Morning Comments October 5, 2022

Bradford plot harvest

The second day of trade for the week finished very much like the first, with some continued selling in the wheat complex and strength seen in corn and beans. Talk of potential Fed capitulation and strength in crude oil helped lend support to corn and beans, with corn ending the day up 3 and beans 9 higher. Wheat saw some unwinding of spreads in somewhat thin trade, closing down 9.

The kickoff to the fourth quarter of the year has brought with it returning enthusiasm regarding the economic outlook on the idea the Fed will soon change course and that rate hikes are coming to an end. As we’ve discussed, the move by the Bank of England last week to delay the start to their quantitative tightening and lend support to long-term government bonds planted the seed that soon central banks all around the world will pause the current tightening cycle, again bringing with it strong economic activity like we’ve grown accustomed to. 

Australia’s central bank coming in with a lower than expected rate increase earlier in the week as well as China and Japan managing to leave rates unchanged and providing further economic stimulus to their economies is helping pressure the dollar and provide support to one of the best two-day moves for the Dow since April of 2020.

The new-found optimism may be short lived, as it seems nearly every major market and market structure has developed a cyclical style, working to create ranges to violently trade. The recent move in the dollar has also helped relieve some of the pressure on grains, as the greenback works to find support, falling to below 110 and a two-week low yesterday after coming within shouting distance of 115 just a week ago.

In other news, Russian President Putin signed the legislation officially annexing four Ukrainian territories, taking 15% of Ukrainian land. The move has been condemned by nearly every major world leader, even those Putin considers allies. The question now becomes what Russia does to defend its new found territory, with growing concern over the potential use of tactical nuclear weapons. 

The escalation of tensions in the region is making an already dicey shipping situation even more so, with movement still taking place in the short-term, but any type of confidence regarding the country’s long-term port performance is limited. 

As a result, many countries continue to pass up the cheaper offers, choosing instead to stick to the more expensive, but more reliable supplier.

Speaking of reliable suppliers, continued concern over river levels and our subsequent ability to perform on contract shipments remains prevalent in the market. As we’ve discussed, low river levels are expected to get lower, with little in the way of rainfall forecast throughout much of October into November. 

The cut to tows and limited barge availability has resulted in elevators along the river finding themselves already full with harvest barely started as the boats they do have can only be half loaded and additional barges remaining hard to come by. Rumors of dollar under basis levels at some river terminals are pushing farmers inland, something that is practically unheard of with only 20% of the country’s beans harvested. 

With a much slower than normal export sales pace for corn and a recent major slowdown in soybean sales, traders are starting to worry we could see cancellations begin if we are unable to perform within the specified shipping window.

Looking ahead, we will be watching the results of the Opec+ meeting closely as talk of 1.8 million barrels per day of production cuts are on the table. However, that level of production loss is unlikely to be realized as some adjustments to paper supplies—ie: production goals that have remained unmet—will be seen. 

The White House is reportedly discussing a potential ban or limit to exports of gas, diesel and other refined petroleum products if fuel prices remain high, something industry experts warn would be disastrous. 

We will get updated energy information this morning with many eyes looking to ethanol production after last week’s low output.

Corn down 3 to 5

Beans down 8 to 12