Corn Belt. 

Outside markets look poised to take another move lower today as continued concerns regarding the global economy and what China lockdowns will mean will weigh heavy on traders' minds. Even the most dovish Fed members are hawkish regarding monetary policy currently, with members saying the Fed will become even more aggressive if needed. 

We will get updated export inspection figures this morning at 11 eastern, with updated crop progress this afternoon at 4 eastern.

Corn down 6 to 8

Beans down 10 to 15