Morning Comments October 10, 2022

Sillouette Sunset Location Rail

Markets were somewhat subdued but strong to finish the week last week as a surge in crude values and anticipation of China returning to the market after a weeklong holiday propped prices for the day. December corn finished 8 higher, up 6 for the week. Soybeans ended 9 higher Friday, up just over 2 cents for the week, while wheat finished a penny higher but was off 41 cents from the previous Friday. 

Much of the conversation Friday was like what we have been talking about for the last several weeks. Traders continue to debate what influence a global economic slowdown would have on demand and subsequently prices for just about everything commodity related from wheat to crude.

Crude was up big Friday with most contracts gaining nearly 5% on the day and WTI trading back up above $90/barrel after having fallen to below $75 at the end of September. The cut in production by Opec+ has a variety of predicted outcomes depending on the analyst, with some experts calling for a push back to $100/barrel after the cut, while others say the room for production growth from other countries that have historically underperformed against the quota could soften the blow.

Over the weekend the war in Ukraine escalated significantly as Ukraine bombed a piece of critically important infrastructure Saturday morning. The Crimean Bridge, one of Europe’s longest bridge spans connected mainland Russia with the annexed Crimea Peninsula, providing a route for Russian troops and supplies shipped into Crimea and subsequently into Ukraine’s mainland.

Half of the bridge fell into the water below and the fire burned bright as the reported truck bomb detonated next to a train hauling fuel. Russia was quick to reopen the route, sending cars across the span still standing by later Saturday afternoon.

After a day of somewhat concerning quiet, we saw Russia’s reaction, with explosions once again rocking Kyiv and other Ukrainian cities around 8 am local time. Ukrainian officials claim Russia is targeting key infrastructure points, with 11 sites reportedly struck in Kyiv and 8 other cities. Energy hubs and bridges are the reported target for this morning’s attacks, with many of the areas hit remaining without power.

The West was quick to condemn this morning’s attacks, with even China saying it is time to de-escalate the situation and to try to find a peaceful resolution. All of this seemingly falls on deaf ears as Putin and his administration ramp up threats of retaliation against the US and its allies. 

Speaking of China, the country returned from its weeklong holiday to a surge in Covid cases and worries over a newfound variant of Omicron discovered in Inner Mongolia, said to be even more infectious. Case counts jumped to nearly 2000 on Sunday as holiday gatherings and travel created an opportunity for spread—even in the face of a nearly 60% reduction in road travel from 2019 pre-covid levels.

Covid restrictions and supply chain disruptions have created a concerning situation in China as limited supply availability of soybeans or soybean meal has prompted a push to new domestic highs. Limited inter-provincial travel snarled commodity movement and limited production expansion in both the hog and poultry industries, prompting a push to the high side in those markets as well.

Bean shipments from Argentina will help replenish some of the reduced supply, though continued struggles along the river here in the US will likely keep our shipments slow. 

Speaking of river movement, though there has been limited moisture to replenish the dry conditions, dredging has helped reopen some of the stretches with the greatest limitations, helping to cut the estimated backlog of barges in half over the weekend. 

Looking ahead, we will be watching what happens in the Black Sea closely as the continued escalation in Ukraine is likely to have a negative effect on fall wheat planting and the country’s ability to export. It is a government holiday so export inspections and crop progress will be delayed until tomorrow. 

Corn up 8 to 12

Beans up 22 to 30