Perspective: Morning Commentary for March 21

By: Arlan Suderman, Chief Commodities Economist

Mon, 21 Mar 2022, 13:29

Perspective: Morning Commentary

Arlan Suderman

Chief Commodities Economist

March 21 – Stocks came under pressure overnight, mostly led by selling of Boeing stock following the crash of one of its planes in China. Stocks were otherwise mixed in overnight trade, with Wall Street monitoring the lingering war in Ukraine while also assessing the Federal Reserve’s effectiveness in taming inflation. The VIX is trading at levels last seen before the Russian invasion of Ukraine, near 25, while the dollar index is trading near 98.3, with yields on 10-year Treasuries trading near 2.24%. The broader commodity sector saw mostly positive money flow overnight, with both the Energy and Ag sectors moving higher. Crude oil prices traded well over $109 per barrel overnight, while strong gains were also seen in the grain and oilseed sector.

The war rages on, as Russia steps up its attacks on the people of Ukraine. Money rotated out of the Ag commodities at times last week as chatter of peace talk progress raised the prospect of a resolution. But Wall Street is more skeptical of a peace agreement today, giving it reason to reinstate risk premium into both the Energy and the Ag markets. While it is true that Russian forces have been bogged down in their attempts to conquer Ukraine, that seems to have emboldened President Putin to be even more brutal in leveling the country, with a “win at all costs” mentality. That suggest that this war will get worse before it gets better, creating even more challenges for feeding the world, with implications for global energy supplies as well.

Some commodities are flowing out of the region. U.S. companies started shunning Russian oil a couple of weeks ago, with the ban becoming official last week. Meanwhile, European countries remain split over banning Russian energy, meaning that both crude oil and natural gas continue to flow west out of Russia into some NATO members. Grain continues to flow as well, albeit it at restricted levels. It’s now estimated that Russia may be able to ship 2.2 million metric tons of wheat through its eastern Black Sea ports not directly impacted by the war, which is more than double the amount expected. Little Ukrainian wheat can be shipped though, still leaving the world wanting for milling wheat supplies. The global situation may not be as tight as first feared, but it is still tight. Keep in mind that global supplies of milling wheat coming from the world’s major exporters was already snug before the war began.

Ukraine still aspires to harvest the equivalent of 70% of last year’s corn crop this year. It can feed itself with the grain stocks that it has, but the primary question continues to revolve around its ability to be a major global exporter to supply the world’s needs. The Ukrainian Agribusiness Club reports that several companies exported their first supplies of feed corn via land over its western border amounting to several thousand metric tonnes in volume. They estimate that they can export 600K tonnes of grain per month in this manner, although that’s equal to just 10 – 15% of their previous export capacity. Nonetheless, the shipments are an essential part of the process, providing funds for financing the purchase of crop inputs for this year in case they have the opportunity to plant a crop.

Managing inflation risk remains a priority for Wall Street fund managers seeking to protect their portfolios from eroding real values. Friday’s CFTC commitment of traders report revealed that index fund managers were busy adding corn, soybeans, and wheat to their portfolios in the week ending March 15, leading up to the Fed’s latest monetary policy meeting. In other words, index fund managers were busy adding to their inflation risk protection as expectations softened over the size of the Fed’s anticipated rate hike. Index fund managers added 122 million bushels to their net ownership of corn, bringing it to 2.335 billion bushels. They also added 68 million bushels of soybeans to their net positions, bringing their total to 1.040 billion bushels. Net index fund ownership of Chicago wheat jumped by 34 million to 827 million bushels, while Kansas City wheat ownership rose by 30 million to 327 million bushels. These are large one-week gains for index fund ownership at this time of year.

U.S. soybean FOB values at the Gulf softened back below Brazilian values again, which may lead to some more export sales this week. In fact, we’re seeing significant discounts for immediate shipment, although freight still gives an edge to Brazilian supplies. Nonetheless, it reflects the tight South American supply situation that continues to boost export demand for both old- and new-crop U.S. supplies. Drought stricken areas of the Central Plains received spotted soaking rains late last week, with more general soaking rains expected this week. That should boost winter wheat ratings in the region next Monday, although we’ll need to see a repeat of the above on a weekly basis over the coming month to change the longer-term pattern, and that’s not currently in the forecast.

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Mike CastleTue, 04 Aug 2026, 14:58

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