By: Craig Turner, Senior Risk Management Consultant
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MACRO MARKETS | EU energy prices are nearly ten times higher than they were in the beginning of 2021. The energy crisis Europe is facing will most likely get worse this winter. Small businesses are seeing energy costs increase to levels that will cause many of them to shutter their doors. Higher energy prices, lower economic growth, higher unemployment, inflation, and increasing interest rates can put any nation into a deep recession. Global recession concerns and demand for commodities are likely to keep a cap on ag market rallies going forward.
GRAINS | Wheat and corn are following oilseeds lower today. The PF yield estimates have been priced in and a bull market needs to be fed every day. Looking over the horizon traders see harvest around the corner, possible recessions in the US/EU/China, and central banks aggressively increasing interest rates to fight inflation. Demand expectations may be too high if the world economy falls into a recession. The markets in the short and medium term are all about trading catalysts; the next few weeks offer little bullish news for wheat and corn. US HRW wheat harvest advanced to 50% with final GD/EX ratings improving 1% to 68%. Winter wheat seedings will start in a few weeks. Ukraine reported 1.5 MMT of grain shipped out so far due to the grain export corridor agreement. Ukraine's Ag Ministry sees exports rising to 6.0-6.5 MMTs by October as ports reopen. If true then Ukraine will be at or very close to pre-war export capacity. This could be very bearish for wheat this fall and has the potential to drag down the entire grain and oilseed complex. Stats Canada estimates 2022 Canadian all-wheat production at 35.4 MMT, from 22.3 last year. Duram more than doubled at 6.5 MMT and spring wheat improves from 16.25 to 26.6 MMT. Canadian wheat should have a competitive advantage over US wheat due to the currency rate as the export season kicks off.
OILSEEDS | US soybean conditions stabilized yesterday at 57% GD/EX, the same as last year and 4% lower than the 51% five year average. The US soybean crop is on track with last years 51.4 bpa crop. The finishing weather will be better this year and the growing season will be extended. The trade will most likely estimate a 51.5 to 52.0 crop as we head into the fall. Stats Canada sees 2022 canola production at 19.5 MMT, up from 13.8 MMT last year. This is 1.1 MMTs over the last Principle Field Crops report which build in about 2.3 MMTs of demand rationing. The additional 1.1 MMTs of supply in theory brings down demand rationing to only 1.2 MMTs for crush/exports combined. Chinese demand could be weaker as they fall into recession and if that is the case their demand for oilseeds will be lower. There is a chance that canola will not need significant price rationing this marketing year and that could lead to $700 canola futures in 2023.
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A strong super El Niño has started, but the crop damage that would lift food prices is still expected to land between September and December. Indian wheat area and Southeast Asian palm oil production sit at the front of the transmission chain, with Brazil the larger unresolved question.
Damage to Black Sea ports has stalled grain exports, but the more serious risk is now forming on the farm. Collapsed farmgate prices and a Russian fuel crisis have put part of the wheat harvest in question.
August 13 – The major stock indices traded quietly mixed overnight ahead of this morning’s weekly job numbers and producer price index data. Like Wednesday, this morning’s data was considered good as well, providing support for stocks while generally allowing Treasury yields to slip a bit lower. The VIX is trading near 14.4, which is just above yesterday’s new low for the year. The dollar index is trading near 99.8. Yields on 10-year Treasuries are trading near 4.64%, while yields on 2-year Treasuries are trading near 4.15%. WTI crude oil is trading near $81 per barrel, while Brent trades near $87 per barrel. Wheat prices again firmed overnight on geopolitical risks in the Black Sea Region, while corn and soybean prices pulled back modestly from yesterday’s big gains.
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