Morning Comments October 20, 2022

Grain bins dryer

Beans were able to recover from early morning selling pressure, bouncing off recent support to finish unchanged. Corn and wheat saw sellers remain present throughout the day on limited fresh news out of the Black Sea and a stronger dollar. At the end of the day, wheat was 8 lower while corn was down 3. 

Now that traders have all but factored in the closure of the grain corridor—especially with the lack of actual cash sales being done by traders in the region—they are now beginning to weigh what would happen if in fact, the corridor were to remain open, and we were to see some Western sanctions on Russia rolled back to help facilitate their exports. 

It is obvious how important it is for the UN to show consistent movement of grain throughout the global pipeline, especially with reports of food shortages in impoverished nations on the rise. As one regional analyst also suggested, Putin effectively shutting down the corridor would take away the biggest bargaining chip he currently has, something he will not be quick to do considering his situation.

In any event, whether the corridor through the Black Sea is open or not, Ukrainian grain will still find ways to move into the global pipeline as evidenced by the drop in French corn values earlier this week on talk the corridor would be shut down. The Black Sea route remains the cheapest and easiest, but rail and roads remain an option, especially with the current backlog of ships waiting for inspection.

Over in the currency space, we saw the Japanese Yen trade to new 32 year lows versus the dollar overnight, breaking the psychologically important 150 level before recovering slightly. The drop in the country’s currency has been breathtaking, having lost over 23% of its value versus the dollar since the start of the year.

Even more amazing is the fact Japan spent $20 billion in September working to support its currency, only to really slow its descent, not stop it. Diverging fiscal policies are behind the spread, with Japan’s officials continuing to loosen monetary policy to combat inflation, while the US is on a record setting rate hike pace in an attempt to do the same. 

In other overnight news, rumors China is looking to roll back some of its quarantine rules for inbound travelers gave traders hope the end to zero-Covid is near. This hope seems remarkably like ideas of a Fed pivot though, as Chinese government officials and their state-run newspaper have made it clear throughout the last week they feel adhering to zero-Covid is necessary for economic stability.

According to anonymous sources, the adjustment to quarantine rules would allow foreign travelers to quarantine for 7 days upon arrival to the country versus the current 10 day requirement. There has been no confirmation of any such adjustment, but optimism remains as Chinese demand has been the cornerstone to much of the strength seen these last couple of years in the commodity space. 

In other China news, the country’s Ministry of Industry and Information Technology has held a series of emergency meetings this week with industry leaders after the Biden administration’s announcement earlier this month of sweeping measures looking to restrict China’s role in the global chip market. Anonymous sources ‘familiar with the conversations’ say the country is frozen, uncertain of its next steps as the measures from Biden are incredibly aggressive.

Some have said the measures and their impact on China’s chip industry go well beyond the scope of measures announced throughout the trade war even, with many saying the two countries may be on the brink of an economic cold war. 

Looking ahead we will get updated export sales information this morning with traders expecting big soybean sales and mediocre corn and wheat totals. Water levels along the river system continue to cause issues, with many interior elevators looking to pile supplies with hopes the situation improves soon. 

Corn up 3 to 5

Beans up 5 to 10