Morning Comments May 16, 2022

Planting Drone Landus Cooperative

After posting a new contract high in the overnight markets Thursday night, corn fell off Friday on some farmer selling and general profit taking. Soybeans, on the other hand, were shot out of a cannon on talk of resumed Chinese buying interest. When the closing bell rang, we saw July wheat down a penny, while the Hard Red Wheats were up a touch. July corn was down 10, while December corn lost 4. July soybeans were up 32, with November up 17.

What happened to close out last week became a distant memory when news of a wheat export ban out of India hit early Saturday morning. While there had been talk of a potential ban or restrictions earlier in the week, government officials had downplayed the rumors, saying nothing of the sort was in the works.

Nonetheless, as has been the case so often recently, the news story accused of being a fake story turned out to be the reality, with the government saying private entities would be allowed to meet current obligations so long as they have an irrevocable letter of credit issued prior to May 14th. 

From there, things get a little confusing as it appears the ban doesn't necessarily mean zero sales or shipments from the country, but quite the contrary. According to traders and analysts in the know, upwards of 4.3 mmt or over half of the current USDA export projections have been committed with over 1.5 mmt already shipped. 

According to the official document released, any additional sales must be done to countries in need, or through channels arranged by the governments of the countries negotiating. In short, the Indian government will control where their exports of wheat go and for what value. As a senior advisor in India's government tweeted Saturday, "Government does not want wheat to go in an unregulated manner to places where either it might just get hoarded or may not serve the food requirements of vulnerable nations."

In summary, as one analyst so smartly put it, we are seeing food become a political instrument with it creating interesting allies in the global economy. In addition, we are seeing governments doing everything in their power to fight inflation, whether it makes long term sense or not, as a hungry nation becomes an angry one.

Meanwhile, we saw a gathering of the agricultural leaders of G7 countries over the weekend as they work to remedy the backlog of grain sitting in bins and silos unable to ship throughout Ukraine. As we have discussed recently, an estimated 25 mmt of grain is trapped in the country according to UN analysts, with the ability to ship less than half the previous monthly allotment through land channels into other ports across Europe.

Officials said late last week they will break the hold Russia has on Ukrainian ports, though no details of any type of plan have been released.

Speaking of grain without a home, some analysts are scratching their heads as the USDA estimates Russia will export 39 mmt of wheat in the new crop year, up 5 mmt from the last.

In other news, we got some shocking data out of China overnight, showing just how badly current Covid lockdowns are impacting its economy. Not one car was sold in the city of Shanghai in the month of April, with airport traffic in the city down nearly 99%. Retail sales dropped over 11% and at a much greater level than the 6.1% expected ahead of the data drop.

In addition to poor demand, we saw unemployment figures climb to their highest level since at least 2018, up to 6.7%, while factory output was off nearly 3%.

News of an unwinding of Shanghai's lockdown was seen as a positive sign though, with officials saying much of the city should be back to normal by mid-June. Beijing on the other hand, continues to see restrictions in certain parts of the city enacted as case counts there have continued to slowly climb.

On the Chinese ag news side of the sector, only 9,000 tonnes of the 500,000 tonnes offered from government reserves were purchased last week, down from the previous week's lackluster demand. However, with Chinese buyers only an estimated 50% covered for June, continued purchases from both Brazil and the U.S are rumored to be taking place.

Weather was decent for many over the weekend, with continued planting progress happening in the locations lucky enough to miss rains. Looking ahead, the Northern Plains is expected to remain mostly dry through midweek, with many trying to get as much in as possible where possible before the next round of moisture is set to arrive.

There has been a lot of talk of farmers looking to take prevented planting, but the economics of such don't necessarily make sense, as Spring wheat prices are currently $4 a bushel higher than guaranteed levels, with corn $1.70 higher. 

We will get updated export inspections out later this morning. Freight has been soft as of late, but basis has been reasonably strong along the river, giving us some conflicting demand signals. We need to ship around 22 million bushels of beans and 57 million bushels of corn a week to meet current USDA projections.

We will also get updated crop progress figures this afternoon, with most traders expecting corn planting to have added 30% this week, moving up to 52% finished. 

Corn up 8 to 12

Beans up 8 to 12