Morning Comments November 22, 2022

Sillouette Harvest Sunset

Soybeans and wheat both recovered from a rough start yesterday, able to close well off early morning lows, with wheat only down 4 and beans up 8. Corn tried to gain traction and did manage to close a couple cents off its lows but finished down 8.

Yesterday was an interesting day in the oil market, which spilled over into grains. Early in the day a report from the Wall Street Journal indicated that members of OPEC+ were discussing a possible increase in production to help offset the anticipated decline to Russian production due to the G-7 price cap set to start the first week of December.

The price cap, which is supported by both G-7 and other EU nations, basically limits access to shipping insurance and brokerage services necessary to facilitate sales of crude around the world, if the production isn’t sold for less than the level the nation’s proposing the price cap deem appropriate. The price cap is expected to fall somewhere between $40-60/barrel with the final amount yet to be determined, though it is expected to be announced this week.

Russia is threatening to reduce production in response to the cap, which in turn has generated a multitude of rumors, as the countries proposing the cap are also battling inflation. Talk now is that the Biden administration will likely propose a cap above $60/barrel in the hopes Russia continues to produce at their current level.

OPEC+ members deny there has been any conversation about the uptick in production or even a potential decrease, saying its members do not discuss market conditions with one another ahead of their meetings. The next meeting of the group is December 4th and with the White House working hard to warm chilly relations between it and Saudi Arabia, it is likely we will see many more volatile headline driven days in that complex similar to yesterday.

While yesterday was a supply headline day in oil, traders are closely watching demand as China continues to struggle in their fight against Covid. Case counts soared to near record high levels yesterday, with 48 Chinese cities now being impacted.

It is estimated over 20% of China’s economy is currently being affected by Covid restrictions and with many of the new cases in Beijing reportedly discovered in areas outside of Covid controls, containing the spread is becoming increasingly difficult. Beijing has begun to limit in person schooling and other social gatherings in certain parts of the city and is now requiring a negative Covid test within 48 hours of entering any type of public venue starting Thursday.

The increase in Covid cases and subsequent restrictions continue to impact the cash grain trade in China, with the Dalian exchange looking to move to more video based inspections in 2023 to help facilitate deliveries of grain and reduce movement.

High cash prices don’t seem to be pushing Chinese grain buyers towards sourcing large amounts of imported corn yet though, with China running over 8 mmt (315 mbu) behind last year on purchases of corn from the US alone. It has been reported the recent establishment of phytosanitary requirements and opening of corn trade between Brazil and China has prompted Chinese buyers to purchase over 1 mmt of Brazilian corn expected to arrive before year-end, with more on the books to start 2023.

Speaking of Brazilian corn exports, reports circulated yesterday that protests in parts of Mato Grosso and Parana in Brazil were limiting grain flow and potentially impacting export potential from the country. It appears much of the disruption happened Sunday, though videos continue to circulate social media making it appear as though roadblocks are ongoing.

As it stands currently much of the grain in the country is being moved from interior storage locations to ports or processors as the Brazilian farmer and commercial gears up for soybean harvest expected to begin in mid to late January.

Export inspections were solid for beans again and decent for wheat, with corn continuing to show poorly. Corn harvest progressed to 96% complete nationally according to the USDA, with 32% of the country’s winter wheat crop rated good to excellent, unchanged from last week.

Markets are mixed this morning with crude showing gains after yesterday’s early day sell off and subsequent recovery.

Corn steady to 1 higher

Beans down 2 to 5