Weekly Market Update – April 14, 2022

All markets will be closed tomorrow for Good Friday but will open back up Sunday night at the normal 8pm. This week we have not seen any big changes to the headlines that have been driving these markets. There seems to be no progress on peace between Ukraine and Russia. The market needs more acres in all crops. Higher inputs are going to make it harder for the market to attract marginal acres back into production. It is too wet in the Delta and Eastern corn belt. Too cold in the western corn belt and part of the Dakotas got a major blizzard this week. It is still too early to be a concern in the Midwest, but it is getting late in the delta and the forecast does not offer much chance of a drying pattern. There is a chance of a big storm system to bring crucial moisture to the wheat belt at the end of April but that is still several weeks away and the models do not have very good agreement yet. If this happens, it will provide much needed moisture to one of the lowest rated wheat crops in history. It may be too late but if they miss this one, nothing else will help the crop very much. It will be too late once we get into May.

China has locked down most of Shanghai and there is panic buying of food and supplies in other parts of the country as people worry that their area will be locked down as well. As we saw when the Omicron variant went through the rest of the world, it will be few months of rapidly increasing case numbers before they peak and fall just as fast. The markets are worried about economic growth as a result of these lockdowns which is bearish to commodities but China has announced more quantitative easing which is bullish commodities. These effects should offset each other to some degree. I think the effect of the QE is more bullish than the risk of a slowdown. Cotton is a better indicator of the fear of a slowdown than grains and it does not seem to have put a very high risk on it. China continues to make huge purchases of US corn to replace previous purchases made from Ukraine which are not going to be shipped.

The US announced a waiver that allows E-15 blending through the summer to try to alleviate high gas prices. This is bullish ethanol demand and therefore corn and has helped support the markets this week. As good farmers, we are never satisfied and some minor things that could have been done to make this more friendly to the markets are making this a permanent change instead of just a temporary one. There are limited gas stations that are able to dispense E-15 and since it is just a temporary waiver, there is not much incentive for other gas stations to invest in the capacity. We have been pushing for year round E15 for a while that would incentivize such investments and hopefully this is a step in that direction. Even with corn almost $8 on the board, $100 crude keeps ethanol profitable. We have finally see ethanol stocks reduced this week which is positive as they have been building for a few weeks now.

Commstock hosted a Webinar this week with a Ukrainian analyst to give more information about the situation they are facing. His estimates were that the wheat crop is going to be at least 35% less than last year and the corn crop will be 50% less. Ukraine has a lot of domestic usage for sunflower and wheat and other grains. They do not have very much domestic usage of corn. Most of the corn they grow is for the export market. Their export facilities are relatively intact and they still are in control of the majority of them. This issue is that they do not have control of the Black Sea. That is the pipeline where most of their exports flow out of. They have deep water ports for large ships and large ships are not coming in or out. They are exporting some grain through some river and overland routes but it is miniscule compared to what they typically export. There are a ton of logistical hurdles they are going to have to overcome to get their crop planted and they are going to focus on crops that they can use domestically. So corn will be a big loser in acres over there. Most of the summer grain production areas are further west so they are still in Ukrainian control but the Russians control some of the wheat production areas. He said the amount of abandoned Russian military hardware is shocking. Someone is going to open a scrap metal processing facility and make a fortune.

Weather models seem to indicate that the dry period is beginning in Brazil. We will now continue to debate the size of the second crop corn. If it continues to dry out as forecast, I think we can assume we have seen the highest estimates on corn production. We may start to see analysts start trimming those production estimates.

Exports today were exceptional on soybeans and corn but widely expected. Wheat sales were very low. Wheat importers around the world have not made many purchases at these high levels but have started in the last couple weeks. The market seems to be settling into a range now and these countries have resigned to the fact this is not going to be a quick up move and a big correction. We are going to be at these elevated prices for a while. China is buying corn and beans from us which is unusual for this time of year.

What To Do
Corn & Beans
Corn continues its steady climb toward $8. It has been interesting to see the new crop contracts take more initiative as the market’s job is to attract and keep acres. New crop beans made it back over $15 and the old crop is trying to get back to $17. Soybeans’ job is to keep from losing any of those acres to corn. Both the corn and soybean market also need to put in a weather premium and if the crop is threatened, they are going to need to slow some demand. We have not gotten to a level to slow demand at all. If we have any weather hiccup this summer we are going to go to levels we have never seen before. Right now the path of least resistance is up and so far any major breaks have been buying opportunities. But we all also know how quickly the market can go the other way if we do not have a weather problem and hurt some demand somehow. We need to keep scaling in sales and pulling our average up. I would be doing it in small increments but protect some profit. We do not need to be aggressive and you can reach with orders. I think everyone should be at least 15% priced on corn and 25% on beans. If you are not there, the market is offering great opportunities to catch up.

Chicago wheat is riding the coat tails of the other wheat contracts right now. The crop is one of the lowest rated in the wheat belt as they have been almost dust bowl dry. As mentioned above there is a chance of major rain events late in April so the market will be closely watching. The US has not picked up increased export business so far and with the strength in the dollar is not expected to right now. Wheat may be the only commodity that has seen any price rationing. If you have wheat hedges, let’s try to get them rolled to the sept at even. The spreads have been working back toward normal. There is still some room at some flour mills for harvest bushels. The basis is very cheap but the flat price makes up for some of that.

Parts of Texas and the cotton belt are dust bowl dry but parts of the delta are too wet to plant. Higher crude is also supportive to cotton as it raises the price of the competition (synthetic fibers). Demand in India remains very strong offsetting concerns about slowing Chinese demand. Production shortfalls in India mean that they are going to have to import way more than normal. Some officials estimate that India may need to import the equivalent of 2 million US bales. The market was looking for net cancellations of exports due to China canceling but they may have been offset by Indian purchases. New crop cotton is back above 1.20 and basis is not weakening in our markets. You are not wrong to sell 120 cotton.

I hope everyone has a wonderful Easter although I bet most will be in the planter. Stay safe!