Though they ended the day lower, corn and soybeans held up relatively well in the face of a major macro-rout in the outside markets. At the close we saw corn down 3, beans down 9, with Chicago wheat up a penny.
Traders were surprised by a higher CPI print for August than they anticipated, with the official level seen at 8.3% versus the 8.1% expectation. Many analysts have been anticipating the peak of inflation since March, so to see costs continue to rise in the face of aggressive monetary tightening by the Fed increased the likelihood of even further aggression and the risk of a recession in the eyes of many onlookers.
The September meeting of the Fed is scheduled for next week, with a rate announcement and press conference scheduled for a week from today on the 21st. Ahead of yesterday’s CPI data, most traders were debating a 50 or 75 basis point hike next week, after the release, however, the odds for a 100 point increase jumped 20%, with many saying it is what the Fed needs to do in order to show they are serious about taming inflation.
Unfortunately, while many market analysts may not agree on just how the Fed should tackle the inflation issue, they all seem to agree that the Fed’s job now is to do whatever it takes to slow demand and reduce prices, even if that results in a recession.
In other news, we are watching developments in Ukraine closely as the counter-offensive there has taken back over 2,300 square miles over the last 10 days according to Ukrainian President Zelenskyy. There have been rumors of a desire to negotiate from Russia, though nothing official and Zelenskyy has made it clear the only end to the war is a complete withdrawal of Russian troops from all Ukrainian territory, including Crimea.
An interesting summit will be held this week in Uzbekistan with Russian President Putin, Chinese President Xi, Turkish President Erdogan, and the leader of Iran coming together to talk economics, trade, and global politics. This meeting is of importance for many reasons, with it being the first time Xi has left China since the beginning of the Covid epidemic and the group having obvious geo-political clout.
South of the equator, we are watching what is happening from a farmer sales standpoint in Brazil and Argentina. The Argentina farmer was estimated to have sold nearly 4 mmt of soybeans last week with the introduction of the soy dollar, with reports indicating an additional million metric ton was sold on Monday’s rally. China has reportedly bought a large chunk of these new to the market beans, with 22 or more cargos purchased.
The increase in farmer sales and promises by exporters to the financial minister has obviously brought a tremendous amount of beans to the market, with basis falling across the region. According to one report, Argentina beans are currently $15/ton (41 cents/bushel) cheaper than US beans for November into China.
Basis in Brazil has been pressured as well, not only because of the increased competition from Argentina, but an increase in farmer sales, as well as the rally, currency conversion, and the need to turn bushels into cash as the growing season is weeks from getting underway, has resulted in increased sales and available supply.
Poor crush margins are also being reported in Brazil, with some industry experts indicating 10 plants out of the country’s 99 slowed or shut down due to poor margins.
Looking ahead, we will continue to watch what is happening in the outside markets as traders debate what next week will bring. In addition to conversations regarding the economic outlook, we will continue to watch harvest yield reports closely as many combines are getting ready to roll across the country.
Markets are a bit mixed this morning with corn lower and beans and wheat higher. Feels important to note at this juncture we are $1.80 higher in corn and $2.00 higher in beans than a year ago.
Corn down 2 to 5
Beans up 4 to 8