Perspective: Mid-Day Commentary for July 22

By: Arlan Suderman, Chief Commodities Economist

Fri, 22 Jul 2022, 16:45

Perspective: Midday Commentary

Guest Commentary by Mike Castle

Market Intelligence - Fertilizer Analyst

July 22 - Stocks are in the red after fading through the morning, while the VIX has fallen to trade near 23. The U.S. dollar is down, trading below 106.5, while yields on 10-year treasuries are sliding as well, trading below 2.8%. Crude oil is up slightly, with nearby WTI reaching just above $97, while the ags are mixed with soybeans rallying but the wheat complex down hard following today's deal signing in Istanbul.

After much anticipation, the deal to re-open Ukraine's Black Sea ports to export grain and other agricultural products was signed today. Over two months of negotiations including Russia, Ukraine, Turkey, and the U.N. were needed, but the estimated 20+ million metric tons of grain stuck in Ukraine's ports now have the opportunity to help alleviate food shortages in the Middle East and Africa, make space for Ukrainian farmers' current crops, and provide a boost to the decimated Ukrainian economy. The ports included in the deal are reportedly Odesa, Ukraine's #1 port for grain exports, as well as nearby Chornomorsk to the west and Yuznhy to the east. Notably, the major port of Mykolaiv was left out of the deal, potentially because of its proximity to the current frontlines. Mykolaiv has also sustained considerable damage to its export facilities in recent months from continued Russian strikes. Although optimism abounds right now, it's worth noting that even though a deal has been signed on paper, it will still be some time before any grain actually moves, and there's plenty that can change before that happens.

On the same day this deal was signed, reports have begun to surface of Russia sending in combines to occupied areas of Kherson and Zaporizhia of southeastern Ukraine to "help with equipment shortages." This is after multiple confirmed reports of Russian forces previously stealing old crop grain stocks from occupied areas of southern and eastern Ukraine and exporting them through Sevastopol in Crimea. With this going on, Russia's SovEcon earlier in the week raised their 2022 Russian wheat production estimate once again, to what would be a new record of 90.9 million metric tons.

S&P Global's U.S. Manufacturing PMI narrowly beat forecasts, coming in at 52.3 versus expectations of a 52.0 reading. This was a step down from the previous month's 52.7, however, and represents the third consecutive monthly decrease from levels in the upper 50's this spring as slowdowns are felt. On the down side, the U.S. Services Business Activity Index and U.S. PMI Composite Index came in contraction territory at 47.0 and 47.5, respectively, both down sharply from each of their month prior's readings above 52 and representing 26-month lows.

COVID has made its way back into the headlines, with Australia battling a serious outbreak while nearby New Zealand set a new weekly record for COVID deaths after largely avoiding widespread issues early in the pandemic. China has also continued facing flare ups, with today's edition of China Direct reporting a total of 880 (106 symptomatic) daily new cases Thursday, their highest total since May, though authorities seem to be moving towards easing restrictions slightly. Furthermore, President Joe Biden tested positive for COVID yesterday, with cases quietly creeping back up here in the U.S. as well.

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