Perspective: Morning Commentary for March 22

By: Arlan Suderman, Chief Commodities Economist

Tue, 22 Mar 2022, 13:34

Perspective: Morning Commentary

Arlan Suderman

Chief Commodities Economist

March 22 – Stocks bounced overnight, following a modest selloff on Monday as Wall Street digested higher interest rate possibilities. Yet, the VIX remains near 23 this morning, where it has not traded since two weeks prior to the Russian invasion of Ukraine. So, while the Fed’s hawkish comments may have spurred selling on Monday, fear levels on Wall Street remain low, relative to where they’ve been in recent weeks. The dollar index is trading near 98.5 this morning, while yields on 10-year Treasuries traded to a new 33-month high 2.37%. Crude oil prices are modestly lower after making a new high for the move overnight. Wheat led the way higher for the grain and oilseed sector on tight food supply concerns.

Federal Reserve Chairman Jerome Powell was back on the speaking circuit Monday, following Wednesday’s first interest rate hike in several years. Powell emphasized the risks that inflation currently presents for the U.S. economy. He stated that our economy is better positioned to handle inflation than it was in the 1970s, but that sustained inflation would still present risks that he’d prefer to avoid. In fact, he labeled current inflation as being “much too high” with the labor market considered to be “very strong” with 1.7 job openings for every unemployed person looking for a job. In fact, we’re seeing a record number of people leaving their current job to get a higher paying job. Of course, that dynamic further contributes to wage inflation.

Powell clearly stated that monetary policy may need to change to reflect changing conditions, and that change could be in either direction. But concerns clearly seemed to be leaning toward the possibility of a more hawkish policy of faster interest rate hikes and withdrawal of stimulus – shrinking the balance sheet. In fact, the Federal Open Market Committee may decide to start shrinking the balance sheet to withdraw a portion of the more than $6 trillion of stimulus still in the economy as early as its May meeting. There seems to be little discussion within the FOMC about the need to withdraw stimulus. However, the debate revolves around the speed at which it does so. Inflation could get a longer-term grip if the Fed acts too slowly, but the economy could slip into a recession if it withdraws the stimulus too quickly. There is no precedent to lean on for guidance either. These are unchartered waters. For now, Wall Street is putting its faith in the Fed.

The Ukrainian Nation Conservation Group estimates that roughly one-third of the farmland in Ukraine is not available for planting this year because it is either occupied by Russian troops, damaged by the war, needs to be cleared of land mines, or has other risks associated with the war, according to APK Inform. This is arable land that likely would not, or could not, be planted to crops if the war ended today. Unfortunately, the war is likely to linger on, increasing the amount of land contained within this high-risk area. The problem is amplified by the seemingly targeted attacks by Russian forces on farm equipment and infrastructure that will take a long time to repair in a war-damaged economy. Consultancy UkrAgroConsult remains optimistic that crops will get planted, although shortages of fuel, fertilizer, chemicals, and equipment will provide challenges for yields. Nonetheless, it sees sunflower area being down by 48%, barley down 29%, wheat down 11%, Rapeseed and soybean areas down 10%. Estimates for corn area vary widely, with more of an emphasis on cereal production for food, as opposed to feed grain production. Many of the port facilities have been damaged by Russia – some significantly – which would make exports a challenge. Of course, all of this is contingent on the war ending soon, but unfortunately, no end is yet in sight.

Exporters sold another 8.8 million bushels of U.S. old-crop soybeans to “unknown destinations” over the past 24 hours, according to USDA’s daily flash report. The trade will assume that this is another sale to China. The purchase comes after U.S. Gulf FOB values once again fell below Brazilian offers amid the short South American crop. USDA data currently shows that China has 76 million bushels of unshipped purchased soybeans on the books for the current marketing year, with unknown destinations holding at least another 162 million bushels. China has another 207 million bushels of new crop on the books, while unknown destinations has another 74 million bushels on the books. Total new-crop soybeans on the books stand at 308 million bushels, which is a record for this time of year. That doesn’t necessarily mean that total shipments in the 2022-23 marketing year will be larger, but it does reflect concerns that supplies may tighten, and that upside price risk is a concern for new-crop supplies, communicating to domestic processors that they need to manage their needs as well. All of this puts an increasing focus on next week’s USDA planting intentions report, which will be the baseline for the 2022-23 marketing year balance sheet.

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Mike CastleTue, 04 Aug 2026, 14:58

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