Morning Comments June 13, 2022

Grain Bins

Though the grains finished their week mixed on Friday, a decent recovery was seen last week. July corn finished the week 46 cents higher, with December corn and July wheat both up 30. Beans fell off a touch after setting new contract highs, but we still saw July beans finish 48 higher, while November beans were up 41.

As we discussed after the close on Friday, the USDA report held little in the way of surprises, though it is interesting to note corn carryout came in higher than expected both domestically and globally. Domestically, the cut made to exports didn't come as much of a surprise, as our sales pace continues to fall well behind the amount needed each week to meet expectations.

However, with interior basis values so strong in parts of the country, many wonder if we aren't in for a quarterly stocks surprise at month end, as bushels seem harder to source than they should be at $8.00 or more for many end users. Again, as we have mentioned numerous times, the easy bushels have been purchased off the farm, with many commercials struggling with logistics and an inability to get bushels from where they are to where they are needed in a both timely and efficient manner.

The lack of need or desire to move any further old crop bushels into the pipeline by the farmer until production is better known, combined with the logistic struggles of the commercial has created a perfect storm in cash markets, most notably from Central Illinois to the west. This strength in basis has helped propel the July/September corn spread back up to recent highs, keeping traders hesitant to sell until we see one or the other start to break.

Globally the adjustment higher came primarily from an increase in Ukrainian corn production expectations, though the USDA left the country's exports unchanged. And while traders were expecting some adjustments lower to both the Brazilian and Argentina corn crops, the USDA left those unchanged as well.

Over in soybeans, we had a bit more in the way of buying the rumor and selling the fact, or even you could argue a bearish reaction to a bullish report as the market closed lower on a smaller than expected carryout both domestically and globally.

The USDA was more aggressive in their adjustment to old crop soybean exports than many were expecting, increasing their projections by 30 million bushels from last month and adjusting carryout an equal amount lower. At 205 million bushels old crop soybean carryout is now the 3rd lowest on record, with a stocks to use ratio similar to what we saw in the 2014/15 crop year.

Wheat came in relatively close to expectations, with some increases in Soft Red Wheat production offset by decreases in Hard Red Wheat production.

While WASDE numbers were the talk of ag markets after their release, most outside traders remained focused on just what is happening in the global economy and what that will mean for the world consumer. Traders were surprised by a higher than expected inflation figure for May, with consumer prices up 8.6% from last year versus the 8.3% increase expected.

The sharp uptick removed the idea that inflation had peaked and opened the door to a more aggressive stance from the Fed. Ahead of the report the idea of a 75 point increase was nearly off the table, but with inflation continuing to run hot and consumer sentiment falling to an all time low, some wonder if we won't see a 75 point increase in this week's decision.

In addition to what is taking place from an economic standpoint, we are watching new developments in China as a super spreader event at a nightclub has Beijing's most populous district set to go through three rounds of testing. Increased lockdowns in Shanghai are being reported as well. 

Lockdowns continue to hamper pork demand and pressure crush margins, with only 50,000 tonnes of the 500,000 offered in last week's government soybean auction purchased. 

Looking ahead, we will continue to monitor weather forecasts with models pointing to more rain in the 11-15 day forecast after what will be an incredibly hot and dry ten days. Now is the time of year where every model run will be scrutinized for changes with markets reacting accordingly. We will get updated export inspections late this morning with crop progress released at 4 eastern.

Corn up 2 to 5

Beans down 15 to 20