Morning Comments May 27, 2022

Agronomy Sprayer

Thanks to a surge in beans and strength in energies, corn and wheat fought their way back from dismal morning starts yet again yesterday, recovering most of their initial losses. On the day we saw July wheat finish down 5 while spring wheat closed 11 higher. July corn was down 7 with December corn down 4. July soybeans closed 45 cents higher, with November up 32.

Much of the initial strength in beans appears to have come from a pretty epic unwind of funds who had entered into a long corn/short beans spread after the surprise reduction in corn acres from expectations in the March plantings report. With corn acreage as low as it was compared to beans, many traders were under the impression the ratio between the two would have to adjust in such a way it would incentivize corn plantings for the sake of beans.

The corn/bean ratio tends to run around 2.48 on average, meaning soybeans are trading 2.48 times what corn is worth. At one point recently, that spread got down below 2, which is historically low and an indication a correction was likely imminent, especially as it is late enough in the season now, incentive no longer matters. The recent correction has brought us more in line with what you could expect with the current fundamental picture, though at 2.13 one could argue December corn is overpriced or November beans are too cheap, depending of course on whether they are bullish or bearish at this juncture.

With yesterday's move, we now see both old and new crop beans within pennies of their contract highs. 

Outside of strength in beans, we saw more headline risk enter into the wheat and corn markets as traders try to gauge what Russia will do when it comes to freeing up Ukrainian grain exports. Even Putin addressed the situation yesterday, saying Russia is willing to open up all Ukrainian ports for exports, so long as the sanctions impacting Russia's exports and banking are lifted. 

While the UN has indicated in the past they are willing to look at sanctions and make potential adjustments, the U.S. remains steadfast that sanctions will not be rolled back until the invasion of Ukraine has stopped. Russia has found themselves making gains in some of the far eastern regions of Ukraine however, with one oblast reportedly 95% controlled by Russian troops. This progress is only emboldening Russia, making them unlikely to stop their aggression in the region any time soon.

Production potential for both countries remains better than anyone had anticipated in mid-March, but without the ability to actively ship grain out of either country with ease, supply availability from a global standpoint will remain limited.

Export sales released yesterday morning were pretty disappointing across the board for grains, with Chinese cancellations seen in both corn and milo. Soybean sales were decent considering we have already hit the amount needed to meet current USDA expectations, though a 108,000 tonne cancellation from China was a bit concerning. 

New crop bean sales were decent as well, as we have our largest amount of new crop sales on the books ever for this time of year. Interesting to note, however, much of the surge in business was thanks to Chinese purchases made in late March and April, with the U.S. having not sold a new crop bean to China in nearly a month.

Developments in the Brazil/China corn story continue to roll in, with traders now saying Brazil must work with Chinese officials on approving GMO traits and that until that is done only non-GMO corn will be allowed to ship. Brazil, much like the U.S., relies heavily on GMO corn strains, with a limited non-GMO program. While the approval is likely to happen quickly, many remember problems with unapproved traits in the past and may be less likely to dive into business with China until a smooth process in doing so is apparent.

Looking ahead, the cash market in the west for corn and across a good part of the country for beans has been incredibly strong as of late, as the easy bushels have been bought, freight is incredibly tight, and the farmer is in the field. Values are working their way high enough now in parts of the Western Belt where commercials will be able to make themselves whole after volatile moves in late February and early March put many of them out of position on their inventories.

On beans, it appears values are trying to work high enough to reduce demand as some question whether the bean supply is really there, or if it just happens to be in the wrong place. Farmer selling in Brazil remains slower than average, keeping their export offers stout, though rallies like we saw yesterday tend to bring about a good amount of sales. 

Weather wise, we will see another day or two of open planting windows in the Northern Plains before rain returns to much of Minnesota and North Dakota. Record progress is expected to be seen in both states in Tuesday's crop progress report, though it is likely they will remain well behind average. After the last bout of rain today, the Eastern Corn Belt is expected to dry out to allow folks in the region to work towards completion as well. Farmers in the Western Belt have most of their crop in, and so far, are happy with how it looks.

Markets are closed Monday for the Memorial Day holiday.

Corn down 2 to 5

Beans down 2 to 5