Morning Comments September 7, 2022

Corn closeup

Grains were higher yesterday on Black Sea grain corridor concerns, with soybeans lower on increased availability of Argentina supplies. At the end of the day, December wheat was up 6, December corn was up 10 and November beans were down 21.

As we discussed yesterday, soybeans were lower on an expected increase in available supplies to Argentina soybean exporters, with expectations of increased sales to crushers as well. The shift in the exchange rate will last through the end of the month, bringing with it uncertainty as to how the government will approach farm policy after the September 30 deadline. 

The biggest concern in the eyes of the Argentina farmer is they liquidate on hand physical supplies to turn it into a currency that continues to decline. However, some farm policy experts believe many farmers may use bean sales to book inputs as the production season is set to begin in the country in the coming weeks and this provides an opportunity for cash flow.

Interesting to note talk of increased global supply availability in the face of a continued decline in Chinese soybean imports. The month of August was the 3rd consecutive month with declining imports, with inbound soybeans the lowest in 5 months. Concerning to note year over year soybean imports for the month were down 24% and the lowest August import total since 2014.

Current currency conversion and freight calculations have Brazilian beans remaining somewhat competitive in the months ahead, with a big drop in offered values in the first half of 2023 on the potential of another record harvest. 

Bloomberg noted this morning the massive investment in agricultural transport and export infrastructure by Brazil has cheapened freight costs and increased shipping capacity, saying export capacity out of the Northern Arc of the country has increased 6-fold, with Southern port capacity expected to hit 280 million metric tons a year over the next decade.

Speaking of global supply and export capacity, grains caught a bid yesterday on perceived threats to the grain corridor by Putin. After Russia’s shutdown to the Nord Stream pipeline and their willingness to limit natural gas and oil sales to unfriendly nations, traders are concerned Putin could pull the plug on the grain corridor with 70 days left in the first phase of the agreement. 

Putin seemed to enjoy the concern, issuing vague statements about the corridor, and reiterating his stance that Western sanctions are limiting Russia’s ability to export grain into the global market. The group responsible for Russian grain exports has repeated Putin’s claims, saying tonnes of grain will go unshipped due to troubles with currency and sanctions on banks imposed by the West.

Overnight however the same group tweeted that Putin is committed to the goal of the corridor and will do what it takes to make sure hungry nations are fed. 

Though it was announced long before the invasion, the opening of a railway connecting Central Russia to Northern China capable of shipping 8 mmt of grain a year may catch some off guard. The two countries have said they will work together to increase food security, with Xi and Putin set to meet for the first time since the invasion next week.

Here in the US, we got updated crop progress yesterday after the close with no changes to condition ratings seen in corn or soybeans. The crop continues to work towards maturity but at a slower pace than last year and the 5-year average.

Looking ahead, the dollar continues to move higher, with some concerning breaches of important resistance levels seen versus the yen catching the attention of traders overnight. Stocks continue to struggle on concerns over the global economic outlook and anemic Chinese demand, but commodities, especially grains seem to be in the spotlight again with renewed concerns over exportable supplies and production potential out of Ukraine as the war wages on.

We’re at important support levels for soybeans, with corn trading up to some major resistance. The spread between the two is at its widest since May, and while it may not matter much outside of the window ahead of planting, it’s something traders are monitoring. Corn is also expensive relative to crude, but with traders concerned about supply more than anything, attention to demand remains limited.

Corn up 5 to 7

Beans steady to 3 higher