Wheat was able to right itself and maintain strength into the close after an early sell off, while corn and beans struggled most of the day with light volume and early harvest pressure. At the end of the day, we saw wheat up 10, soybeans down 17, and corn down 6.
Continued worries over what will happen next in Ukraine is keeping support under the wheat and corn markets, as the export corridor remains of utmost importance to many market watchers. While it seems important to note trade flows have changed substantially over the last few months in the region, providing more movement via land into Europe and through river ports, more volume can be achieved using Black Sea ports.
Also interesting to note, however, one well-followed Russian analyst has pointed out Putin’s lack of even mentioning grain exports in his speech mobilizing citizens. With Russia expecting a record wheat harvest and in need of cash, keeping grain moving out of Russia is necessary and of course, any threat to grain movement out of Ukraine could make that even more difficult than what Russian traders claim it is.
The referendums over the 4 Ukraine territories in question will begin tomorrow according to Russian officials, with warnings they will use tactical nuclear weapons to defend their territories if needed after the votes are held.
The big news of the day yesterday wasn’t necessarily the historic 75 basis point rate increase by the Fed, as that was expected by traders. What caught many off guard was the even more hawkish stance by Jerome Powell.
In June Powell and his cohorts put their target benchmark interest rate at 3.4% by year end with a 2023 target of 3.8%. Yesterday, Powell outlined the new year end target is 4.4% with a 4.8% 2023 target, and no signs of rate reductions until 2024.
Powell reiterated the Central Bank’s desire to stop inflation and reduce consumer prices, saying the Fed “will keep at its job until it's done.” Noticeably absent were Powell’s claims a soft landing would be possible, with him saying one has always been difficult to achieve. Now talk of a desired recession, or at the very least a need for a noticeable decline in growth seems to be more common as prices remain elevated in the face of already aggressive Fed policy in 2022.
Mortgage interest rates continue to climb as well, hitting their highest point since 2008 and cutting into the buying power of home shoppers. One financial expert claims the impact of interest rates on monthly payments versus the low-end mortgage rate seen in 2021 is the difference between being able to purchase a $392k house now versus a $600k house then.
At the same time, the increase in rates is pushing financial experts to pull cash out of the stock market and other investments, moving it into more traditional investment tools. Bank of America says its investors are now sitting on the highest level of cash since 2001, with record low exposure to stocks as global growth expectations are poor.
Japan stepped in overnight for the first time since the height of the Asian financial crisis in 1998, to try and stem the drop in its currency, as yesterday’s surge in the dollar put the country’s central bank on the defensive.
Japan, though in a very different economic situation than China, remains a holdout when it comes to changing monetary policy, focusing on continued easing and low rates. As a result, the divergence between the dollar and the yen has reached multi-decade levels, crippling Japan’s buying power and resulting in even more inflation.
Looking ahead, we will get updated export sales this morning. Traders will be looking at soybean sales closely to ensure continued demand as we work into harvest. Limited corn and wheat sales are expected for the week as US supplies remain the most expensive in the world. Traders will continue to digest yesterday’s Fed comments, with follow up interviews expected from other Central Bank members.
Markets all remain near the high side of their recent ranges.
Corn up 2 to 5
Beans up 4 to 8