Morning Comments April 8, 2022

Red Barn Behind Field

Corn and beans were higher yesterday with wheat trading lower. To end the day, we saw Chicago wheat down 18, while May corn was up 1, December corn was up 4, and soybeans were 20+ higher across the board. 

Beans helped to keep corn supported yesterday as Chinese buyers came back to the table overnight Wednesday, buying some additional new crop bean supplies from the U.S. as well as adding some Brazilian bushels to the mix. There had been some concern regarding a slowdown in demand as buyers have been relatively quiet as of late due to holidays, Covid lockdown uncertainty, and poor margins. 

Continued lockdowns in Shanghai and concern over increasing caseloads still has some traders on edge however, as unload times at ports typically running 1 to 2 days are stretching out to 4 to 5 days or more, creating a backlog. In addition to slow unloads, interprovince movement is heavily frowned upon, making it difficult to move supplies from where they are to where they are needed. 

Overnight we did see confirmation the Jilin province has achieved "zero Covid on a societal level" meaning any additional positive cases will come from quarantine sites as opposed to other means of transmission. This accomplishment should open the province back up for relatively normal business, which is good news ahead of Spring planting as there was concern we would see limited movement of fertilizer and other inputs.

While on the subject of China, government officials announced another round of pork purchases in a continued attempt to support sliding hog values. Poor feed margins and high domestic prices are also being attributed to the USDA's attaché projecting corn imports of 20 mmt this year, down from last year's 29.5 mmt and 6 mmt (236 mbu) below current USDA estimates.

Beans also saw a bit of support come from reports of potential damage to late planted soybeans due to an earlier-than-normal frost in some parts of Argentina. The Buenos Aires Grain Exchange said it would take weeks to determine the extent of the damage and that it could possibly reduce overall production, though no estimate of the potential reduction was given.

Speaking of South American weather, traders are watching an area in Southeastern Brazil that has seen drier-than-normal conditions over the last few weeks, with continued dryness expected over the next several days. 

According to well-followed meteorologist Eric Snodgrass, around 25% of Brazil's Safrinha crop area is dealing with dry conditions, though at this point CONAB and other private analysts are slow to make any adjustments lower to the overall crop size as conditions elsewhere are nearly ideal.

Over in Ukraine, officials have confirmed a complete withdrawal of Russian troops out of Northern areas of the country. NATO leaders anticipate some, if not most, of the troops pulled out of the Northern areas will be reassembled and sent to Eastern regions where Russian separatists have laid claim to large portions of Donbas. 

Officials expect a push from the Russian military to take over a large portion of Eastern Ukraine, an area rich in raw commodities and close to ports. The apparent desire of Russia now seems to be capturing much of Donbas down to Crimea, with some expecting the move to push west from there towards Odessa, essentially blocking Ukraine from the Black Sea. 

This move towards Odessa, however, would likely take longer than the current whispered target end date of May 9th. May 9th is the day celebrated throughout Russia as the official victory over Germany in WWII and has been said to be the date Putin has targeted for his mission accomplished moment.

The shift away from Northern areas of Ukraine has prompted some analysts there to increase their crop outlooks, though everyone seems to feel uncertain when it comes to overall export potential for at least the next 18 months, even if much of the offensive would end today.

Here in the U.S., we received final word from the EPA on the 36 small refinery exemption requests still hanging in limbo. In a move that surprised some in the industry, the EPA said 31 of the refineries would not be allowed to receive the waiver, though they would not be forced to buy the RINs needed to come into compliance.

In a nutshell, the refineries were able to write down billions in obligations by not being required to purchase the RINS but will have to make sure they fill out their paperwork to get in the EPA's good graces going forward. 

We will get an updated USDA report today at noon Eastern. Traders are expecting to see reductions in corn and soybean ending stocks with a slight increase in wheat carryout. Global reductions in ending stocks are expected as well.

It seems Fridays have been more risk off than on as of late, and today isn't likely to be much different, barring a surprise from the USDA. Weather looks to remain pretty wet throughout the rest of the month, which is great news for the dry west, not so great news for the wet east.

Corn up 2 to 3

Beans up 8 to 10