Perspective: Mid-Day Commentary for May 2

By: Arlan Suderman, Chief Commodities Economist

Mon, 02 May 2022, 16:31

Perspective: Midday Commentary

Arlan Suderman

Chief Commodities Economist

May 2 - Fed week nerves continue to dominate activity on Wall Street today, as traders brace for anticipated changes to monetary policy when it is revealed Wednesday afternoon. The updated Fed policy, combined with comments made in the press conference 30 minutes later, will shape how fund managers view commodity supply and demand data going forward, while also monitoring ongoing Covid-related lockdowns in China, red-hot inflation and an intensifying war in Ukraine. The VIX continues to trade near 34 at midday, reflecting the elevated fear levels on Wall Street. That combines with a strong dollar just below last week's 19-year highs to create some headwinds for the broader commodity sector. Yields on 10-year Treasuries are trading near 2.99% at midday, which is their highest level in 3-1/2 years. Crude oil prices erased much of the sharp losses seen earlier today, and they are currently posting modest gains. Meanwhile the Ags are mixed, to notably lower, to start the new week.

Most of the grain and oilseed markets came under notable pressure overnight due to improved weather forecasts and those strong headwinds from the rising dollar and elevated fear levels reflected in the VIX. Wheat prices quickly erased overnight losses, led by Minneapolis. USDA is expected to confirm significant planting delays for the spring wheat crop this afternoon, which may lead to some acreage losses. However, the winter wheat markets continue to show modest losses as rains fill in a bit more of the dry areas of the Plains. It's likely too late for Oklahoma and Texas to see much yield improvement, although we could see some gains in yield potential north of there.

The weather outlook improved for the Midwest Corn Belt, with warmer and drier conditions seen in the 6- to 10-day period that should allow for some fieldwork to get accomplished. That led to active selling overnight, which has continued as the Algos pile on in today's trading session. On a related note, StoneX Brazil released its monthly customer survey production estimates this morning. It put this past year's soybean crop at 123.4 million metric tons, up from 122.0 mmt last month. All corn production was pegged at 116.5 mmt, down from 118.6 mmt the previous month. The summer corn crop saw a modest increase, which was more than offset by cuts in yield due to drought in the winter (safrinha) crop; especially in Mato Grosso, Goias and in Mato Grosso do Sul. We may see more adjustments in the June corn production estimate if the current weather pattern holds.

USDA inspected 66.3 million bushels of corn for export shipment in the week ending April 28, as shown below, along with 22.1 million bushels of soybeans, 14.1 million bushels of wheat and 8.6 million bushels of grain sorghum. The portion of the above loaded for shipment to China included 18.3 million bushels of corn, 8.5 million bushels of soybeans and 5.1 million bushels of grain sorghum. Marketing year to date shipments of corn exceed the seasonal pace needed to hit USDA's target by 32 million bushels, up from 4 million the previous week. Weekly shipments need to average just 50.3 bushels through August to hit USDA's target. Marketing year to date soybean export shipments fall short of the seasonal pace needed to hit USDA's target by 30 million bushels, and the deficit continues to shrink. Weekly soybean shipments must average just 19.7 million bushels to hit USDA's current target.

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