Morning Comments November 17, 2022

Lee Fishbaugh Fall NH3 South of Dayton

Corn managed to recover after trading to fresh lows yesterday morning, closing down 2. Wheat was lower for much of the day on the idea we would see a continuation of the Black Sea grain deal for at least another 4 months, closing 11 lower. While a big sell off in soybean oil and questions surrounding Chinese demand pushed beans lower for much of the day, with them finishing down 27.

While much of the strength in the soybean market recently has come from solid crush margins partially fueled by a big jump in soy oil values, the recent weakness in that leg of the complex has begun to weigh heavy.

Soybean oil had rallied hard in recent weeks, gaining 33% from July lows, and trading to its highest level since mid-June on ideas China would soon be reopening and we would see a sharp recovery in their vegetable oil demand. However, palm oil production is expected to increase by 3.6% this year versus last globally, with Malaysian palm oil stocks expected to reach a 3 year high. 

In addition to talk of increased global palm oil supplies, Argentina soybean oil imports again were close to working into the US on paper. While actual imports of physical soybean oil into the US from Argentina has far more hurdles, making it incredibly unlikely, typically once we see foreign supplies work into the US on paper without an actual shortage of the physical product, a rally’s days become numbered. 

We did see a bright spot in corn demand yesterday with a big 1.867 million metric ton corn sale to Mexico announced. Of that 1.242 mmt will go this crop year with 625k going next. According to cash traders this is thought to be an annual frame contract put together by Ingredion, but the recent spate of flash sales has demand bulls happy. With corn export sales running some 555 million bushels lower than last year at this time ahead of yesterday’s announcement, we need to see a continuation of strong demand. 

Ethanol production showed a bit of a slowdown yesterday for the first time in several weeks. Stocks showed a sharp reduction from last week as well, though they remain well above last year’s levels. 

Early this morning we got the confirmation the market has been waiting for, with Turkey announcing it, Ukraine, the UN and Russia will continue the grain corridor deal as is for the next 120 days while negotiations continue. Ukraine says it is happy to see a continuation of the deal, still hoping to accomplish a full year extension, with the addition of the Mykolaiv port in coming weeks. 

Russia still wants its main agricultural bank to be allowed access to the SWIFT payment system again and to have additional support when it comes to lifting sanctions they claim are impacting shipments of grain and fertilizer.

The UN says it remains committed to getting the requests of all parties satisfied in order to keep food available to the poorest nations around the world. 

Speaking of global demand, domestic corn prices in China have fallen to one month lows as reports of big Brazilian corn purchases are making their way through the market. One source indicates over 1 mmt of corn has been traded to China from Brazil recently, with additional rumors claiming a stable channel of imports has been established between the two countries. 

There is concern with dryness in Argentina resulting in the slowest planting pace on record, that we could see a sharp reduction in available supplies from May through August next year, with some claiming a loss of nearly 5 mmt. The idea that Argentina will be slow to come to the export market has some expecting that demand to come to the US, though that is likely on the back of the idea the corridor deal would not be extended, which we now know is not the case. 

Looking ahead, we will continue to watch what is happening in China and the global economy as a whole. Chinese covid cases continue to climb, but we are starting to see a shift away from mass testing, with a drop in cases likely soon to follow as no test, no positive. 

However, reopening will come with risks, especially considering the average age of China’s rural population and the quality of air they have spent much of their lives breathing, with officials from the National Health Commission saying the country is now working on building additional hospitals and increasing ICU space in already established facilities. 

Markets are much weaker this morning on the grain corridor news. 

Corn down 8 to 12

Beans down 8 to 15