Morning Comments May 18, 2022

Black Dirt

Wheat saw a range of over 80 cents yesterday as traders are doing their best to contend with perhaps the messiest set of fundamentals we've seen in decades, if not ever. Beans were stronger, while corn struggled throughout the session. At the end of the day, we saw Chicago wheat close up 30, while July corn was down 8. July soybeans were up 21.

The moving parts in this market continue to grow by the day it seems, as we have uncertainty over demand with what is happening regarding Covid controls in China. We also have uncertainty over supply, as we are just beginning the Northern Hemisphere's growing season and are still trying to gauge how big the South American crop will end up, with the added uncertainty over Black Sea supply availability. This is all combined with uncertainty regarding the global economic outlook and just what it is going to take to cool inflation that continues to run at 40-year highs. 

On the Covid front in China, we are seeing optimism spread throughout Shanghai as the city seems to have achieved its zero societal Covid goals. Officials now say plans can begin when it comes to reopening, with an expectation of returning to mostly normal by the end of June.

However, spread elsewhere is wreaking havoc as officials in Beijing call their situation severe with cases throughout the community still being discovered. Similar to what was seen in Shanghai, portions of the city are beginning to see more stringent restrictions coming into play. The concern over the spread of Covid and strict travel restrictions was evident in April's transportation figures, with intracity travel falling 40% year over year, coming in just above early 2020 lows. 

On the production side of things, producers throughout Southern Brazil look like they will be able to breathe a sigh of relief as the bulk of the coldest temperatures are behind them. There was concern late last week and the start of this week that an early frost would damage a portion of the southern safrinha crop, prompting farmers to stop selling and pushing domestic values there to new highs. 

According to most meteorologists, while spotty frost may have been seen in some locals, damage was minimal at most, with limited risks looking forward.

In the Northern Hemisphere, planting pace remains slower than average here in the U.S., prompting many to reduce yield outlooks based on historical data. One must wonder though, with reports of warmer-than-average temperatures pushing emergence, if good conditions after planting would provide better potential than the seed being planted three weeks or more prior to emergence. 

Windows look to remain smaller than what many farmers would like to see, with continued rain potential throughout the next two weeks, but progress looks to continue. Models are beginning to agree we will see more moisture in parts of Europe where production concerns were starting to grow as well.

Meanwhile, Black Sea supply availability remains widely discussed as officials in Poland are working out corridors that would provide Ukrainian grain access to their ports. Current thinking is traders could move nearly 2 mmt out of the country per month through new routes, nearly double the current pace, but still less than half the previous one.

Officials with the G7 continue to express their goal to break down the “Black Sea grain blockade” with talk yesterday of negotiations with Russia that would provide Ukraine access to their ports. While Russian officials are said to be negotiating without much earnestness, the trade off when it comes to accessing the world market again for fertilizer and potential grain sales may prove enticing. 

On the global economic front, we saw UK inflation data spike to 40-year highs yet again, up 2% from last month at 9% year-over-year. Here in the U.S., Fed Chair Jerome Powell reiterated his intention to get inflation in check with some of the most stern and straightforward comments we've seen thus far. Powell was clear yesterday that the Fed's job now is to cool inflation, and they will do whatever it takes to see a significant downturn in prices. 

Looking ahead, we will get updated energy information released later this morning with traders expecting to see continued strong ethanol production. Folks will be looking to see if record high gas prices are doing anything to curb demand as well. 

Markets look weaker across the board this morning on the idea of some better weather in parts of the world that need it. Energies are stronger, with stocks looking to open mixed after a decent day yesterday. 

Corn down 2 to 4

Beans up 2 to 4