- HEADLINES: Recession worry increases as fund related selling increases across all asset classes; Bottoms are formed on fear.
- The Sky is Falling!
- Chicago futures are sharply lower at midday with corn, soybean and wheat falling to double digit losses as a host of asset classes are in freefall. The US DOW has lost another 700 points amid growth/recession worry while crude oil has fallen to $98/barrel, down a sharp $9.00. Whether it be stocks or commodities, the trade has been to sell returning from the US July 4th holiday. The US$ has reached a new rally high on a flight to safety.
- Amid the sharp price drop in Chicago values in the past 2 weeks, traders suggest that the “sky is falling” and that a comment from US Fed Chairman Powell that the US Central Bank will get inflation back to the 2% target through rising interest rates continues to ring in the ear of investors/traders.
- The ongoing fear is slow growth and recession, and a future drop in demand. Can the US Central Bank put the economic genie back in the bottle to cure inflation at a time of war in the Black Sea. The worry about a landscape of rising interest rates and a slowing US economy has sent grain markets into a tailspin amid reduced liquidity.
- Yet, the cash grain markets are holding far better (than futures) as indicated by the July-Sept corn spread pushing out to a $1.50 July premium. The cash market is holding on demand amid profitable margins in ethanol, renewable diesel, and biodiesel. US farmers have shut down cash selling amid the 2-week market freefall in both old and new crops. Historically, trading bottoms tend to occur in the days following the July 4th holiday. WASDE will be using their update seeding estimates in their July balance sheets, and the 2.7 million bu decline in US soy seedings will be difficult to overlook.
- Stats Canada estimated 2022 total wheat acres at 25.4 million acres of wheat (up 8.7% or 2 million. acres from 2021) with canola seeding at 21.4 million acres (down 5% or 1 million acres). Oat seeding was 3.97 million acres or up 550,000 acres. The wheat and oat seeding data was viewed as slightly bearish, while canola acres were slightly bullish. Canada will face another year of exceptionally tight canola stocks/supplies.
- The Russian Ruble has had a 10-cent range today with an early day low of 55 cents and high of 65.5 cents vs the US$. The weaker Ruble has jolted the export tax rate upwards by $30/mt, which would normally be bullish to world wheat. But in a day where everything is being sold so hard, the information is being passed over amid the fear of a pending recession. Chicago grain and world financial markets have already digested a bad recession (that has yet to be christened). The US may be in a recession already, but this just makes the FED’s battle against inflation all that more difficult. Be prepared for wild swinging financial and commodity markets. A recession today makes their fight against structural inflation more difficult.
- The midday GFS weather forecast is similar to the overnight run with a high pressure ridge to retrograde west to a position over the Intermountain West which maintains hot/dry weather over the SW Midwest and the S Plains.
- The Upper Midwest enjoys ridge riding rainfall with totals of 0.75-2.00”. The GFS forecast keeps the mean position of dangerous high pressure aloft across the Southern and Central Plains, with the jet stream lifting northward into Canada in the 8–14-day period. The shifting of the ridge back and forth from the Plains into the SW Midwest will cause fresh episodes of heat/dryness across the W Midwest and the Plains.
- Margin calls have pushed Chicago grain values to sharp losses on economic recessionary fear. November soybeans are testing $13.00, December corn $5.70 and September Chicago wheat $8.00. Recessions have historically not produced big drags on US grain demand, but combined US exports of just 44 million bu has caused nearby trade worry. Based on new crop corn prices, we calculate that US ethanol producers are making $2.30/bu and renewable diesel producers $2.70/gallon. Grain fundamentals are bullish, but macro-economic concerns are in their way. Be patient with sales, a sharp recover will ensue once recessionary worry lows are scored in the coming days. US labour hiring is active.