Perspective: Morning Commentary for March 23

By: Arlan Suderman, Chief Commodities Economist

Wed, 23 Mar 2022, 13:31

Perspective: Morning Commentary

Arlan Suderman

Chief Commodities Economist

March 23 – The war intensifies in Ukraine, while the rebound in stocks continues. Wall Street increasingly sees the U.S. economy remaining resilient, aided by stimulus already in the system. It trusts the Federal Reserve to withdraw that stimulus with sufficient restraint to keep the markets functioning. For now, that means that stocks rebound, while the money also flows into the Ag and Energy commodities due to their inflation story, which has been boosted by the war in Ukraine. Stocks are poised for a lower open this morning, although the trend over the past week remains higher. The VIX is trading near 24 this morning, while the dollar index firmed to trade near 98.8. Strength in the dollar comes in part due to rising Treasury yields, with 10-year Treasuries now yielding 2.35%. That’s actually lower than the overnight high, which approached 2.42% - a new 34-month high. Crude oil prices are more than 4% higher this morning, while the Ags posted solid gains as well.

President Biden is on his way to Europe today to attend an emergency NATO summit focused on the Ukraine crisis. Russia expected to take Ukraine in a couple of days. Four weeks later, it occupies a rather small percentage of the country, but it created pain, misery, and death across the country. A quarter of its 44 million residents have been driven from their homes, but Russia has thus far failed to capture a single major city. Supply problems are increasing for Russian troops, but there are few signs of them backing down. Instead, the worry is that Russian President Putin will intensify his efforts to win at all costs. President Biden is expected to receive requests from some European nations for more U.S. energy to displace crude oil and natural gas currently coming from Russia, while Biden is expected to counter those requests with plans for more sanctions on Russian legislators. Peace talks between Russia and Ukraine continue. Officials say they are difficult, confrontational, but making slow progress. Yet, hopes of a quick resolution have dwindled.

Speculation continues over the impact on commodity production and exports out of the region. Local estimates continue to reflect a note of optimism. Both the Ukraine government and the European Union have committed funds to help farmers put crops out this year, but there remain serious questions over how those funds will be distributed and used. Optimistic estimates say that exports will be cut in half for most commodities coming out of Ukraine. Some exportable supplies from last year’s crop remain within the country, with grain companies working on a plan to move them over land to the Danube River in Romania for movement. But the infrastructure has its limitations flowing in that direction, so the immediate goal targets moving 1 million metric tons of grain. Those efforts will continue. The Ukrainian people need the income that exports would provide. We’re just not optimistic that a significant enough volume will be able to be produced, harvested, and exported over the coming year to solve the world’s deficit.

China reported 2,591 new locally transmitted Covid cases in the past day, as the numbers continue to rise. In fact, there’s good evidence that the official numbers are well below the actual numbers, which was the case in much of the rest of the world with the Omicron variant as well. Shanghai residents rushed to supermarkets to stock up with food following rumors that the city would be shut down due to rapidly rising Covid numbers. Officially, China is working with a policy that seeks to avoid shutting down entire cities, although in practice it can still happen if enough local authorities shut down their areas of jurisdiction as they seek to protect their own jobs. In fact, Changchun city, with a population of 9 million people, is still in a virtual lockdown, with all services, including supermarkets, shut down. One person per household is allowed to purchase food in a designated area every three days. This has in effect slowed the movement of agricultural goods due to a lack of truck drivers and plant workers.

Strong gains were seen across the grain and oilseed complex overnight. It’s been a massive roller coaster ride for many of these markets in recent weeks, but the bottom line is that corn and soybean prices remain in a range near their highs, with December corn posting fresh contract highs. Wheat prices are generally well off their highs, but the breaks are being bought. Next week’s USDA planting intentions and quarterly grain stocks reports will add fundamental news to these markets, which are currently largely being dominated by Algo day trading. The fundamentals still matter in the end, but the market is currently waiting for greater clarity on how South American weather problems and the war in Ukraine are going to play out. Conviction is growing that global supplies will remain tight for many of the food and energy-based commodities over the coming 12 – 18 months unless there is a surprise increase in output. That emboldens fund managers to own these commodities as a hedge against inflation.

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Mike CastleTue, 04 Aug 2026, 14:58

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