Morning Comments March 3, 2022

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Yesterday's trade was an interesting one, even for the most seasoned expert in the business. We saw wheat spreads absolutely implode into stunning inversions with front month contracts trading limit up, while some back-end contracts managed to trade limit down. Corn has seen a similar, albeit much milder, situation in its spreads, with May corn finishing yesterday nearly unchanged while new crop corn was down double digits. Soybeans were lower on the day.

The world continues to struggle with just what the situation in Ukraine will mean long-term when it comes to global food and energy supplies. The conversation continues regarding just what will take place with new crop production in both Russia and Ukraine as we are nearing Spring and typically start to see farmers itching to get started on the production side.

Currently as it stands, we recognize that there is over 500 million bushels of Ukrainian corn and around 150 million bushels or so of wheat set to hit the global market between now and August that is sitting in purgatory. In addition to what is not currently shipping, the world is growing increasingly concerned with the 1.7 billion bushels of corn and 1.2 billion bushels of wheat Ukraine produced last year, with many believing a half of crop would be a miracle at this point.

However, the country's grain groups and farmers insist the show must go on, with Ukrainian farmers away from the aggression sharing videos of farm work on social media. 

In addition to the uncertainty regarding Ukrainian exports and production potential, we have the obvious concern over what happens to the millions of tonnes of wheat Russia still has on hand and will likely produce in the coming year. According to traders, many wheat firms still have offers out there for Russian wheat supplies, but with sanctions and a lack of ability to pay or get paid via the SWIFT system, not to mention the concern over artillery hitting boats in the Black Sea, those supplies are sitting, for now, unused. 

As we discussed yesterday, Bloomberg reports indicated Chinese state purchasers were instructed to shore up any supply concerns when it comes to commodities, no matter price levels. Early in the day, rumors began to circulate that China had purchased 10 cargoes of corn out of the PNW for short-term movement, though at this point no confirmation from any party has been seen. 

Chinese domestic corn prices remain incredibly elevated, hitting new all-time highs earlier this week. Gains seen there, however, have been outpaced by gains seen for U.S. values, creating a bit of a margin pinch even for state-owned companies. 

As it stands currently, China has no formal agreement with Argentina or Brazil when it comes to corn import purchases as phytosanitary rules have yet to be put in place or approved. However, one must begin to wonder if these types of agreements don't find themselves being put in place much easier now that supply disruptions are becoming real. 

Outside of Black Sea tensions, we got updated testimony from Federal Reserve Bank Chair Jerome Powell yesterday. Powell reiterated the Fed's desire to control inflation, continuing to say inflationary pressures will begin to recede later this year. 

However, with the change in global economic conditions and the European Central Bank aggressively backing away from any kind of rate increases, Powell indicated the bank will likely increase rates a quarter point in March as opposed to the half point increase that was just about guaranteed even a month ago.

With the Bloomberg Commodity index soaring to levels not seen since the mid-70's, oil prices surging to their highest level since 2008 and families only just beginning to feel the pinch of higher energy and food prices, it is obvious central banks all around the world have to do something, though how the global economy sees any type of soft landing from here seems like an impossible feat.

Looking ahead, we will continue to watch developments between Russia and Ukraine. There have been rumblings of a potential meeting between the two country's delegates sometime today, though no confirmation has been seen. Yesterday we saw conversations of Russia being open to negotiating a ceasefire, though the increase in firepower witnessed late yesterday and overnight seems to contradict any kind of desire for peace.

We will get updated export sales out this morning with traders expecting to see strong sales for all three commodities. 

Corn up 7 to 10

Beans up 8 to 10