Morning Comments February 1, 2022

Grain bins dryer

The bean market was much higher again yesterday, with the March contract now trading a phenomenal $3.00 off it's early November lows. Corn started the day higher but spread action and pressure from wheat pushed old crop to finish lower on the day. Wheat failed to follow through on its higher overnight trade as well, closing well off its highs and posting a 42 cent range on the day. 

We continue to monitor South American weather closely. While rain has returned to some of the driest portions of the region, many feel it was not enough to save the bean crop in areas further along in their production cycle. There is also concern that continued dryness in February will work to trim the Argentina crop.

At this point, Brazil as a whole is only 11% harvested, and while yields in Southern areas on early harvested beans have been incredibly disappointing, we have a long way to go before we have a more solid indication of crop size. Anyone in agriculture knows beans can really surprise you in good ways and in bad when it comes to actual yields versus pre-harvest estimates, but that is not stopping private analysts from further reducing their production outlooks.

Interesting to note, Mato Grosso harvest is well ahead of last year and the five-year average. This accelerated harvest pace has allowed for rapid planting of the Safrinha corn crop, with pace estimated at 26% complete versus 2% this time last year. With some concern regarding an earlier-than-normal weakening to monsoonal flow, an early start to the second crop production season could be extremely important. 

Outside of South American weather, we continue to monitor Black Sea tensions closely. The UN Security Council held an emergency meeting yesterday, though both China and Russia objected to the gathering. It appears not much was accomplished, with Russia's ambassador continuing to contend no attack is imminent, stating again the concern is overblown. 

Russian domestic prices for both wheat and corn continue to weaken, with major concern that any type of global isolation via sanctions and restrictions could cause a tremendous back up in flow and economic harm. 

Secretary of State Blinken is expected to hold a phone conversation with his Russian counterpart again today to further discuss Russia's demands and the U.S. reaction to them, potentially bringing with it some headline risk for wheat, corn, and energies.

Export inspections yesterday had bean inspections coming in a bit higher than expected, with another flash export sale announced for China though no true cash business has been done for weeks. As we saw last year, China is getting good at making purchases but not having to make an announcement via the USDA until futures are attached or the boat is loaded.

Corn shipments were lower than expected and lower than what was needed yet again. On the week we shipped just over 40 million bushels, with the bulk going to Mexico. China was in for just over 8 million bushels. Wheat shipments continue to struggle.

Looking ahead, we will continue to watch outside markets. It’s interesting to see some divergence among major banks when it comes to expectations of just what the Fed will do. We did see more in the way of dovish comments from some of the reserve members yesterday, with a handful worried that too aggressive of an approach to rates could be detrimental to the economy. 

Most banks at this point anticipate 5-7 rate hikes this year alone, taking us to nearly 2% by the end of the year. Though they may not agree in how The Fed does it, they all agree it will have to be a delicate balancing act of reducing costs and inflationary pressure without sending us into a full-blown recession as we hammer growth. 

No matter how you slice it, volatility is likely to only increase in the year ahead as we are in uncharted territory. 

Today kicks off day one of spring crop insurance pricing. If finalized today, we would have the second highest corn price and the highest bean price in history. 

For fun: there are some market watchers that love to use moon phases as a way to predict market moves. Today we enter a new moon phase, which watchers say tends to bring with it a short-term grain high. We'll check back this time next week to see if they're right.

Corn 3 to 4 higher

Beans 6 to 8 higher