Morning Comments November 2, 2022

Quality Corner image

Soybeans started off strong and finished as such on the back of optimism regarding the outlook for a China reopening. Wheat and corn were mixed to start but caught a pop on the UN announcing ship traffic would be suspended in the Black Sea corridor indefinitely while negotiations took place. At the end of the day, we saw corn finish up 6 and wheat gain 20, with soybeans 29 higher. 

The optimism regarding the continued flow of Ukrainian grain through the corridor even without Russian support faded early yesterday when the UN announced the suspension of all ship traffic indefinitely. Russian authorities said they had allowed the flow Monday and Tuesday to clear backlogs but would no longer guarantee the safety of ships.

Very early this morning Russian officials made a very abrupt shift however, with Turkey’s president announcing the flow of grain through the corridor will resume midday today. According to reports Russia’s defense minister said they were able to obtain written guarantees from Kyiv that Ukraine will not use the grain corridor for any type of military operations against Russia.

In addition, Russian leaders continue to push for adjustments to sanctions, saying the inability to source ships, insurance and conduct business through traditional financial channels is limiting their ability to ship grain and fertilizer. The Kremlin doubled down on the sanction rollback rhetoric this morning, saying they will re-enter the agreement but that the export of Russian fertilizer remains an ‘integral part’ of continuing the deal.

Not surprising, the grain markets have fallen significantly on the announcement. 

In other news, optimism continues regarding China rolling back its zero-Covid rules, even in the face of increasing lockdowns and a spike in cases. As we mentioned yesterday an unverified screenshot saying a panel of experts was being formed by Beijing to get the country on track for a March reopening pushed markets higher. 

Overnight another unverified screenshot indicated that an announcement would be made Friday adjusting quarantine requirements. It is also rumored they will adjust some restrictions on international flights as well as look to delegate more responsibility to local authorities. Optimism over the validity of these rumors has pushed Hong Kong’s Chinese stock index up over 8% in the last 2 days and has also helped to support the country’s currency after it hit multi-year lows recently. 

As mentioned, it is interesting to note the optimism regarding rollbacks in the face of increasing lockdowns and a spike in Covid cases in the country. Overnight Beijing announced the area surrounding Foxconn’s iPhone production facility would be placed under lockdown, impacting over 200,000 employees now locked in a ‘closed loop,’ as well as local citizens. 

Worries over whether roads will remain shutdown in Brazil appear to be fading as well, as though Bolsonaro has not publicly admitted defeat, he has told Brazil’s Supreme Court he recognizes the result of the election and has authorized the transition of power. While discontent remains, especially in rural, farming communities, a long drawn-out political event now appears less likely than it may have late Sunday into Monday. 

Here in the US, we got updated ethanol grind figures for September, showing the tight supply of corn and poor grind margins reduced ethanol demand for the month. Total corn used was 11 million bushels lower than what traders were expecting and the lowest total for September since reporting started in 2015.

The opposite was true for soybeans, where September crush was up versus a year ago and the best in 2 years, though traders were anticipating that much.

Looking ahead, we will get a Fed rate decision later today, with most folks anticipating a 75-basis point rate hike but for Powell to indicate the increases will begin to slow. What is said in the presser after the announcement is likely to get far more attention than the announcement itself. 

Markets are weaker this morning on the corridor announcement, any new updates there will likely continue to be the driver.

Corn down 8 to 12

Beans down 10 to 15