Morning Comments September 26, 2022

Full Moon Over Location

Friday was a major risk-off day across a whole host of markets, hitting wheat and soybeans the hardest and putting pressure on corn. At the end of the day, we saw corn down 11, but unchanged for the week. Soybeans were down 31 on Friday, losing 22 cents on the week, while wheat was also down around 30 cents on Friday, but managed to hold 21 cents worth of earlier weekly gains.

Talk of what is happening in the currency markets and what that means for the global economy dominated the discussion Friday as a whole host of currencies fell to new lows. Fed policymakers tightening their approach to monetary policy, combined with expectations of much lower inflationary pressure here in the US compared to many of our global counterparts has the dollar trading to 20 year highs, with expectations of even further gains.

The strength in the dollar has become problematic for many economies outside of the US because it takes more of their currency to purchase goods in a global economy dominated by dollar trades. The subsequent increase in prices due to foreign currency weakness keeps prices and inflation data high, something central banks around the world have vowed to put an end to—likely creating a situation where rates could continue to rise, but price stability remains elusive.

The pressure continues to mount in Asia as well, as economic outlooks continue to weaken. The People’s Bank of China announced a change in policy overnight that would make it more expensive to short the country’s currency. While the Bank of Japan injected a significant amount of capital into its forex market on Friday when the yen fell to 145 versus the dollar. 

The British pound fell to an all-time low, before recovering slightly overnight as talk of more tax cuts from the country’s newly installed administration fueled worries price stability could be months if not years from being accomplished if no cuts to demand are seen. With many manufacturers and businesses in the country struggling to stay afloat in the face of crippling energy price hikes, the concern is becoming the consumer may survive but businesses will not, creating a surge in unemployment.

In other news, the strength in the dollar is exacerbating concerns the USDA could be overestimating export demand for grains and soybeans. Though we are only a month into the new crop year, the slow pace for corn exports remains alarming, with less than half of last year’s commitments on the books. Inquiries for new purchases are nearly non-existent, with Brazilian corn offers cheaper than US values by at least 40 cents well into January.

Open soybean sales remain larger than average for this time of year thanks to early season sales, though last week’s limited buying interest from China for any kind of nearby shipment is mildly concerning. 

Interesting to note the talk of dozens of soybean plants in China shutting down crush operations due to soybean shortages in the region. Even more interesting to note that China has had limited buying interest during its 500,000 tonne soybean lots offered each week, with last week only seeing around 150,000 tonnes of the 500,000 offered purchased. Many analysts continue to scratch their heads on what exactly is happening in China when it comes to future demand and current domestic demand signs. Of course, as we have discussed at length, the current exchange rate between the dollar and the yuan is likely to limit purchases out of the US for the foreseeable future. 

Looking ahead, weakness in the overnight market continues with worries over what is going to happen to the global economy. Bearish sentiment continues to weigh heavy as Powell remains committed to bringing prices down. We will get a slew of interviews and press functions from many members of the Fed throughout the week, with investors desperately hoping to hear some signs of a pivot in policy, though last week’s dot plot would say that hope is farfetched.

Corn down 3 to 5

Beans down 1 to 3