Morning Comments October 31, 2022

Shutterstock 526530454 Soybean Fields

Friday’s trade was relatively uneventful, with limited fresh news. At the end of the day, we saw wheat down 9, finishing 23 lower for the week. Corn finished the day a penny higher and the week 3 lower, while soybeans ended the day 5 higher, but down 8 cents on the week.

The ‘will they or won’t they’ when it comes to Russia extending the grain corridor out of the Black Sea got an abrupt answer Saturday morning, when Russia announced it was pulling out of the corridor indefinitely.

Russian leadership blames an attack by 16 drones on their Black Sea fleet stationed at Sevastopol near Crimea as the reason behind the withdrawal, saying the ships used to fulfill their part of the deal were damaged, therefore they cannot guarantee the safety of any civilian ship. 

Ukraine has not confirmed nor denied its role in the fleet attack officially, with mixed reports on whether it was them or whether Russia experienced a malfunction of their equipment. 

Either way, Russia’s abrupt withdrawal sent shockwaves through the market as ships were already scrambling to get in and out of ports ahead of the perceived November 19th deadline with inspection wait times continuing to grow. 

Prior to the weekend, Russia had already been accused by Ukrainian officials of slowing progress within the corridor by not providing the inspectors it said it would as a part of the deal. Ukrainian President Zelenskyy said Russia shutting the corridor down was not surprising and that the country would do all that it could to continue the flow of grain.

Late in the day yesterday UN officials stood with Turkish and Ukrainian representatives saying they will continue to move the ships currently in the corridor through the process, with 14 leaving Ukrainian ports this morning. 

UN officials also say they are working directly with Russia to reopen communication regarding negotiations to keep the corridor open, hoping all parties can work to resolve current issues. Russia continues to contend the UN has failed to follow through on its side of the agreement and has not worked to rollback sanctions on banking and those limiting access to shipping and insurance. 

In addition to claims the UN is not following through on its promises, Russia said it will provide 500,000 tonnes of grain to impoverished nations for free in the coming months. 

Over the weekend some analysis pointed to Russia potentially escalating the situation by destroying port infrastructure, and while it is nearly impossible to predict what Russia will or won’t do in any situation, this would be a move that would likely end all negotiations, removing the one last powerful bargaining chip Russia has.

In other news, Covid cases in China have hit a two-month high, with officials scrambling to control further spread. Shanghai Disneyland announced it was shutting down indefinitely, locking down patrons in the park, not allowing them to leave until mass testing was completed.

Other districts are seeing issues with grain transportation develop as government officials are working hard to stop any potential spread before it gets out of hand. 

Looking ahead, we will be waiting patiently for the November update from the Fed this week, with traders continuing to anticipate a 75-point rate hike on Wednesday. Additional economic data was released this morning showing a much larger than expected slowdown in Hong Kong’s economic activity, with third-quarter GDP coming in at -4.5% versus expectations of a slight 0.8% dip. 

Eurozone consumer prices were up more than expected as well at 10.7% higher year over year, versus expectations of 10.3%.

We will get updated export inspections this morning, with traders continuing to watch the soybean shipment pace closely and hoping for an uptick in corn. We will also get updated crop progress figures after the close with winter wheat conditions and harvest progress updates getting the most attention.

Grain markets are sharply higher on the Black Sea corridor news this morning, with futures trading at the higher side of their recent range.

Corn up 12 to 16

Beans up 6 to 10