Morning Comments October 22, 2021

Combine and Tractor in the field for Soybean Harvest

The markets are basically giving back all they had gained on Wednesday as we continue to hear rumors of further crackdowns in commodity speculation around the globe.

In what tends to be the final act in an inflationary rally, we are starting to see and hear concern from government entities around the world that speculation in commodity markets and their subsequent influence on consumer prices will be dealt with. 

The Chinese government began their crackdown on commodity speculation when it came to grains earlier in the summer and is now doing the same in the country's energy sector. Changes in rules, position limits, fee structures and other regulations have forced many on the buy-side of the market to exit their position and take their cash to the sidelines. 

Since the announced changes in regulations at the start of the week Chinese coal futures have lost 28%. 

Rumors India would suspend futures trading for vegetable oils and other valuable commodities had folks moving to the exit in palm oil futures there as well. The move lower in Malaysian palm futures after recent highs spilled over into soy oil yesterday, adding even more pressure to the bean complex.

Interesting to note, a Wall Street Journal article yesterday indicated the increase in both food and energy costs impacting the consumer substantially now. Some claiming we are nearing peak inflation, while others feel supply chain issues and logistical headaches will keep prices supported well into 2022.

On the export side of things, soybean sales were a marketing year high for the week at nearly 3 million metric tons sold. This at face value is phenomenal and encouraging as we are seeing the hurricane ravaged Gulf get back on its feet.

However, back of napkin math done by certain experts and analysts in the industry indicate we are still well behind the pace we would like to see to meet current USDA export expectations. With Brazilian planting pace off to a nearly record start there is some concern our export window could also be much smaller than we have grown accustomed to, with talk of new crop beans being ready for export by the New Year.

Based on typical pace, current sales, and global market cues some in the industry feel we could miss the current USDA export target by upwards of 200 million bushels. With the idea production needs to increase again thanks to continued better than expected yield reports, the same folks analyzing export pace feel production could increase by 100 million bushels as well.

The two together would increase carryout substantially from current estimates without a large gain in crush, which is limited in the short-term due to capacity constraints. Overall, based on what many are seeing, continued strength in oil and crush margins will provide support, but from an overall fundamental standpoint we will be likely hard pressed to see a substantial or sustained move to the high side. 

Corn export sales were better than expected, with the lion's share again going to Mexico. Government officials there are making it clear that while they will limit the use of GMOs in their domestic corn production, they will still import GMO corn from the U.S. and other suppliers. 

Wheat exports were in line with expectations but still slow comparatively speaking on the week. Officials in Russia increased their export tax $5.70 a tonne this week to $67/tonne. Farmers and exporters there are getting increasingly angry, while the consumer is happy domestic supply remains adequate. 

The continued idea Russia will work to limit exportable supplies is keeping wheat prices supported, though many seemingly are ignoring the fact that Ukraine will be able to cover their shortfalls and then some. 

Looking ahead, we will continue to watch the energy sector and inflationary expectations. As we've said before, fundamentally speaking it's going to take months to figure out what demand looks like as a whole, leaving us at the mercy of day to day moves and moods of investors.

Corn 4-5 higher

Beans 2-3 higher