Morning Comments September 6, 2022

Soybeans Clean

Friday was a solid day across the board, helping save both wheat and corn from lower weeks, and providing soybeans a close well above recent support. On the day we saw December wheat finish 16 higher and up 5 on the week. Corn closed 8 higher on the day and nearly unchanged for the week, while soybeans closed up 26, finishing the week 40 lower.

There wasn’t much in the way of fresh news Friday, with the morning’s jobs report showing slightly less jobs added in the month of August than expected. Ahead of Friday morning’s report traders were expecting the US economy to have added around 355,000 jobs versus the 315,000 reported. In addition to a slight reduction in job growth, we saw an uptick in unemployment, showing more folks entered the workforce during the month than anticipated.

Over the weekend developments between Russia and Ukraine were minimal, though one could argue the cold war between Russia and members of the Eurozone took a new turn. Traders and political leaders had been fearful Russia would use last week’s maintenance shutdown on the Nord Stream pipeline to cut off the remaining gas flows to the Eurozone and they were right.

Russian leaders contend sanctions are making it impossible to perform necessary maintenance and fix broken parts along the pipeline responsible for a significant amount of Europe’s natural gas supplies, while European leaders say Russia is weaponizing energy.

Meanwhile, China continues to struggle with its Covid zero policy, extending lockdowns and harsh Covid rules in Chengdu indefinitely. As it stands currently 33 cities are under some sort of Covid lockdown, with an estimated 65 million people under restrictions.

The lockdowns and restrictions are impacting citizens beyond just the cities shut down, as no one wants to find themselves patient zero in an area currently deemed covid free. The concern over spread is limiting travel and public consumption, hitting the restaurant and catering industry especially hard.

The big news over the weekend came out of Argentina as the country’s economic minister was able to finalize an agreement between farmers and the government, which they claim will spur nearby soybean sales by the farmer and generate revenue for the cash strapped government. As we have discussed, Argentina needs to make good on around $5 billion in loan payments to the IMF in the coming weeks and is struggling with ways to come up with the cash.

Inflation in the country is running at incredibly high levels, with a currency seemingly always under pressure versus the dollar. As opposed to how farmer sales work in Brazil with the farmer able to convert their soybeans directly into dollars, the Argentina government keeps the difference in conversion, giving the farmers a percentage of what their beans are worth in the global market and keeping the rest.

Many Argentina farmers have simply stopped selling soybeans into the market as of late, both in protest of the government and because they are too valuable as a hedge against inflation as cash in the bank loses value if their currency remains weak. The change in policy will only last through the end of the month, with Super Economic Minister Massa claiming $5 billion in revenue will be generated by the move.

Traders estimate nearly 10 million metric tonnes of soybeans will be sold by farmers in coming weeks, with upwards of 1.5 million reportedly sold the day after the announcement. The timing of the deal will be nearly perfect in the global soybean market as there is a small gap in the pipeline between Brazilian supplies and US supplies becoming more readily available, however, Argentina soybeans tend to be lower in protein and oil, likely limiting purchases by private Chinese crushers.

Looking ahead, the market will likely continue to trade sideways as we struggle to find direction. September tends to be a bad month for outside market activity with grain prices also running into headwinds seasonally. We will get updated export inspections this morning at 11 eastern, with crop progress out after the close.

Corn up 1 to 5

Beans down 15 to 20