A sharp reversal in outside markets after hotter than expected CPI data and Putin threatening to shut down the grain corridor pushed corn and wheat higher yesterday, while soybeans maintained strength from the previous day but struggled to push through $14.00. At the end of the day, we saw wheat up 10, corn up 5, and soybeans unchanged.
Russia’s ambassador to the UN told Reuters yesterday that without certain changes to the grain deal, Russia would see no reason to continue its facilitation. It appears most of the anger stems from Russia still having trouble exporting their grain and fertilizer, saying the UN had focused on facilitating Ukrainian exports, but was doing nothing to hold up its deal on the Russian side.
Putin continues to express his false claim that none of the Ukrainian exports are making their way to impoverished nations as well, saying that a renewal of the agreement would have to include some Russian control of where shipments can head, an obvious non-starter for Ukraine.
With around 7 mmt of grain making its way through the corridor so far, worries will continue that a shutdown will exacerbate an already troubling backlog of supplies and limit availability around the world.
In addition to concern over what the next steps will be in the Black Sea, yesterday morning’s consumer inflation data came in higher than expected at 8.3%, when traders were expecting 8.1%. Core inflation surged to a new high as well, hitting 6.6%.
The continued hot inflation data combined with strong job figures has some pricing in a 100 basis point rate increase in November, though many continue to believe another 75 point hike is more likely. Just a month ago a slowdown in rate hikes by December was all but assumed, though after yesterday’s hot print, some now believe we could see another 75 point hike before year end, with core rates peaking at 4.85% next spring.
The increase in core rates continues to push borrowing costs higher for consumers, with mortgage rates hitting their highest level since 2002 this week.
The expectations of continued hawkish policy by the Fed have underpinned the dollar as well, sending it to two week highs yesterday before a major rally in equities sparked a sell off. Whether the strength in the dollar continues has been hotly debated as of late, with many wanting to call a dollar high, while others like Citibank feel the strength in the dollar remains in place until the global economic slowdown stops and sees a reversal.
In other news, we got updated energy information yesterday, with ethanol production continuing to recover, up slightly from last week, while stocks continue to grow. Distillate stocks fell more than expected and are now sitting at their lowest level for this time of year in over 40 years, something that is concerning ahead of the cold season as fuel oil is also used for home heating, especially in the east.
The true extent of the Opec+ production cut continues to be debated as well, with talk of some countries refusing to cut production because doing so could hurt them economically.
Long-term demand out of China remains in question as well as the International Monetary Fund said it believes China will continue to adhere to zero-Covid policies until at least the second half of next year. Continued lockdowns will obviously have an impact on demand, though the true extent remains unknown.
Looking ahead we will get updated export sales data this morning. We’ve had a couple soybean flash sale announcements from the USDA this week, helping demand bulls feel more confident in their assertion we won’t lose as much export share as bears say.
We will also get updated retail sales and consumer confidence figures, with some outside volatility due to some sharp position shifts out of the UK likely having some influence as well.
Corn down 2 to 4
Beans steady to 2 higher