Perspective: Mid-Day Commentary for February 28

By: Arlan Suderman, Chief Commodities Economist

Mon, 28 Feb 2022, 17:54

Perspective: Midday Commentary

Arlan Suderman

Chief Commodities Economist

February 28 - Negotiations held on the Belarus / Ukraine border broke down today, with the two sides far apart. Yet that didn't surprise many on Wall Street. The tech sector managed initially to continue its bounce after posting a technical reversal on Thursday following major losses, although it turned lower again midday, while the Dow & S&P remained under pressure. The VIX is trading near 31, reflecting Wall Street's anxiety levels. The dollar index is trading near 96.9, while yields on 10-year Treasuries are trading near 1.87%, suggesting that we're still seeing some money flow to the safe-haven assets. Crude oil prices are up 4%, while the Ags are mostly higher largely on the Russia/Ukraine story.

Ukraine reports damage to several of its ports, with 100 foreign-flagged ships stuck in ports due to the ongoing fighting. Ukraine officials refuse to speculate on the extent of the damage, because it is still occurring as Russian forces use the ports to enter the country, doing structural damage as they do so. Strategically, many of these ports along the Black Sea appear to be a priority for Russian forces that they would want to hang onto in peace negotiations, although President Putin's overall desire seems to be conquest of the entire country. Yet, his forces continue to encounter stiff resistance from both Ukraine's military and its civilian population that remains determined to stay free.

Wheat continues to trade expanded daily limits, with corn hitting its daily limit today. Today's markets are trading the fear that available supplies on the world market will remain tighter for the foreseeable future without the presence of supplies coming from the Black Sea, let alone the rapidly rising risk that spring crops will not be planted in Ukraine due to the conflict, even if the fighting stops. Don't expect an immediate increase in U.S. exports as a result, as cheaper supplies are available for many of these commodities due to the strength of the U.S. dollar. However, demand for U.S. commodities is expected to increase later in the year as those alternative supplies dry up. One piece of that puzzle should receive more answers this week as updated private production estimates begin to flow out of Brazil once again ahead of next week's USDA WASDE report.

USDA inspected 60.8 million bushels of corn for export shipment in the week ending February 24, as shown in the graphic below, along with 27.0 million bushels of soybeans, 14.9 million bushels of wheat, and 5.8 million bushels of grain sorghum. Of those totals, the portion destined for China included 13.6 million bushels of corn, 16.4 million bushels of soybeans, no wheat, and 5.6 million bushels of grain sorghum. Marketing year wheat shipments to date are on pace to hit USDA's target, while grain sorghum shipments to date exceed the seasonal pace needed to hit USDA's target by 4 million bushels. Marketing year corn export shipments to all destinations fall short of the seasonal pace needed to hit USDA's target by 100 million bushels, but the deficit is rapidly shrinking as China picks up the pace of taking shipment on the massive purchases it made a year ago. Marketing year soybean export shipments to date fall short of the seasonal pace needed to hit USDA's target by 22 million bushels, although a strong shipment pace in the final two to three months of the year is expected to take care of that if current low production estimates in Brazil are verified.

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