Morning Comments September 23, 2021

Farmer and a child walking toward a combine during harvest season

Beans and wheat are higher this morning, while corn is slightly lower. 

The world and the markets are breathing a bit of a sigh of relief over what appears to be a possible solution to the Evergrande debacle. While nothing is set in stone and much of what we know about any new developments is based almost entirely on rumors, the Chinese government has told Evergrande they can't default and that appears to be good enough for now.

In addition to the Chinese government looking to step in when it comes to Evergrande, we got some updated insight from Fed Chair Jerome Powell and his cohorts yesterday. As expected, the Fed is looking to begin to taper some of its aggressive buying of bonds the entity has been using as a way to stimulate the economy during its Covid response.

This is not unexpected, though it appears some market watchers were anticipating this tapering of purchases to have an actual start date versus the Fed's indication that it will start 'soon.' In addition to continued taper talk, we are starting to see members looking to increase rates sooner than thought earlier this summer, with chatter that the first rate increase could come sometime next year, as opposed to the expectation of 2023 or 2024 tossed out in the last meeting. 

Talk of slowing growth combined with higher-than-expected inflation put a bit of pressure on the dollar, though we remain at near year-to-date highs in the index. 

In addition to all the macro-economic news we received yesterday, Reuters once again released news regarding the Biden administration and its likely stance on renewable fuels and blending requirements for 2020-2022. 

As you may remember, there was a lot of chatter a month or two ago regarding a big reduction to blending requirements retroactively reducing refiner obligations throughout the country. In the RFS refiners can refuse to blend in biofuels but must buy credits to offset their obligation. Many refiners refused to do either, instead betting the administration would provide them relief, saving them billions.

If the leaked document Reuters shared yesterday is correct, these refiners will have won big as a major reduction in obligations is indicated not only retroactively for 2020 and much of 2021, but the reduction also looks to carry forward to 2022.

The 2022 reduction is most concerning at this point as there is a lot of buzz regarding renewable diesel created from soybean oil--part of the reason why SBO has been the leader in the complex since late spring. This reduction in required biodiesel demand would potentially reduce the need for increased soybean oil production, though many remain confused as to what the true extent would be as the push for renewable diesel seems more state-led than anything.

In related but completely unrelated news, ethanol production for last week was a touch lower than the week prior, with a slight build in ethanol stocks. Interesting to note that gasoline demand fell off by nearly 8% last week and stayed flat this week. Talk of folks returning to working from home with some schools going back to virtual is the likely culprit, with the big question remaining how long the slowdown will last as we head into winter.

Looking ahead, we will get updated export sales figures this morning. There has been a lot of chatter of multiple Chinese bean purchases happening out of the PNW with no daily flash confirmation. Today's sales figures will give us insight as to what is truly happening there. 

Aside from that we will continue to watch outside market moves and developments as the overall global economy will have a lot to say when it comes to demand as a whole for grains in the year ahead.