Morning Comments September 28, 2022

Grain bins dryer

Strength in the market seen at the start of the day faded throughout as outside markets turned lower and the dollar turned higher ahead of the close. At the end of the day, we saw December wheat finish 13 higher, while December corn added a penny and November beans closed down 3.

The discussion remains the same as bullish supply side fundamentals coming from the ideas of reduced corn and bean production run headlong into worries over reduced demand prospects.

We’ve discussed the reduced export demand outlook for corn several times in recent weeks, with the slowdown in purchases obvious. However, worries are beginning to surface when it comes to what US soybean demand could look like in the weeks and months ahead. 

Many traders and analysts were slow to recognize the change in market structure that came from the Argentina soy peso, with many believing the Argentina farmer would continue to hold their supplies, keeping them out of the pipeline.

However, the 30% premium in price offered combined with a need to buy goods and a knowledge the offer may not last long pushed Argentina farmers to sell an estimated 12 mmt of beans so far during the month, with some traders in the country expecting that total to reach 14 mmt by month end. Of course, not all of these reported sales are for beans that are on hand, with sales of future crops reported as well.

The influx of beans into the hands of the Argentina commercial has created an interesting dynamic, where a country that typically exports meal as opposed to whole beans stops crushing them domestically and instead sells them cheaply into the world market for other crushers to purchase. One recent estimate puts Chinese purchases of Argentina beans for October shipment at 200 million bushels, or nearly the entire USDA marketing year export projection for the country in one month.

Brazilian soybean planting pace is getting underway just as the Argentina counter-seasonal sales work their way into the global market, with a quick pace to the planting season and decent soil moisture noted at the start. Analysts are expecting additional acreage to be added into Brazilian production this year, with total overall production expected to grow by nearly 25 mmt (918 mbu) in the country year over year. 

According to one South American analytical group overall soybean production in the continent should be up 37 mmt (1.4 bbu) from last year. This of course is an estimate based on normal weather, and with our third year of La Nina impacting patterns, normal weather remains unlikely. Dryness has been noted across large portions of Argentina, with drier conditions expected to take hold in Southern Brazil as we work our way into October.

Looking ahead, dollar strength and what it means for economies around the world seems to be taking center stage, with some traders anticipating the dollar to push towards highs not seen since 2001, with some suggesting we could move towards levels not seen since the mid-80s.

China announced additional moves overnight to try and discourage selling of their currency outright. While they had already increased the costs associated with doing so, reports overnight indicated the People’s Bank of China is having behind the scenes conversations with banks threatening punishment for doing so. In addition to increased costs and outright warnings against shorting the currency, the government is rumored to be dusting off a currency fixing tool it had abandoned in 2020.

All eyes are on what is happening in Ukraine as well, with Russia declaring itself a victor in the “referendum,” “winning” with 96% of support. Continued threats of the use of nuclear weapons has prompted warnings from the US of “catastrophic” consequences for Russia if they were to press forward with the use of tactical nuclear weapons in the region. 

In addition to worries over nuclear escalation, reports of three separate sights damaged along the Nord Stream 1 and 2 pipelines have governments in the region on high alert. While neither pipeline was operational ahead of the suspected attacks, the destruction done is being described as unprecedented with officials calling it obvious sabotage and saying it will now be shut down for the foreseeable future. 

We will get an updated energy report this morning with 5 different Fed members giving their thoughts on the economy and their next steps throughout the day.

Corn down 1 to 3

Beans down 3 to 7