Morning Comments October 26, 2022

Grain Corn Pile Closeup

Corn and beans both bounced off recent support, closing 5 higher on the day yesterday. Wheat on the other hand continues to struggle with limited demand for US supplies and fresh news outside of the Black Sea hard to come by, closing 4 lower.

Major interventions from governments around the world trying to support their currency have been seen recently, with Japan of note first and now China. Reports yesterday indicated the Chinese government had issued surveys to their banks requesting currency positioning and sentiment information and now it appears many of the state-owned banks across China started selling dollars yesterday in both on-shore and off-shore accounts.

In addition to governments around the world doing their best to stop the slide of their currency, new economic information released yesterday was considered bearish to the dollar and the US economy. Surveys giving insight into consumer confidence and manufacturer sentiment came in worse than expected, showing that rate increases are having an impact.

The idea rate hikes are resulting in slowing demand has traders expecting a Fed pivot sooner rather than later, with the markets most vocal optimists saying November will be the final increase, with ideas of decreases starting as early as Q1 2023.

This a much faster shift in monetary policy than most Fed members indicated would happen throughout their October pressers, but after years of the Fed stepping in to support the economy at the first sign of concern, this expectation cannot be considered out of line.

The November meeting kicks off Tuesday November 1st, with a rate announcement the afternoon of November 2nd. For now, traders will likely remain optimistic a more dovish tone comes from Powell, with outside markets remaining stout and the dollar remaining defensive.

In grains, we are continuing to watch what is happening in the Black Sea, with negotiations to keep the grain corridor open ongoing. The UN and Turkey say they remain optimistic, while Russia has been oddly quiet, and Ukrainian officials believe Russia is actively working to slow traffic through the corridor, limiting shipments.

As we’ve discussed before, cash grain transactions in the region have slowed significantly on the uncertainty, effectively closing the corridor to global end users beyond the end of October in the meantime.

Interesting to note a major conference in the global grain industry is being held soon, with a ban of Russian or Belarusian grain company employees recently announced. The ban, according to the group holding the conference, is due to sanctions.

Here in the US, much needed rainfall fell across the heart of the country Monday and Tuesday. While it was nowhere near enough to replenish the parched river system, it will help to increase waterflow in the short-term, with more moisture anticipated over the next couple of weeks expected to stabilize the shipping situation.

Traders will be watching for any indications of Chinese crusher demand as the phone lines have seemingly gone quiet after a flurry of buying interest last week and the week before. The shift in currency exchange rates and worries over our ability to perform on shipments out of the Gulf have pushed values higher, pressuring already negative Chinese crush margins even further.

According to one Chinese analytical group Chinese crushers are now looking at losses of $1.35-$1.90 a bushel on soybeans imported from the US throughout the rest of the year. With many crushers choosing to rely on domestic supplies released from government reserves until cheaper Brazilian supplies make their way into the global pipeline in February.

Looking ahead, we will get updated energy information released this morning. With some ethanol producers reporting solidly negative grind margins, we will be watching production numbers closely to see if slowdowns in the industry are happening.

Corn 1 to 3 higher

Beans 8 to 12 higher