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Chinese lockdowns, global recession concerns are biggest issues facing U.S. ag

The heavy lockdown in China and global recession concerns are the biggest issues facing U.S. ag right now. U.S. exports are already showing slow demand and are running sharply below expected levels. If this trend continues, the decline in exports will result in increasing U.S. stocks, which could increase stocks enough to push the U.S. grains lower.

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Corn exports have struggled on a higher U.S. dollar, but concerns remain about yieldsharvest gets started.
Erin Ehnle Brown / Grand Vale Creative LLC
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Editor's note: Catch Randy Martinson every Friday after markets close on the Agweek Market Wrap at agweek.com.

The third week of September started mixed with wheat on the defense while corn and soybeans posted gains. The middle of the week had wheat rallying higher while corn and soybeans traded back and forth. By Friday, Sept. 23, all of the grains were seeing profit taking and technical selling pressure which in turn trimmed wheat’s gains for the week, brought corn down to end virtually unchanged, and took soybeans into the red.

Wheat was supported by an escalation in the war between Ukraine and Russia. Russia reportedly fired missiles toward a nuclear power plant in northern Ukraine, hitting buildings around the plant (no damage to the plant was reported). But the big news came from Russian President Vladimir Putin’s decision to hold a vote to annex the four regions of Ukraine that the Russian military has control of. The four regions equal about 15% of Ukraine. Putin has reportedly said if the vote to annex passes, he would defend those regions with nuclear weapons if necessary.

The other big news during the third week of September, the Federal Reserve increased interest rates 0.75%, which was as expected. This should not have brought any shock to the market, but it did. The Fed also stated in their press conference after the announcement that rates would continue to increase with their target rate somewhere around 4.5%, 1.5% higher than it is now. The Fed has two more meeting in 2022, the next around the first week of November and the second the second week of December. Look for 0.5% to 0.75% rate hikes in both of those meetings. The hike in interest rates was enough to push the U.S. dollar to highs not seen since June 2002.

One would expect that with the increase in rates and higher U.S. dollar that U.S. products would be getting expensive to import. And they are, but so is everyone else’s product. More importantly, the higher dollar and slowdown in exports are not enough to help rebuild stocks. It will take an increase in acreage as well as further demand cuts to build stocks back up to comfortable levels. And it will take time for this to be accomplished.

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Wheat is seeing support from Putin’s continued saber rattling. It appears that Ukraine wheat production will take a hit. This is helping to support wheat and encourage producers in the U.S. to plant more winter wheat. Argentina continues to see adverse weather conditions as hot dry conditions are resulting in further abandonment of Argentina’s wheat crop.

Corn and soybeans were under pressure from technical selling as well as from hedge pressure. Light support came from reports of disappointing yields on the early harvested crop. Also, stocks are tight for both corn and soybeans and will likely continue to tighten. The tight stocks will keep a floor under the grains.

That is not to say the grains won’t set back. It is likely harvest pressure will push corn and soybeans lower. But the retracement should not be deep, as any huge decrease in price will encourage use.

But by Friday, Sept. 23, traders took a different path. And the risk off session was not confined to the grains, as the Dow traded below below 30,000. The dollar has pushed sharply higher, posting over three-quarter of a cent gains.

The sharply higher dollar is finally starting to show up in other venues. Last week’s U.S. export sales pace was nothing short of disappointing and the reason for the sharp decline in export sales is due to the sharply higher U.S. dollar. It was surprising to see a report from the IGC stating U.S. corn remains cheaper than corn from Argentina or Brazil.

The Drought Monitor map continues to show an expanding drought situation in the northern Plains and western Corn Belt. The states that saw significant increases in drought were Montana, Nebraska, Kansas, Missouri and to some degree Iowa. The drought situation continues to improve in Texas.

The Sept. 23 risk off selling pressure spilled over to give the last week of September a poor start. Concerns of a world financial meltdown, and the thought that if that was to happen U.S. demand would tank, drove the grains deep into the red and pushed many markets to minor support levels.

The world is following suit from the U.S. as other countries are worried about a global recession. Besides the U.S. hiking interest rates to try and counter high inflation, the Bank of Japan supported the yen for the first time since the 1990s and the United Kingdom just announced the biggest tax cut since 1972.

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Another issues worth watching is that China is seeing heavy military activity within its borders. Some think it's mobilization to help Russia in Ukraine, others think it could be a coup. A coup would be very unlikely but China’s people are starting to voice their concerns about heavy lockdowns.

The heavy lockdown in China and global recession concerns are the biggest issues facing U.S. ag right now. U.S. exports are already showing slow demand and are running sharply below expected levels. If this trend continues, the decline in exports will result in increasing U.S. stocks, which could increase stocks enough to push the U.S. grains lower.

The grains traded down to minor support levels and so far, those levels are holding. That helped the grains bounce higher at the start of the last week of September. Light support came from the Sept. 26 Crop Progress report. The report estimated spring wheat harvest at 96% complete, up 2% from last week and 1% behind average. North Dakota is reporting harvest progress at 93%, 3% off of average. Most of the wheat that remains to be harvested is in the northern most part of the state.

Winter wheat planting progress was estimated at 31% complete, up 10% from the previous week and 1% above average, but 2% below expectations. Emergence is at 9% versus 6% average.

As of Sept. 25, 92% of the nation’s corn was in dent versus 94% average, 58% was mature versus 61% average, and 12% was harvested versus 14% average (1% less than expected). Corn’s crop condition rating was left unchanged as expected at 52% good/excellent. The only states that saw declining ratings were Illinois (-2%), Minnesota (-1%), and North Dakota (-5%).

Soybeans dropping leaves was estimated at 63% versus 65% average. Soybean harvest was estimated at 8% complete versus 13% average (3% behind expectations). Like corn, soybeans crop condition rating was left unchanged at 55% good/excellent (which was expected). States seeing declining ratings were Illinois (-1%), Iowa (-1%), North Dakota (-6%), Ohio (-2%), and South Dakota (-2%).

The grains also have seen position squaring ahead of USDA’s Sept. 30 Quarterly Grain Stocks estimate and Small Grains Summary (production estimate for the small grains). Early estimates for the Quarterly Grains stocks have corn stocks as of Sept. 1 at 1.512 billion bushels versus 1.235 billion bushels last year. Soybean stocks are estimated at 242 million bushels versus 257 million bushels last year. Wheat stocks are estimated at 1.776 billion bushels versus 1.774 billion bushels last year.

Wheat production estimates for the Small Grains Summary have all wheat production at 1.778 billion bushels versus 1.783 billion bushels last month. All winter wheat production is estimated at 1.191 billion bushels versus 1.198 billion bushels last month. Other spring wheat production is estimated at 514 million bushels versus 512 million bushels last month. Durum production is estimated at 74 million bushels, same as last month.

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Cattle posted losses the third week of September with most of the selling tied to the poor performance in the stock market as well as from position squaring ahead of USDA’s September Cattle on Feed report. September’s Cattle on Feed report was neutral to negative as the only bad number was the placements estimate, which came in above expectations. That was not surprising with the drought situation in the southern Plains and lack of winter wheat pastures. Cash live cattle bids were strong and packer interest seemed strong, but cattle just could not overcome economic concerns and the thought that domestic consumption will start to decline due to shrinking disposable income.

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