- HEADLINES: Markets plunge on US$ strength; Chinese Covid lockdowns expanding.
- Chicago grain futures are lower at midday, led by wheat on a percentage basis, as macro fears continue to spill into the global ag marketplace. The US$ Index has found a newer 20-year high, which has pressured the €uro along with both exporter and importer currencies. This in turn boosts competition with S America for export demand, while on paper the erosion of purchasing power in many grain importing countries leaves open questions regarding demand growth in crop year 2022/23. The Dow at midday is down 130 points, with crude down $2.30 at $87.30. Spot RBOB gasoline for Oct-Nov delivery has fallen to $2.36-2.41, which likely slows the recent rally in cash ethanol markets.
- US and global grain balance sheets lean bullish, but markets over the next several months will be forced to contend with recessionary fears along with ongoing uncertainty over the Black Sea’s contribution to global trade flows. More focus is being placed upon the coming winter in Europe, and 14-year high natural gas prices will further weigh on discretionary spending there. Central Banks’ war on inflation will also keep speculative interest in ag markets lacking, which implies futures will be led by slower-moving cash markets over time.
- Ukrainian corn fob basis this morning is quoted even to $0.05 over Dec Chicago futures. S American fob basis continues weaken, suggesting global corn flows are being modestly disrupted. We maintain that Ukrainian corn exports in Sep will be no larger than 1.3-1.8 million mt, but it is the cost of execution that has muddied Chicago since the middle of last week. Corn/wheat demand concerns have been compounded by the lack of weekly export sales data, and in wheat especially US weekly export sales will be the best proxy for measuring non-Black Sea demand. Both Russian and Ukrainian wheat shipments remain sluggish, but the market today has trouble proving/disproving whether other exporting countries are filling the gap. Egypt secured another two cargoes of Russian wheat via direct deals.
- Yet, FAS did announce another 396,000 mt of US soy to unknown destinations. In the last 7 days, US exporters have sold 973,000 mt of soy to China/unknown, and when released, export sales in the week ending Sep 1 are likely to 1.2-1.5 million mt. US soy export demand is rising seasonally as China becomes more active amid rising meal trade, firm hog prices and a rising broiler market. China still must price a sizeable portion of its autumn/early winter soy needs but amid ongoing Covid lockdowns, and associated changes in near-term diets, growth in demand is needed amid the potential for a record/near record US soy yield. An estimated 40 million people in China are stuck at home.
- Additional rain is forecast across the southern quarter of Brazil’s soy belt in the next 10 days, and producers in RGDS and Parana will begin seeding soy in a matter of 2-3 weeks.
- StoneX will release its updated corn yield estimates after the close. Following Pro Farmer’s tour last week, private corn estimates have been cantered at 170-173 bushels/acre, with soy at 51-52.
- The midday GFS weather forecast has shifted Southern Plains rainfall north and eastward with soaking totals of 2-7” forecast across N TX, OK, far eastern KS and even sections of W IA Sep 8-10. The Midwest outlook is consistent. Light showers will reach into the mid-South and southern Midwest this weekend. Above normal temperatures will blanket the entire Central US throughout the next 10 days. Tropical Storm Danielle has no chance of making US landfall and two additional disturbances are forecast to move northeast prior to hitting the US east coast.
- With raw materials no longer the hedge against inflation that they were a year ago, balance sheet tightness must be seen/felt more clearly to encourage active fund participation. The burden being placed upon S American weather this winter is enormous and there is potential that US corn supplies must be rationed, but the commitment of Central Banks worldwide to fighting elevated food/fuel costs is a headwind. Expect sizeable volatility to continue.