Morning Comments January 14, 2022

Corn Emergence 2

Soybeans opened Wednesday night's trade in line with where they closed after the report and it turned out to be the high of the day as wetter forecasts and a change in money flow provided pressure, pushing us over 20 lower in old crop. Corn and wheat had a bit of a rough go of it on the day as well.

We continue to get South American production updates from the stragglers of the private analysis world, with continued ideas of cuts rolling in. Yesterday the Buenos Aires Grain Exchange slashed their corn and bean production estimates, down 8 mmt from last month on their corn outlook and down 5 mmt on beans. 

Another Brazilian group cut their Brazilian outlook as well, but as we discussed earlier this week, with wetter weather in the forecast many traders seem to be suffering from "South American drought fatigue." It's not that folks don't believe the production cuts will happen, more so the question becomes what type of cuts are we actually pricing in at these levels?

In addition to a wetter forecast potentially stabilizing losses, or even potentially attributing to production increases from here in the end, we have a million questions regarding what happens in China as Omicron has been discovered in another port city. 

With the Olympics just over 2 weeks away and government officials standing by their zero covid policy, local government officials are scrambling to prevent the spread, something the rest of the world has proven seems mostly futile. 

How a major lockdown could influence commodity demand as a whole is huge as we tend to see citizens stay closer to home, eating simple meals instead of traveling and going to restaurants.

This transition back to less travel and more in-home meals could have major implications, especially on meat demand, which in turn impacts feed ingredients. We are already seeing a massive amount of liquidation of hog herds ahead of the New Year holiday, with December showing the second largest amount of live hog sales on the year behind October's liquidation.

As a result of the smaller herd sizes and high prices, the Chinese government indicated it anticipates corn demand to come in 3 mmt lower than initial expectations on the year.

Outside of South American production and Chinese demand, which will likely prove to be our biggest focus these next couple of months from a fundamental standpoint, yesterday's inflation data is leading some to believe the Fed may have to even further accelerate rate increases. 

2021 will go down as the year of inflation as CPI data shows a 7% increase in consumer prices, the largest year over year jump since 1982. With 2022 an election year, it is likely we will hear much more about consumer prices and negative wage growth as it becomes a political hot potato. 

Looking ahead, the markets will be closed Monday in honor of Martin Luther King Jr Day. An already overheated weather market going into a three-day weekend where the forecast could go either way will likely lead to a bit in the way of a spicy trade today, with extra attention being placed on Monday night's open for sure.

Long term models continue to point to a pattern shift in South America, though forecasters still aren't convinced it hangs around through mid-February. 

Corn 1 to 2 higher

Beans 1 to 2 lower

Trade schedule in observance of Martin Luther King Jr. Holiday on Monday, January 17

Sunday, January 16: No evening trading session

Monday, January 17: CME Group CLOSED for daytime operations. Evening trading for grains resumes at 7:00 p.m.

Tuesday, January 18: Grains trade normal hours. Livestock resumes trading at 8:30 a.m.