Morning Comments November 1, 2022

Grain Bins

Market strength was tested midmorning as a line of ships set sail from Ukrainian ports testing Russia’s resolve. But a recognition that Ukrainian Black Sea shipments will grind to a halt, in addition to worries Brazilian political instability could affect the country’s ag exports provided a late day surge. When markets closed, we saw wheat up 53, corn up 11 and soybeans up 19.

Developments regarding the Black Sea corridor are plentiful, but actual answers about what happens next and what it means for the world grain pipeline remain fleeting. Late Sunday Ukraine, Turkey and officials from the UN said they would work to at least ship the boats already sitting in Ukrainian ports, with 12 setting sail yesterday morning.

Ukrainian President Zelenskyy continues to assert Ukraine’s agreement is with the UN and Turkey and that it will continue to ship grain. However, private insurers cited uncertainty regarding ship safety, announcing a suspension of writing of new insurance coverage until more is known regarding Russia’s level of participation or lack thereof. 

Reports of a tugboat crew being shot by Russian forces near Mykolaiv midday raised concerns Russia was flexing some sort of muscle regarding grain shipments as well. However, Mykolaiv is not a port that is part of the initial Black Sea agreement and has been at the center of many different skirmishes and attacks over the last several months, as it is seen as a key piece of infrastructure by both countries. 

At the end of the day, Putin said Russia is not withdrawing from the agreement but is instead suspending its participation indefinitely. Many Russian political experts continue to feel the grain corridor is Putin’s last bastion of hope when it comes to successfully negotiating a roll back in Western sanctions that are starting to bite economically. 

Speaking of ag exports and more geopolitical uncertainty, concerns over what happens next in Brazil helped provide a late day surge in the soybean market yesterday, pushing futures out of their recent range. 

Brazil’s election on Sunday saw former president Lula win back leadership. While from an overall standpoint Lula’s approach to governing may not have a direct effect on agricultural production and exports, worries he will bring about greater regulations and restrictions regarding agricultural expansion have prompted demonstrations to breakout across the country, with reports of BR 163—Brazil’s main ag thoroughfare being shut down in several locations yesterday.

Rumors of the main road providing access to one of Brazil’s largest ports rippled through the market yesterday as well, though port officials say there has been limited disruption to the actual movement of cargo.

Courts have ordered roads be reopened, but many political experts in the country say Bolsonaro’s refusal to concede thus far continues to raise the level of concern that this is something that could continue beyond the end of the year into next. 

A glimmer of hope regarding China’s approach to Covid lockdowns hit the market overnight in the form of an unverified social media post saying the country’s leadership is looking at forming a committee that would build out a reopening plan for the country, with a target date of March. 

The hope regarding an actual plan for reopening more than overshadowed the continuation of quiet lockdowns and increases in restrictions seen over the last couple of weeks. Another important manufacturing hub was seen going into lockdown yesterday, with Shanghai, Guangzhou, and Zhengzhou all seeing levels of restrictions increase recently. 

A spokesperson for China’s foreign ministry said he was not aware of any such committee being formed, paring gains, but continued ideas China will soon pivot away from major restrictions remain present in the markets.

In other news, soybean shipments were down from last week’s monstrous total but were still seen as being strong. Overall shipment pace is down just over 1.1 mmt from a year ago but is doing well all things considered. Corn and wheat shipments continue to lag. 

After the close updated crop progress, figures put corn harvest 76% complete, with 88% of the soybean crop harvested. With 75% of the nation’s winter wheat acreage experiencing some drought, crop conditions are off to their worst start on record, with only 28% rated good to excellent. Rain is in the forecast for many across the country, with hopes a shift towards more moisture will help offset the poor start. 

Corn down 2 to 5

Beans up 10 to 15