8.12.22 Market update

This week’s action:

Corn Sep up .28 @ $6.37

Corn Dec up .31 @ $6.40

Beans Nov up .46 @ $14.53

KC Wheat Sep up .39 @ $8.88

Feeders Sep down .525 @ $183.25

Fats Oct up .55 @ $144.625

Hogs Oct up 1.65 @ $100.00

Crude Sep up 3.60 @ $92.13

 

Seasonal Averages:

Dec corn Feb 1 – June 30: $6.80

Dec corn since Russian invasion: $6.75

Nov beans April 1 – today: $14.65

Sep KC wheat since Russian invasion: $10.66

 

Recap:

Strong upward price action in the grains this week, but still within the range that has been established in the last 30 days. Still a lot of question marks as to what this crop is/isn’t. On a seasonal basis, corn and wheat are typically weak LH Aug into FH Sep, while soybeans are typically firm LH Aug before plunging to new lows in Sep. Keep in mind we have yet to close the chart gaps in the 13.50 area on November beans and 5.85 on December corn.

USDA released the updated balance sheets today. The report was neutral with no major changes. We saw slight yield adjustments with a reduction in corn and an increase in soybeans. The only states showing a yield increase from last year are the Dakotas and Minnesota, with Iowa projected to tie last year’s record yield. Most private estimates are around 174bpa for corn and 51bpa for soybeans but, two private companies are estimating corn in the upper 160’s. If realized, that would decrease the corn carryout to less than 1 billion bushels. However, the cuts to yield/supply on today’s report were joined by cuts to demand. If a 170-type yield gets printed, one would assume that we’d see some demand destruction to keep US stocks in check.

From RJO’Briens Rich Feltes:

-Importantly, closing CZ and SX prices today reflect market’s belief that 2022 US CN/BN yields today are lower than NASS’s 175.4 BPA/51.9 BPA respectively. Recall USDA Aug to Final corn yields have declined in 4 of last 6 years while the soy yield has declined in 3 of past 5 years.

-CZ summer rally so far of 80 cents (SX $2.00) are both above average but still well below prior year summer rallies when crops (and or new crop carryovers) were more seriously threatened than today.

Bottom line—RJOs 155 mb 9/23 US soy carryover leaves no room for additional adversity while our 1.218 bil bu 9/23 US corn carryover (an 8.4% stks/use ratio) if realized would be the 2nd lowest in 9 years at a time when Ukraine’s corn export capacity is cut in half and EU corn production is down 12-15 mmt. Suspect breaks will be well supported until weather improves or more credible Sept and or Oct crop reports (objective yield/field sampling based) give traders a more accurate assessment of 2022 US CN/BN yield prospects.

Forecast:

Increased chances of rain early next week across the central plains with the western plains remaining mostly dry. Should get a break from the heat over the next 7 days with cooler temps in the forecast. Central/South Central Iowa and the rest of the western corn belt are the big stress areas moving into the back half of August. 

 

Outside Markets:

(Bloomberg) The S&P 500 has to fall a lot further to price in a US recession. The index has slid 32% on average from a peak to a trough during the past eight recessions going back to 1969. A similar move now would mean dropping from 4,207 currently to 3,262. Why are stocks holding up? A few possible reasons include: Investors believe economist forecasts that only show a 40% chance of recession, equities are supported by demand for inflation hedges, or perhaps rate hikes haven’t tightened financial conditions enough.

(Larry Summers) “Historically, every time we have had unemployment below four and inflation above four, we have had a recession within the next two years, so the odds that the exit from this will involve into a completely soft landing are, I think, quite low.

Note that during the last recession in 2008, the stock market crashed in October and took corn from $5.60 to $4.00 by the end of the month.

(Bloomberg) OPEC on Thursday cut its 2022 forecast for growth in world oil demand for a third time since April, citing the economic impact of Russia’s invasion of Ukraine, high inflation and efforts to contain the coronavirus pandemic. The view from the Organization of the Petroleum Exporting Countries contrasts with that of the International Energy Agency, the adviser to industrialized countries, which earlier on Thursday raised its 2022 demand growth outlook.

 

Something that Probably Means Nothing:

Inflation Reduction Act set to pass the house today.

Bloomberg this morning discussing the methane reduction rule in the “Inflation reduction act” and its negative effect on oil producers, stating that the act could be inflationary for oil.

On a lighter note, 14 days until we have college football.

 

Enjoy your weekend!