Morning Comments January 27, 2022

Matt Intern Loading Train

Soybeans broke out above recent resistance yesterday, trading to their highest levels since early June on potential palm oil supply reductions and concern forecasts are turning back drier for Southern Brazil and Argentina. Wheat lost a chunk of its recent gains, spending much of the day over 20 cents lower, while corn, torn between the two, ended the day higher with beans. 

Indonesia, the world's top palm oil producer, confirmed rumors of export restrictions yesterday, announcing that all oil producers would be required to hold back 20% of their anticipated exports and sell it into domestic markets. The rule, which goes into effect today, will likely limit short-term exports as suppliers work to come into compliance, pushing the country's typical customers to look for alternatives such as soy oil. 

The recent run-up in crude oil and other energy sectors combined with supply concerns has pushed palm oil back up to new all-time highs, providing support to soy oil and subsequently soybeans. 

In addition to stoutness in the world vegetable oil market, we are hearing more chatter of weather turning drier over the next couple of weeks in the drier areas of South America. While Argentina officials say some drier weather would be welcomed in many areas after some locations saw nearly 10" of rain over the last couple of weeks, the concern moisture doesn't return after the two-week time period remains.

At this point it doesn't look like the dryness will be accompanied with much in the way of above-normal heat, but with some private analysts still working to reduce the South American crop, traders will remain on edge.

Wheat sold off solidly yesterday as what could be viewed as some positive developments in the Russia/Ukraine situation are starting to emerge. Representatives from both countries as well as representatives from France and Germany were together yesterday for an 8-hour meeting to discuss the current state of affairs. 

In the end, both countries reiterated their commitment to the 2015 Minsk peace agreement, planning to meet again in 2 weeks. 

Ukrainian officials also doubled down yesterday, refuting the U.S. claims that an attack is imminent and making it clear they are unhappy with U.S. officials telling U.S. citizens to leave Ukraine, maintaining all are safe.

With tensions at a bit of a stalemate as we continue to work through diplomatic avenues, attention is turning back to China as we roll into their New Year holiday and the Olympics are set to kick off. The country continues to quietly battle Omicron utilizing its 'Covid Zero' strategy and seems to be struggling. 

While newly discovered hot spots are quickly extinguished with quarantine and containment, the spread of new cases doesn't seem to be slowing. With the Olympics starting next Friday and 24 cases already confirmed to have accompanied those associated with the games, cases are likely to continue to rise. 

In other news, yesterday's Fed announcement came in relatively close to expectations, with rate increases expected to begin in March. The lack of a surprise rate increase had some calling the announcement dovish, though the press conference after revealed a more hawkish stance by the group than first thought. 

After the announcement, Powell would not rule out a rate increase at every meeting March forward if warranted, with minutes showing balance sheet tightening is expected to take place as well. If realized, the Fed would not only be working to pull money in via interest rates, but it would also actively be reducing the amount of money it had invested over the last two plus years.

Outside of that, we saw ethanol production off a touch for the week, with stocks again increasing. Ethanol stocks are now at their highest level since May 2020, with Midwest stocks record high. The inability to move product is starting to become a concern for producers. 

Looking ahead, we will get updated export sales this morning. In addition to sales, we will continue to watch weather forecasts for South America, outside markets, and watch for any further developments in Black Sea tensions. 

Corn down 1 to 2

Beans up 4 to 5