Morning Comments June 15, 2022

Field1

Markets were under pressure for much of the day yesterday as a lack of fresh news and concern over the economy has traders hesitant. July wheat finished the day down 20, while both July and November beans were down 9. Corn managed to have a decent close in the face of pressure, with July closing down a penny while December was basically unchanged. 

While what feels like fresh news to the grains may be lacking, there are a lot of moving pieces across the global economy, with long term implications. Just this morning an emergency meeting of the European Central Bank was announced, with officials there looking to discuss the rout in the bond market and what rising borrowing costs will mean for countries like Italy. 

In addition to the ECB gathering unexpectedly the Fed is set to announce its rate decision today, with a reported leak indicating a 75 point increase is likely. After inflation data showed consumer prices continuing to rise, with inflation-adjusted wages falling for the 14th month in a row, some feel even a 75 point increase is too little, with isolated talk of a 100 point increase possible in an attempt to shock the market and show the Fed is serious when it comes to tackling costs.

The idea the Fed is working to calm inflation and keep the economy strong has the dollar rallying back to its highest level seen since January of 2003. The strength in the dollar has resulted in some tremendous opportunities for the Brazilian farmer as board prices have soared and currency conversion rates have worked in their favor. It is estimated the Brazilian farmer has sold 3-4 million tonnes of soybeans each week for the last 2 weeks, with selling still running nearly 10% behind last year's pace due to its incredibly slow start.

There are rumors storage space is tight ahead of second crop corn harvest with some cash traders in parts of Brazil reporting elevators using ground piles as temporary storage, even before new crop supplies make their way into the pipeline. The increase in farmer selling and concern over storage has pressured Brazilian basis values with soybean basis falling off 30-40 cents over the last week and corn losing 20.

As we had discussed a couple weeks back, domestic basis levels for old crop soybeans had been incredibly strong thanks to near record high board crush values for soybean crushers and unexpected strength in counterseasonal soybean export sales. However, board crush has now fallen $1.67 and rumors of Chinese crushers washing out of US cargoes and looking to re-own Brazilian supplies are beginning to circulate, as a result we are starting to see basis and old crop/new crop spreads start to come under pressure.

Outside of changes in Brazilian competitiveness and supply availability we are still uncertain about what an actual reopening of China will look like as we work through the last half of the year. Beijing officials have now confirmed 327 cases of Covid have come from the single outbreak at a bar, with further spread anticipated. In Shanghai, city officials plan to conduct mass testing of residents every weekend through the end of July. 

Looking ahead, we are expected to get more details on what a Europe/US plan to build temporary storage for Ukrainian grain will look like as talks of an export corridor through the Black Sea have stalled. Local analysts continue to increase their production expectations for the country as planting in the unoccupied areas went better than expected and weather conditions remain good.

We will get the Fed rate decision announcement this afternoon, with lots of positioning ahead of the report expected. It is interesting to note mortgage rates have increased nearly 2.75% since the end of November, resulting in a massive swing in monthly costs for the new home buyer. This adjustment higher in costs has put the brakes on the housing market and has already prompted some real estate developers to begin layoffs. 

Weather-wise the GFS model is trying to bring much more in the way of moisture than the Euro model in both the 6-10 and 11-15 day models. Many meteorologists say the GFS model tends to handle the summer pattern better as much of our moisture in the summer comes from convergence, versus the traditional rain making system you tend to see outside of late June, July and August. With record heat set to build across much of the country over the next week and beyond, confirmation of this rain will become incredibly important when it comes to market direction.

Corn Down 5 to 8

Beans Up 3 to 5

Juneteenth Holiday Trading Hours

Sunday, June 19

  • No evening trading session.

Monday, June 20 (Juneteeth Observed)

  • CME Group CLOSED for daytime operations.
  • Evening trading for grains resumes at 7:00 p.m. CST

Tuesday, June 21

  • Grains trade normal hours.
  • Livestock resumes trading at 8:30 a.m. CST