Morning Comments May 10, 2022

Caseih Planting 70

Grains couldn't avoid being overtaken by the carnage seen in outside markets yesterday, with market psychology and currency trades taking center stage for the time being. On the day we saw July corn close down 12 with December corn down 10. Chicago wheat managed to post a pretty major reversal, trading to new highs for the move but closing 15 lower on the day. July beans were down 36 with November beans down 24.

We've spent some time recently talking about the strength in the dollar as the index has again become the safe haven in global currency markets as of late. Chinese officials made adjustments to policy yesterday that further impacted an already troubled yuan, allowing the currency to fall nearly 3% versus the dollar in yesterday's trade alone. This after the yuan saw its worst month of market performance versus the dollar on record in April. 

This shift in value has further impacted already negative import margins, especially for beans, with one analyst estimating yesterday's currency trade alone resulted in a 46-cent increase in the cost of U.S. beans to a Chinese crusher. 

The strength in the dollar has coincided with some recent weakness in Brazil's real as well, making Brazil's export values into summer much more attractive than current U.S. offerings. The recent weakness in the real has also pushed the Brazilian farmer to pick up the pace on what he or she is selling, pressuring basis values and raising concern we could see some of the more recent export business the U.S. picked up switch back to Brazilian origin. 

In addition to costly currency conversions, we are also seeing continued concern that Shanghai's lockdowns could continue indefinitely with Beijing possibly following close behind. A Chinese financial group estimates 76% of the country's economy has now negatively been impacted by the Omicron wave, higher even than the estimated 62% of the economy that was affected by the original discovery of the virus.

The impact of shutdowns is becoming glaringly obvious when looking at factory output figures and industrial demand for raw commodities. Natural gas demand for industrial needs fell 43% in April from a year prior in China's second largest provincial economy and home of one of its largest factory sectors, Jiangsu. Also, an internal document out of Tesla leaked overnight that indicated their Shanghai factory remains shutdown as it has become increasingly difficult to acquire parts.

Here in the U.S., we got updated export inspection figures yesterday with a noticeable drop in shipments across the board versus last week. Corn shipments on the week came in around 55 mbu, 11 mbu lower than last week's figure and just below what's needed to ship each week to meet USDA expectations. Soybean shipments were 18 mbu, lower than last week's 22 mbu and the 22 mbu needed to ship each week, while wheat shipments were well below what is needed to ship coming in just below 9 mbu.

Weather-wise, the much-anticipated pattern shift couldn't come at a better time as planting progress to start the year remains well below the five-year average and the slowest pace since 2013. Last night's crop progress report showed only 22% of the nation's corn crop planted, well below the 50% five-year average pace with mid-May looming large on the calendar. 

Soybean planting came in at 12% complete, half of the 24% planted we typically see this week. Spring wheat planting remains slower than normal as well, with only 27% of the crop planted. While this pace is incredibly slow versus last year's 70% planted, it is not far out of line from previous years with similar planting pace noted in 2018, ‘19 and ‘20.

Wheat conditions continue to remain well below average and some of the worst on record with 29% of the crop rated good to excellent, as the conditions in the Southern Plains struggle to improve.

Weather-wise, warm and dry conditions are expected to remain in place across a good portion of the country this week into next with spotty showers and limited organized systems expected. The 6-10- and 8-14-day outlooks do hint at some cooler than normal temperatures entering the Great Lakes region, though model agreement and predictability remains limited in the short-term due to an anticipated weakening of La Nina. 

Brazil's forecast remains wet in its southern most production regions, great for the more delayed Safrinha crop as much of the region's bean harvest continues or has only recently wrapped up. Further north remains dry as monsoonal flow has all but shut down. Analysts in the country seem to be mostly in agreement regarding a 5 mmt loss in production potential due to the shift over to drier conditions, though no one seems able to agree on where full crop potential was prior to the loss. 

AgRural put its corn crop estimate at 112.3 mmt yesterday, down 5 mmt from previous estimates, but still 27 mmt (1 billion bushels +) larger than last year's crop and a new record.

Looking ahead, crude continues to struggle with a weaker economic outlook and concerns regarding Chinese demand. Grains are trying to maintain strength seen on the overnight trade, though they may find themselves caught in the outside market crossfire as even Goldman Sachs expects a further downturn in stocks even if the Fed were to be able to manage to avoid a recession. 

December corn prices still remain $1.20 above crop insurance values, as perspective will likely become key in the coming days and weeks. 

Corn up 2 to 4

Beans up 5 to 10