Perspective: Mid-Day Commentary for July 28

By: Arlan Suderman, Chief Commodities Economist

Thu, 28 Jul 2022, 16:10

Perspective: Midday Commentary

Arlan Suderman

Chief Commodities Economist

July 28 - "There's nothing new here" in the eyes of Wall Street traders. They anticipated a recession, and they got a mild one. They expected yesterday's Fed actions, and policymakers made no comments to increase their concerns. In fact, they believe that we're at the cusp of turning a corner. Stocks often start their rally in a recession - looking forward - and yesterday's State Street Investor Confidence report showed institutions starting to put money back into U.S. equities. The VIX traded near 22 this morning, while the dollar index is trading near 106.5. Yields on 10-year Treasuries are trading near 2.69% - at three-month lows. The broader commodity sector, however, remains supported on lingering supply / inflation concerns. The grain and oilseeds specifically are focused on rising heat and dryness signals for the Midwest in first half of next month.

Reuters reports that Egypt released two grain companies this week from their obligation to deliver wheat purchased from Ukraine in December totaling 8.8 million bushels. The price at the time was reported to be roughly $9.42 & $9.80 per bushel, including shipping costs. A fifth cargo was not released, as it is stuck in Ukraine's Chornomorsk Port, but it is expected to receive the green light to leave port under the recently signed agreement in the days ahead. Nearly 100 ships were stuck in ports when the war started in late February. Those ships are anxious to leave port, loaded with grain, once they get the green light to do so. Lloyd's of London and brokers are reportedly preparing to cover the cost of insuring ships leaving the ports, with the details expected to be announced soon. Insurance premiums rose to as much as 5% of the value of the ship after the war started, up from 0.025% previously. The next question is, how many of those ships and their crews will be willing to return for another load of grain?

High pressure in the Gulf of Alaska is expected to break down starting this weekend, allowing a low pressure to develop there, while taking us back to the pattern that prevailed for much of July prior to this week. That means that the main high-pressure ridge over the United States will shift back to the east to anchor itself over the Central Plains, stretching east across much of the Midwest. The graphic to the left below highlights a couple of key crop areas that are expected to come up short on moisture in the next 15 days, as intense heat rebuilds in these same areas. The graphic on the right shows that these same areas came up short over the past two weeks as well. Much of Texas is already under drought conditions, which is currently having an adverse impact on the cotton crop down there, while the current fear is that flash drought could develop in key production areas of the western Midwest. We don't anticipate that it will be totally dry in the Midwest, as some thunderstorm clusters will likely develop during the period. However, overall rainfall is expected to fall far short of evapotranspiration rates, adding stress to crops as they go through late pollination and early grain fill for corn, and through early pod set and fill for soybeans.

Areas that missed good rains past 14 days (right) will largely miss out next 15 days (left) as well. SOURCE: ECMWF, WeatherBELL & Nutrien

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