Morning Comments November 7, 2022

NH3 Fall Sunset

Soybeans were up big Friday on optimism China will soon roll back Covid restrictions, igniting pent-up demand. January beans were up 25 cents on the day, and up 59 cents from the previous Friday’s close. Corn and wheat were up but were much more subdued. Corn finished Friday up 2, and the week unchanged, while wheat was up 7 on Friday and up 18 for the week. 

Questions regarding potential Chinese demand remain the 500-pound gorilla in the room. Covid restrictions have created interesting market dynamics, with consumer demand for the restaurant and catering industry falling off, as restaurants are shut down at a moment’s notice and the risk of contracting Covid doesn’t necessarily seem worth it to patrons. The shift in dining habits has reduced demand for vegetable oil especially, with food waste seen falling off significantly in the country. 

In addition to shifts in consumer demand, restrictions in movement are wreaking havoc when it comes to logistics. According to one Chinese analyst, wheat prices in Henan have hit record highs, with corn prices spiking as government officials in the capital city of Zhengzhou struggle to contain the spread, impacting the movement of grain throughout the province.

Over the weekend hopes of any type of quick rollback in restrictions were dashed, with an official from the National Health Committee saying strict adherence to zero-Covid was the most economical and effective approach. However, a handful of cities did announce some changes to quarantine rules at the start of the local business day Monday, with moves towards more pinpointed lockdowns at the discovery of a positive Covid case. 

China released its import and export data from October overnight, surprising analysts by coming in lower than expected for both and showing the first simultaneous contraction since May 2020. Exports were significantly lower than trader estimates, coming in .3% lower than last month when traders were expecting a 4.3% increase. 

Imports were down .7% from September, with traders anticipating a slight .1% increase. It is interesting to note that after a slight bump in landings in September, soybean imports were again at a multi-year low, falling to their lowest level since October of 2014. Calendar year imports are down 7% from last year and unlikely to make up the spread with 2 months left, meaning China is likely to see its second year in a row of declining soybean imports. 

This idea alone has traders continuing to anticipate the arrival of pent-up demand. Over the weekend we did see a frame announcement saying China will purchase 10 mmt of soybeans from the big ag groups known for exporting, though there was no indication of origin. With Brazil on track to produce over 900 million bushels more this year than last, there is likely no need to be specific.

In other news, we continue to closely watch the negotiations between Russia and the world it seems when it comes to extending the Black Sea grain corridor. Over the weekend Russia made a pointed request, saying a rollback of sanctions on Rosselkhozbank, Russia’s main agricultural bank, would provide them the ability to better facilitate both grain and fertilizer exports. Reports indicate the UN is currently negotiating with the UK, EU and the US on how to make this happen. 

We will get updated export inspections this morning at 11 eastern, with traders expecting to see continued strong bean shipments and mixed wheat and corn shipments. After the close we will also get updated crop progress data, with winter wheat off to its worst start on record, traders will be watching to see if there’s any type of improvement before winter sets in over the next few weeks. 

The Fed member media blackout is over as well, providing outside markets and traders with additional insight into member thoughts after last week’s meeting and rate announcement. 

Corn down 2 to 4

Beans down 3 to 5