Morning Comments November 4, 2022

Grain bins dryer

It was a risk off day in most commodities after Wednesday’s Fed presser was viewed as a bit more hawkish than expected. Harvest pressure played a role as well, with corn down 8 and soybeans down 13. Wheat was down 5 on the day.

Fresh news on the Black Sea corridor was limited, but there are numerous reports of several different countries actively working together to create some type of all-encompassing agreement. Russian officials continue to push for roll backs of sanctions that limit their ability to ship grain and fertilizer into the global pipeline.

These requests appear to be working to a certain extent, with the UN Secretary-General overnight tweeting his recent push for the world to find ways to make full use of Russia’s export capacity. As it stands currently the corridor is open until the 19th of November only, unless an agreement to extend it is met soon.

On the plus side, it appears the major backlog of ships looking to depart Ukraine has dropped significantly over the last few days, with reports of nearly 100 ships lined up waiting to load Ukrainian ag products ahead of the end of phase one. Cash offers out of Black Sea ports beyond the second half of November however remain relatively limited as uncertainty over the ability to actually ship remains.

The back and forth on whether China will reopen continues this week, with some shift in tone seen out of China’s People’s Daily and talk of a press conference tomorrow possibly outlining some changes in international air traffic rules and other Covid prevention guidelines.

The state-run newspaper overnight released an updated thought piece on the path forward when it comes to Covid. Ahead of the party congress held in the middle of October, the paper published several pieces reinforcing the need for zero-Covid policies in order to provide economic stability to the country and keep its citizens healthy.

In the piece overnight the paper asserted the risk when it comes to citizens acquiring long Covid is limited, with most cases of the virus considered mild. In addition to a less extreme characterization of the virus, it went on to call for more precise curbs to spread, with no major lockdowns taking place in the face of single cases.

In addition to the People’s Daily piece, there are reports the country will roll back a circuit breaker rule put in place that has limited international flight traffic significantly. The rule requires all passengers to get tested and quarantine upon arrival, if the positive case count on the plane hits a certain percentage that the international flight path is shut down for a week or more. This rule had already been adjusted once, cutting the shutdown times in half, but talk is that it will be rolled back entirely, providing some certainty when it comes to international travel.

Speaking of China, a list of approved importers had 136 Brazilian entities with newly approved corn import eligibility. Brazil is expected to take the lion’s share now of the 18 mmt of corn China is expected to import this year after a record crop last year has provided them with a significant increase in exportable supplies. Brazilian corn exports have jumped 118% this calendar year versus last, with many anticipating another sharp increase in corn production in the coming crop year.

US corn exports are not faring quite as well, with year over year sales pace still down 53% versus a year ago. Much of the decrease in sales on the books is from China with their purchases down over 70% from last year. The USDA is currently projecting a 13% drop in corn exports versus a year ago.

Soybean exports are still doing well, all things considered, with another decent week of sales on the books. Wheat, however, like corn, is not doing well at all, with cumulative sales so far this marketing year the lowest in 15 years.

Looking ahead, we will get updated nonfarm payroll data this morning. Traders are expecting to see a slowdown in job growth and a bump in unemployment. This slowdown is expected to support the Fed’s desire to slow rate increases in coming meetings. Any surprise to the upside may cause concern the Fed will be forced to do more than expected in December.

Markets are stronger overnight mostly on Chinese reopening hopes.

Corn up 3 to 5

Beans up 10 to 15