Perspective: Mid-Day Commentary for June 3

By: Arlan Suderman, Chief Commodities Economist

Fri, 03 Jun 2022, 16:24

Perspective: Midday Commentary

Arlan Suderman

Chief Commodities Economist

June 3 - The tech sector led the way lower on Wall Street this morning following a solid jobs report that raised fears of a more aggressive hawkish Federal Reserve. Little solace came from this morning's comments from President Biden, who suggests that high food and energy prices may be with us for awhile, adding further fuel to fears that the Fed will become even more aggressive in its monetary tightening in the months ahead. The VIX is trading near 25 at this hour, while the dollar index is firmer near 102.2. Yields on 10-year Treasuries are trading near 2.97%. Crude oil prices are nearly 2% higher as Europe continues to move forward on its efforts to ban energy purchased from Russia. Meanwhile, the grain and oilseed sector is again under pressure today amid more talk suggesting that an agreement is near for providing humanitarian corridors for the movement of grain out of Ukraine's ports. I'm very skeptical that we will see much happen on that front, but many traders are afraid of being buyers while the headlines are present.

World leaders just returned from the Davos Economic Summit, where they all gathered to fret about the threats to their power due to record high food prices, and the growing risks of shortages that could create heightened social unrest. This increased pressure to reach an agreement for humanitarian channels for moving food-based commodities out of Ukraine's ports. Russia is currently winning the propaganda war with the media, stating that it would be more than happy to allow the exports, and would even be willing to go into Ukrainian ports to "safely" escort grain cargoes through the Black Sea. It simply wants some of the more punitive sanctions placed against it by the West to be lifted. I do not see any momentum currently for the lifting of the major sanctions. If anything, the West is strengthening sanctions. Ukraine has also said that it would not allow Russian warships near its ports, as Russia has publicly stated that it seeks to control those ports. Turkey is heading up the negotiations, but a story broke today that buyers in Turkey have been acquiring grain confiscated from Ukraine storage facilities by Russian troops.

The U.S. Environmental Protection Agency is expected to finally come out with its blending mandates for 2020, 2021, and 2022 today. Reuters reports that the EPA is expected to issues 2022 volume mandates at 20.63 billion gallons, while putting 2021 at 18.84 billion and 2020 at 17.13 billion gallons. The 2020 number would be in line with its proposal back in December, while the 2022 numbers would be a bit lower than what was proposed in December. The EPA is also expected to deny all pending small refinery waiver petitions, but also allow for a longer deadline for complying with the requirements.

Next week is another pivotal week for the markets, starting with USDA's crop progress report on Monday, and followed by its monthly WASDE crop report on Friday. Tuesday's delayed weekly crop progress report suggested that 1.584 million corn acres remained unplanted when rains returned Sunday to North Dakota, along with another 1.404 million corn acres primarily in northwestern Minnesota and 868K in South Dakota. Little progress was expected for this week, following the recent rains on already wet soils. Some of these acres may dry out in time to plant soybeans, but soybeans don't exactly do well in many of these far northern areas either. We should see increases in prevent plant applications, although that probably won't reflect all of the acres since many farmers will top out their historical crop base for corn. I also wouldn't be surprised if we lost a half million corn acres in the South to cotton, based on returned corn seed.

Minnesota and North Dakota also had a combined estimated 2.724 million acres of unplanted spring wheat when the rains hit. Some of that will get planted, but certainly not all of it. Canola is also expected to be a popular substitute crop where possible. Some of this should show up in the June acreage survey to be released on June 30th, but many of the decisions will be made after the survey period. As such, I anticipate that USDA will need to conduct another survey of two to three states in July, with the results revealed with the August crop report. Furthermore, our sources tell us that USDA-FSA offices are so busy handling provisions of the CARES Act, that processing of farmer certification of planted and prevent plant acres may also be delayed this fall, leaving more ambiguity for the markets.

The market has known since the March 31 USDA planting intentions survey results were released that corn and spring wheat could not afford to lose any acres this spring. The market immediately tried to buy more acres of these crops, but our data suggests that it was largely unsuccessful in changing farmer intentions. The next question revolves around whether I believe USDA's low corn acreage estimate from March 31. USDA's corn planting intentions estimate of 89.5 million acres was 1.3% below my estimate of 91.1 million, so some would say perhaps that was survey error. Maybe it was, but I don't see enough hard evidence yet at this point to make that argument. As such, I have to assume that corn acres will be declining in future reports. How much is the question. I could make the argument for 2+ million acres. Regardless, U.S. and global corn balance sheets are expected to remain tight with a normal growing season. It gets worse if adverse weather emerges.

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Perspective: Mid-Day Commentary for August 7

August 7 – Stocks are looking to end a strong week on a strong note, with the major indexes all in the green at the time of writing. The VIX touched a nearly seven-month low earlier in the session and remains muted as it hovers just below the 15-mark as this morning’s ugly labor market data helps ease hawkish Fed jitters. The dollar has rebounded from its nearly two-month low earlier in the session but remains in the red on the day, trading at 99.55 at the time of writing. Treasuries have had a very volatile day, with yields tanking following this morning’s Non-Farm Payrolls release but bouncing back into midday, with 30-year yields now trading at 5.209%, 10-year yields trading at 4.654%, and 2-year yields trading at 4.204%. Crude oil has risen from the morning lows as traders eye the weekend market closure for potential geopolitical developments, with nearby WTI now down only 0.2% on the day to trade around $78.10 and nearby Brent breaking into the green, up 1.25% on the day to trade above $83.50. The ags are largely mixed, with the grains and oilseeds mostly in the green, save for a mixed picture in the soy complex, while live and feeder cattle futures move in opposite directions, with the former adding to yesterday’s sharp losses and the latter attempting a rebound.

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Grains & Oilseeds

Perspective: Morning Commentary for August 7

August 7 – The U.S. economy unexpectedly lost 23k jobs in July, dramatically below market expectations of an 80k increase and marking the worst Non-Farm Payrolls print since February. Furthermore, May and June were both revised sharply downward, with combined revisions showing 103k fewer jobs than previously reported. Outside of the healthcare sector, which added 22k jobs in July, the losses were very broad-based. Government payrolls saw the largest decline, shedding 53k jobs in July, the largest seen since October 2025, while June was revised down to show a loss of 10k jobs as well. The private sector at least saw growth, adding 30k jobs in July, now matching the month prior after it was revised down from the 49k initially reported, and substantially missing forecasts of 78k jobs being added. This is a sharp reversal in course from the largely better than expected U.S. labor data seen earlier this week.

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