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May 24, 2022

Futures were mixed to start today’s session but were all negative by the time we reached mid-session. Early gains were the result of hopes for elevated export business, but this was countered by the active planting progress last week and expectations for another big jump this week. News that China and Brazil have reached an agreement on corn trade applied additional pressure to that complex today, while building political tensions between the US and China weighed on all contracts. Traders are still hesitant to short corn and soybeans though, which did offer support to those two commodities, especially nearby soybeans. 

Officials from Brazil and China have finally reached a sanitary agreement which will open the door for corn trade between the two countries. Both sides have been working on this approval for many years and China now feels Brazil has made enough progress that will guarantee quality for corn sales. China will still approve which Brazilian corn shippers can make sales, but that is not expected to hinder progress. Thoughts are final approval will be complete in time for China to take deliveries of the Safrinha crop which will start to be harvested in just a few weeks.

Last week Argentine corn producers asked to have the country’s corn export quota increased. Even with this increase the country is asking to export less corn than the USDA is currently using in its world balance sheets. One fact the request does drive home is that the Argentine corn crop may be larger than thought. Argentine farmers staggered out their corn plantings to avoid the most stressful growing conditions and this appears to have helped. Not only may this allow Argentina to export more corn, but for a wider window. 

Another uncertainty for Argentine corn exports is the possibility of higher tax rates. The Argentine President is asking for export taxes to be increased on corn to help fight the country’s inflation rate. Groups in the country are fighting this, as they feel the high returns they can currently lock in will generate more revenue than raising taxes and seeing the market deteriorate. It would not be surprising to see heavy corn sales out of Argentina if farmers and exporters fear their taxes will increase. 

When it comes to global grain exports most interest remains on Ukraine. Data shows that so far in the month of May Ukraine has exported 643,000 metric tons of grain. This compares to the 1.8 million metric tons the country exported in May 2021. Concerns are building in Ukraine that if its exports do not increase soon there will not be room for the upcoming harvest season. 

The state of the US economy remains a major factor in all markets, including commodities. One sign of inflation we are seeing is slowing home demand. In the month of April existing home sales in the US were down 2.4% from March. Sales were also down a large 5.6% from April 2021. A total of 5.6 million houses were sold in April which is the lowest monthly figure since June 2020. The question now is if buyers are not shopping for homes, or if they are worried over their future expenses. 

The question that is now being asked is how long inflation and its impact on the markets will last. Last week the Chinese Yuan increased in value by 1%. While this is not a major increase, it is the first sign of economic improvement in the country since the start of the latest Covid closures. There are now hopes that even if this does not lead to a recovery in China’s economy that conditions are as bad as they will get. There are also hopes that this will start to turn China’s appetite for imports higher and benefit the remainder of the world economies.