Morning Comments September 22, 2021

Grain Corn Pile Closeup

Markets are a touch firmer this morning across the board. There was lots of chatter overnight as China returned from their 4-day holiday and got down to business looking to find a solution on just what to do with Evergrande. 

The heavily in-debted Chinese property developer also reporting they will meet an 83.5-million-dollar obligation due Thursday even after missing a chunk of payments Monday helped market watchers feel a touch better as well.

As mentioned, there are a lot of different headlines floating around as the day wraps up in China and ours here in the U.S. is set to begin. First and foremost, in a not so surprising move the Chinese government injected nearly 18.6 billion dollars into the country's banking system. This is the second such injection over the last week, with a similar dose of cash given out Friday before the extended holiday.

Many familiar with the Chinese economy say the fact China is injecting cash into the banking system isn't unusual at month end, especially ahead of a weeklong holiday in October, though the amounts are a bit larger than we would typically see.

In addition to the cash injection, rumors are beginning to circulate that the Chinese government has been in talks with Evergrande over the last week looking to possibly break the company into parts and take over the pieces it wants. This would be an interesting flex but not a surprising one, encourage growth through debt, change debt policies, watch to see who struggles then make the largest holder of debt and properties a state-owned company and move on to the next industry.

While this move to take the company over would benefit Chinese nationals promised properties or caught up in the financial products scandal that is just coming to light, it could keep USD bondholders and shareholders vulnerable. So, while China may save its own interests, those investing in the country on the outside still have the potential to get burned. 

For many, there will be questions as to why this matters, especially when it comes to commodity markets, but what happens in China from an economic standpoint has an incredible impact on future commodity demand as well as other geopolitical ramifications we could see if economic weakness were to spread elsewhere. 

While a certain level of global demand is static, much of the run-up in price last year came from the increased demand in China, with support still coming from the idea they are going to take in a much larger than normal amount of grain in the year ahead. Anything that would change that outlook on the demand side could definitely take us from incredibly tight stocks to use ratios to feeling comfortable when it comes to supply seemingly overnight. Continued developments there will remain important.

Speaking of Chinese demand, everyone is expecting a large amount of soybean purchases to come to light this morning with the return of Chinese grain traders to their desks. Though hog prices remain poor with crush margins continuing to bounce between negative to barely breaking even, the Chinese crusher still needs beans in the short-term and will likely remain a steady buyer. 

The South American forecast continues to call for rain to fill in the Central parts of Brazil over the weekend. If realized, it's likely we could see planters roll a bit sooner than normal as prices in the country are doing their best to encourage the producer. In addition to sooner availability when it comes to earlier planted soybeans, an early start will be seen as beneficial to second crop corn production there as well.

Here at home, parts of the country are seeing harvest remain on hold as rain falls. The far eastern Corn Belt is expected to see the largest precipitation amounts with 4-5" expected to fall across parts of Ohio into Michigan. Other areas may be down a day or two before being able to get back into the fields. Drier and more seasonable weather is expected in the 6-10- and 8-14-day forecasts.

Looking ahead, we will get updated ethanol production figures this morning. Beyond that we will be waiting to see just what China booked overnight.