Morning Comments November 14, 2022

NH3 Fall Sunset

The soybean market recovered all that was lost Thursday and then some at one point, on confirmation from Chinese leadership that they would begin what they call the optimization of their Covid rules. At the end of the day, beans were up 27. Corn and wheat were also supported by optimism regarding potential Chinese demand growth, with corn finishing 5 higher and wheat up 10.

For the week last week, we saw corn lose 23, beans lose 12, with wheat down 34.

As we discussed Friday, China’s National Health Commission confirmed the rollback of certain rules pertaining to quarantine and international flights. There was some additional optimism regarding an announcement of further rollbacks in a planned Saturday afternoon press conference, but nothing additional was announced.

The National Health Commission and Chinese leadership continue to assert that adjustments to the rules are being done to make adhering to zero-Covid policies easier, with fewer interruptions to life and confusion among the general population by doing away with medium risk zones and the notification and isolation of secondary contacts.

With cases surging in several major cities across the country, contract tracing has become a challenge, something the shift in policy is hoping to alleviate. In addition to difficulty in contact tracing and notification, the uncertainty regarding travel into certain regions has created interesting dynamics in the cash market prices for food and other commodities as locations with big demand are unable to access available supplies in areas deemed medium or high risk.

In addition to adjustments to Covid rules, Chinese leaders announced 16 steps to help alleviate some of the liquidity crunch currently plaguing its property sector. Though it is no longer front page news, China is still struggling with ailing property developers and a real estate market that continues to lose value. The industry has been in trouble since a policy shift in 2020 that made it impossible for developers to borrow capital if they could not meet certain requirements set by the government.

This shift has created a capital crunch, and with Covid lockdowns and restrictions weighing heavy on buyers, demand for homes is near a record low. According to one analyst, China currently has enough empty apartments across the country to house the entire population of Germany.

The policies put forth would help extend the time some developers have to repay loans, which according to an analysis by Reuters, would help delay an impending wave of defaults, but is in no way a rescue of the industry.

In other news, there was limited fanfare after the meeting between high level UN officials and a senior Russian delegation on Friday. According to a press release put out by the UN after the meeting, the two parties made great progress in figuring out how to facilitate Russia’s side of the agreement for continued participation in the grain corridor.

Many had forgotten a key component to the original agreement was automatic renewal if neither party withdrawals, likely meaning that the risk of the negotiations falling apart remains, but without something catastrophic happening in the short-term, the corridor will likely remain open for another 120 days at least after this Saturday’s deadline.

In any event, according to the UN press release, much of Friday’s conversation discussed ways the UN can work with Russia and the EU to facilitate ‘unimpeded exports of grain and fertilizer’ from the country.

Looking ahead, we will get updated export inspections this morning at 11 eastern, with continued strong soybean shipments and anemic corn and wheat shipments expected. Crop progress will come out after the close, with harvest all but wrapped up across the country. Wheat conditions will be watched closely as it will be one of the last overall condition updates we get as the crop heads into winter dormancy.

We will get updated insight from Fed members today as well, with Waller saying yesterday that the market should no longer be paying attention to the amount rates are increasing, but instead should be paying attention to the endpoint, which he said is a long way off.

Markets are weaker overnight on no real shift in China's tone from earlier last week and talk that the inflation trade could be over for the time being.

Corn down 2 to 5

Beans down 6 to 10