Morning Comments September 20, 2021

Sillouette Sunset Location Rail

Markets are quite a bit weaker this morning as worry over just what is taking place from an economic standpoint in China is starting to spill over into all other markets around the globe.

Though mainland China, Japan, and South Korea were on holiday Monday, Hong Kong markets were open with broad selloffs happening in both bank and real estate developer stocks. Overnight, Chinese property developer Sinic Holdings saw their stock drop 87% with the company's top brass saying pay cuts of up to 70% are in the works for those holding the title of Vice President. 

Others claim banks in Hong Kong are incredibly exposed to much of this bad paper and quite possibly overleveraged. 

Similar to what we saw in 2008, this is likely only the beginning as the tendrils of investment begin to unravel and we discover just how far out this contagion could spread. Here in the U.S., the dollar is stronger overnight with outside market futures poised to open lower. 

Of course, some still hold out hope the Chinese government will step in and put a stop to all of this, but at this point the silence from the country's leadership on the matter is deafening.

Outside of a possible global economic meltdown, we are watching harvest start to really ramp up across the country. Yield reports for now are generally mixed with some talk of lower-than-expected yields in the Eastern Belt being offset by some higher-than-expected yields in the Western Belt. 

Of course, much of what is being harvested in the Eastern Belt has raced to maturity over the last couple of weeks due to dryness, warmer than normal temperatures, and disease. It will be interesting to see if yields continue to disappoint in some areas once we get through the initial “I better harvest this or it's going to go down" stuff.

The 6-10- and 8-14-day forecasts are calling for mixed temperatures but below normal precipitation into the first week of October; this is helping to really ramp up harvest pace and replenish the pipeline. 

There has been a lot of chatter as of late regarding the continued strength in basis and recent firmness in spreads. Lots of folks like to point to last year saying this is an indication that we have again overestimated production potential or are perhaps seeing more demand than anticipated. 

In reality, with less than 5% of the bean crop harvested and around 10% of the corn crop harvested, these claims would be at least 2 weeks premature. How the market looks when we're close to or over half harvested will be a far better indicator.

Looking ahead, we will get updated export inspections this morning at 11 Eastern. With the Gulf still working to get back online we are expecting another lackluster figure across the board. Crop progress will be updated at 4 p.m. Eastern today as well. Conditions don't mean much anymore with percent harvested taking center stage. 

Today feels like it could really get messy fast. There have been a lot of signs floating around these last few months that the global economy built on continued Chinese growth was a bit wobbly at best. 

Of course, it has only been 13 years since we experienced the 2008 mortgage crisis. For those that experienced it first-hand, it's incredibly fresh while those who may have been too young there are a ton of movies depicting what took place behind closed doors and how it affected everyone as a whole. 

I would not be surprised to hear a lot of 'risk off' talk throughout the day today as we wait to see what measures China will take to stop this contagion from spreading.

In addition to risk-off as a whole, we're likely to see continued harvest pressure in both corn and soys. $12.70 and $5.00 continue to be key support levels for both markets, with a close above both necessary to keep us from seeing further big time selling develop this week.