Morning Comments February 22, 2022

Soybeans Clean

The markets gapped higher to open the night session last night as Black Sea tensions seem to be hitting a fever pitch.

Early in the day yesterday the Russian parliament held a vote agreeing to recognize the independence of two separatists-backed territories in Eastern Ukraine. Conflict is not new to the region in question, as a small war has been waged between the separatists and Ukrainian forces since the Crimean annexation in 2014. 

Russia was to leave the contested area untouched as part of the Minsk Peace Agreement, and for the most part had, letting former Ukrainian citizens looking to join Russia maintain and grow their presence. According to Russian officials, a recent uptick in violence in the region was what pushed them to vote on the independence, with the subsequent decision to do so providing the groups Russian protection from Ukrainian forces.

Overnight Putin announced Russian troops would move into the Donbas region where the groups have a presence in order to "keep peace."

Officials in Europe call the move an invasion, saying harsh sanctions will be levied. Ukrainian officials maintain its borders have not changed and the region is not independent, while also continuing to maintain Russian aggression will be limited and a widescale invasion is not expected.

The White House has yet to be as harsh in its description of what is taking place, not yet calling it an invasion, but insists the U.S. will cease doing business with entities in the region in question.

It is interesting to note that much of the area currently being discussed was an industrial powerhouse before the initial Russian/Ukraine conflict nearly a decade ago and is said to have vast stores of coal and significant mining and steel producing capabilities. 

At this point the question becomes whether Russia will be satisfied with simply stepping into the area that is said to be controlled by the separatist groups, estimated to be about one third of the region, or if they will push for more. 

Outside of Black Sea developments, we will continue to watch weather and market moves in South America. The push higher in vegetable oils around the world has turned the Brazilian soybean crusher into an aggressive buyer. The surge in crush margins in Brazil and subsequent increase in price combined with uncertainty over the full extent of crop losses has Brazilian export basis levels remaining strong in the face of continued harvest progress.

Weather in the area looks to be shifting to give farmers in northern portions of Brazil a chance to wrap up soybean harvest and plant the last half of the Safrinha corn crop, while southern areas will see some much-needed moisture to finish out their production season. 

Looking ahead, we will get updated export inspections later this morning. Corn and bean shipments will continue to be watched closely, especially corn as the pace at which China takes shipments may start to give us some better insight as to whether or not they will be looking for more old crop supplies in the weeks and months ahead.

We will also continue to monitor what is happening in the outside markets when it comes to inflation and what moves the Fed will make. Some folks are starting to walk back ideas of a big March increase, saying the situation may be too fragile for that type of aggressive move. 

However, others contend that with continued increases in consumer prices and the cost of goods rising the most year over year in over 40 years, the economy is simply running at an unsustainable level, and something has to be done.