Morning Comments May 25, 2022

Johndeere Planting 51

Though they started the day with strength, corn and wheat fell off hard into the close on talk of changes in global grain flow. Old crop soybeans managed to shake off the negative influence from grains, closing higher. When all was said and done, we saw July wheat down 35, corn down 14, with July soybeans up 6 and November beans down 1.

Though it seemed slow compared to the way other news stories have spread this year, confirmation of the agreement regarding additional agricultural imports between China and Brazil was received. As we discussed yesterday, the two countries have been working on an agreement since December of 2020 so it is not a new development, though one could argue recent developments in global grain trade may have expedited negotiations.


As mentioned in yesterday's notes, it appears upwards of 10 mmt of corn will be allowed to move from Brazil to China, markedly changing previous flow patterns where the U.S. and Ukraine were China's only supply options. Of course, many were quick to point out work arounds used in the past where China may have relied on neighboring countries to facilitate imports from unapproved suppliers. Work arounds will no longer be needed, opening the door to Brazilian corn shipping direct into ports, potentially covering nearly half of China's projected new crop needs.

According to officials it will take nearly 3 months to finalize paperwork and meet requirements for export. Traders said shortly after the close that Chinese buyers had already booked a decent chunk of Brazilian corn for September/October shipment in anticipation of the deal. While already weakening based on decent new crop production outlooks and somewhat lackluster nearby demand thanks to lockdowns, Chinese corn prices managed to fall to 6-week lows overnight on the news. 

In addition to grain flows from Brazil, traders are closely watching what is taking place in the Black Sea as optimism is beginning to grow regarding a potential deal between Russia, Ukraine, and the UN to open a corridor for safe grain shipment. Though talk was tough out of Russia late last week and throughout the weekend, the country's foreign minister said today that talks to unblock Ukraine’s ports cannot be ruled out.

Other reports released overnight seemed to indicate a deal was nearly done, with some Ukrainian locals saying Russia is feeling a pinch created by its own design and will need to reopen the Black Sea as they work to rebuild the port in Mariupol destroyed earlier this month. China has stepped into the conversation as well, pushing Russia to allow grain shipments and offering its help to further facilitate negotiations. 

As of this morning, reports indicate Russia will allow humanitarian vessels to traverse the region, saying any additional openings would require a roll back in Western sanctions.

In other Ukrainian news, a well-followed consultancy group raised their new crop corn production expectations significantly from previous outlooks. At 25.2 mmt, the crop would still be substantially lower than last year's 42 mmt of production, but much higher than previous production estimates that were in the teens. Exports are expected to increase year over year according to the group, thanks to lofty old crop carryout combined with new production. 

Looking ahead, traders are going to be working to figure out just what China's approval of Brazilian corn will mean for the cash market in the months ahead. Brazil's second crop production potential has declined, though many analysts continue to believe overall production will be up nearly 25 mmt or more from last year. Cash and especially freight markets continue to indicate sluggish export demand out of the Gulf into the summer, though why values are weak could be debated. 

As mentioned yesterday, China has around 200 million bushels of old crop corn on the books to move out of the U.S. by the first of September, and if last week's shipment pace is any indicator, they intend to take it. However, new crop demand remains lackluster at best, with China only having around 2.7 mmt of new crop purchases on the books versus the nearly 10 mmt they had on the books by this point last year. 

While Brazil's presence in the Chinese market may not do much when it comes to old crop corn, it is likely to be very noticeable next year, especially if we see Ukraine able to ship current backlogged supplies.

We will get updated ethanol and energy figures this morning. Traders expect relatively strong production to continue but will be watching gasoline demand closely to see if record high fuel prices are further curbing demand.

Today is going to be a very important day for corn as we traded below two very important support levels in both July and December corn overnight. Those supports held and prompted buying yesterday but we will need to see the same happen today to keep the markets from opening the door to another leg lower. Technically corn performance is poor and seasonally we tend to see another 3 weeks of relatively rangebound trade before we head lower into July.


Corn down 8 to 12

Beans down 10 to 15