Perspective: Mid-Day Commentary for June 2

By: Arlan Suderman, Chief Commodities Economist

Thu, 02 Jun 2022, 16:36

Perspective: Midday Commentary

Arlan Suderman

Chief Commodities Economist

June 2 - Today marks the 99th day of Russia's war on Ukraine. Wall Street isn't as moved by the headlines as it was several months ago, but the commodity markets still feel the impact. Stocks initially felt the pressure from hawkish comments flowing from Fed members, but buying pulled them back into the green as the morning progressed. The VIX traded below 25 to a fresh six-week low as we approached midday. The dollar index is notably lower today as it trades near 101.8. Yields on 10-year Treasuries are trading near 2.92%. Crude oil prices recovered from their sharp overnight losses to trade nearly 2% higher as we approached midday. The Ags were mostly higher at midday as well, led by soybeans and wheat. Soybean traders continue to focus on tightening old-crop stocks following the sale of 12.9 million bushels (mostly new-crop) to Pakistan overnight, as buyers extend coverage on fears of possible tighter supplies. Wheat prices bounced sharply earlier today, following this week's big sell-off, although prices are well off their highs again on fears that Ukrainian grain may finally be freed up at its ports.

Will Ukrainian grain soon flow from its ports? That continues to be the question that the markets are wrestling with today. Many countries certainly want to see it happen, amid concerns that food shortages could result in widespread social unrest that could topple some governments. Russia's Defense Ministry was quoted today as saying that it would not take advantage of the demining of Ukrainian ports, but can it be trusted? News reports say that Ukraine is supportive of efforts that would demine its ports and allow grain to flow again from them. More than 20 million metric tons of grain are said to be locked up in those ports, which would provide revenue for Ukraine. But can it trust Russia not to sweep in with its warships to seize the ports once the demining is done, fulfilling its stated desire earlier this spring to control the ports. I'm sure it would be happy to export the grain contained in the ports if it received the revenue for it. Turkey appears to be a central cog in making this happen, if it is going to happen, setting up a command center to oversee the demining of the ports, as well as the safe passage of ships. Russia says that it will escort grain ships safely from the ports with its warships if all of this happens. So the warships would be allowed to enter the ports to "escort grain ships safely away from them?" Call me a skeptic. Nonetheless, the headlines were enough to slow today's buying in the corn and wheat pits.

U.S. commercial crude oil inventories (not including the Strategic Petroleum Reserve) fell by 5.1 million to 414.7 million barrels in the week ending May 27, putting them 15% below the five-year average for late May. Gasoline stocks dropped by 0.7 million barrels, leaving them 9% below seasonal levels. Distillate stocks fell by 0.5 million barrels, and they are now 24% below levels typically seen in late May. Ethanol stocks fell to 23.0 million barrels in the week ending May 27, down from 23.7 million the previous week, but up from 19.6 million barrels in the same week last year. The drop in stocks came despite a rise in production to 1,071K barrels per day last week, up from 1,014K the previous week, and up from 1,034K barrels per day in the same week last year. Ethanol prices are trading more than $1.25 per gallon below gasoline prices on the board, while corn prices are well off their highs to improve margins. The production of ethanol utilized an estimated 106.8 million bushels of corn last week, as shown below, up from 101.1 million the previous week, and up from 102.4 million the previous year. Estimated marketing year to date corn use for ethanol production totals 3.948 billion bushels, up 265 million or 7.2% from the previous year's pace, although down nearly 25 million from the seasonal pace needed to hit USDA's target for the year.

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