Morning Comments September 2, 2022

Grain Bins

A major down day across the board as grains and energies both saw sell offs accelerate throughout the day. When all was said and done, we saw December corn down 12, December wheat down 37, with November soybeans 28 lower.

Traders were caught by surprise as the lockdown of another major Chinese city due to Covid Zero enforcement was not on the radar of many ahead of its announcement. With China’s economy struggling and officials trying to introduce ways to stimulate consumption, many had grown to believe the country would all but abandon their draconian Covid measures for the sake of economic stability.

However, the indefinite lockdown of a city of 21 million in addition to other lockdowns and restrictions across the country not only shows how serious officials are when it comes to containing the virus, it shows that some of the changes we’re seeing in terms of consumption may become further entrenched.

How the Chinese consumer eats, travels and works is all being impacted by the country’s approach to Covid. Less meals are being eaten outside of the home, bringing food waste down substantially, but also reducing demand for meats and vegetable oils. Of course, limited travel also reduces oil demand, with imports falling off significantly year over year.

In addition to demand worries out of China, reports of oilseed crushers and grain processors in the European Union are forced to shut down due to high natural gas prices making their way around the industry yesterday. While currently, it is just a handful of processors and crushers affected, the idea that demand in the region could remain depressed as natural gas prices stay elevated into the winter will continue to weigh heavy on the minds of some traders.

The dollar index trading to fresh 20-year highs was viewed as a negative factor for grain prices yesterday as well. A strong dollar makes our exports more expensive to foreign buyers, limiting interest when we already have concern over an incredibly slow export pace for corn and a tepid one for wheat.

Soybean demand hasn’t been impacted too negatively by the stronger dollar yet however as the Chinese and ‘unknown’ continue to buy US beans ahead of the South American planting season. With an unprecedented third La Nina-influenced production season waiting to get underway in South America over the next several weeks, Chinese buyers seem to be willing to step in and make purchases, not wanting to face a similar fate as they did a year ago if production were to fall off substantially due to drought.

We’ve had a couple of different private groups release updated yield and production projections for the US corn and bean crop over the last week. One group, well known for being 2-3 bushels per acre below the USDA on corn year in and year out put their customer survey derived yield estimate at 172.4 bushels per acre, with soybeans at 50.9.

Stone X, another well followed brokerage firm centered in Iowa, released their survey derived estimate after the close yesterday, reducing their yield projection slightly from last month, down to 173.2 bushels per acre, with soybeans at 51.8.

Looking ahead, we will get updated job data this morning. Traders are now recognizing that a Fed pivot from tightening to easing will not happen until members feel comfortable with major stability to prices and a drop in inflation figures can be maintained.

We will also be watching developments in the Black Sea and in Western policies surrounding the war as G7 financial ministers say they have come to an agreement on an oil price cap for Russian supplies. Overnight Russia said they will simply stop selling oil to anyone who participates in the cap, potentially limiting the bite of the move as countries with limited financial means will likely continue to do everything they can to source cheaper supplies.

Markets are stronger this morning, with crude rebounding on talk the Iranian nuclear deal may not be as close to completion as we had thought it was yesterday. The markets will be closed Sunday night and Monday during the day in observance of the Labor Day holiday.

Corn up 3 to 7

Beans up 10 to 14