Morning Comments October 4, 2022

Fall family future

After a busy Friday, yesterday’s trade seemed relatively mundane, with corn testing the downside of its recent range before recovering to end the day up 3. Beans bounced back from a rough day Friday on Brazilian currency strength and oversold conditions, closing up 9. Wheat was weaker for much of the day after having a strong showing last week, closing down 9.

With China on holiday for the week traders are left to debate what happens next in the global economy. Many are trying to turn optimistic with several starting to discuss when the Fed changes course and moves back towards loosening monetary policy as opposed to tightening.

The announced delay in the launch of England’s quantitative tightening and subsequent purchasing of long-term government debt, as well as a smaller than anticipated increase in rates from Australia’s Central Bank has many traders expecting a similar approach from our central bank here in the US sooner rather than later. 

Optimism out of China as folks continue to anticipate a relaxation of Covid rules in addition to continued government support to the property sector and infrastructure projects has many betting on the come as well. 

In addition to the thought that we see demand improvement soon from the world’s largest economies, we continue to struggle with supply questions, not only in agricultural commodities but in energies too.

Members of OPEC+ are set to meet in person Wednesday for the first time since Covid to discuss potential cuts to their production outlook. Member states as well as oil production companies have been incredibly vocal about their price outlooks this year, with many leading OPEC+ nations saying the recent drop in oil prices does not match actual supply and demand fundamentals.

Yesterday we questioned how a cut to the quota would impact actual production when the group has not yet met a target this year. One expert explained that some major oil producing countries in the group are at or near their quota capacity already, meaning they would be forced to cut production in order to fall in line.

In other news, we are watching the situation in Ukraine very closely as the Ukrainian military seems to be marching forward in some of the regions claimed to be annexed by Russia. The situation is escalating, with many high-profile Russian allies of Putin beginning to publicly condemn the handling of the invasion. A botched rollout of the mobilization of troops has become an embarrassment as well, putting even more pressure on the already cornered leader.

Reports yesterday indicate the Russian Ministry of Agriculture is working with state banks to roll out a financing plan for ‘friendly’ countries looking to purchase grain. With this year’s wheat production expected to come in around 100 mmt, some 477 million bushels larger than their previous record, Russia is going to have to find homes for grain as bins fill up and farmers find themselves needing cash.

Many eyes will turn to Brazil this month as the two major political candidates running for president face each other in a runoff election. Lula, a left leaning candidate known for once leading the country before finding himself in prison convicted of corruption charges, was the favorite heading into Sunday’s election but failed to take the majority share needed to outright win.

Ahead of the election, many thought a Lula win would take the country in a different direction economically than what the Bolsonaro administration has been, though big wins seen for Bolsonaro supporting senate candidates and governors likely means that even if Lula wins the runoff, he will have to moderate some of his positions. This recognition helped provide strength to the country’s currency versus the dollar yesterday. 

Export inspections were up on the week, though lower than the amount needed to meet USDA expectations for corn or beans on the year. River levels remain critically low, with limited relief in sight until mid-November at this point. Bean harvest came in a bit above expectations at 22% harvested, with corn harvest a little slower than expected at 20%.

Markets have a firm tone to them this morning, with more optimism about the global economy than we’ve seen in the last couple of weeks. 

Corn up 1 to 3

Beans up 4 to 6