Morning Comments September 27, 2022

Combine Grain Cart

More macro headwinds were seen pressuring grains yesterday, with corn losing 10 cents, beans falling 14 and wheat dropping 22.

Market analysts around the world continue to weigh the effects of a never-before-seen rapid shift in monetary policy from global central banks. Officials in Europe believe rates will soar to over 6% in 2023, with US rates expected to peak just below 5% sometime next year.

The increase in rates at the pace we’re witnessing means massive moves in consumer payments, with some home buyers finding their buying power cut in half as interest rate increases have caused a surge in monthly payments.

Of course, the unique landscape of the US economy, bolstered by our ability to produce much of what we need from a commodity standpoint here, has pushed the dollar to 20 year highs. As we have discussed many times before, this strength in the dollar is causing a significant increase in prices of goods elsewhere, with talk of the US “exporting inflation” growing louder.

With the Fed mandated to focus entirely on how the US economy is faring when it comes to policy decisions, there are thoughts the dollar could accelerate gains, further exacerbating price increases elsewhere, and potentially limiting demand growth in a major way.

Export inspections yesterday were disappointing for corn and beans, with beans seeing the lowest amount shipped for this week since at least 2014. Corn shipments were the second lowest for the week over the last 8 years, coming in just slightly above 2019 shipments.

With tight supply availability and logistical limitations, the slowdown in shipments is not surprising, though with all the discussions recently regarding export pace, it is slightly concerning and will bear watching going forward. 

When discussing the US exporting inflation, it is interesting to note cash prices for spot soybean meal have surged to record highs in China this week. The slowdown in crush with the industry estimated to be operating at around 60% capacity due to poor margins and the faster than anticipated increase in hog supply, has pushed prices at ports to over $700.

Even more interesting however is continued talk that additional plants will shut down due to poor economics or limited soybean supply availability. Prices of all commodities in China remain elevated, though demand at current prices appears weak, making many economists scratch their heads about what is actually taking place.

Current economics do not favor imports of US corn with negative import margins due to currency conversion rates, though they do support imports of Ukrainian or Brazilian corn. The first of course has its own host of risks with the war continuing to be fought and ports remaining open beyond November in question. The second continues to wait on phytosanitary approval, which is expected to be granted soon according to industry insiders.

In other news, the harvest pace remains slower than expected and slower than average across much of the country, with 12% of the corn crop harvested. This was lower than the 13% expected ahead of the report, 17% seen last year and 14% as the 5 year average. Soybean harvest is also slow, coming in at 8% complete versus 15% last year and 13% as the 5 year average.

Yield talk is interesting, with many in the Eastern Corn Belt talking about better than expected early harvest results, as decent August weather across much of the region helped provide a much better finish than what we saw last year. Western Corn Belt producers are running some of their worst fields currently, with results as disappointing as expected in the worst hit parts of the country.

Looking ahead, we will continue to watch what is taking place in the outside markets and hear comments from members of the Federal Reserve. Many had been expecting some indication we could see a slowdown in the aggressive nature of monetary tightening, though the opposite appears to be the case, with the members who have spoken so far doubling down on the Feds desire to stabilize prices.

Markets are stronger this morning on limited news overnight. There is talk Russia will announce the annexation of Ukraine’s territory Friday, with limited confirmation as the “vote” runs through today in the regions in question.

Corn up 1 to 4

Beans up 8 to 12