The Commstock Report

On the Grains: Grains tried to mount a recovery in early evening trade, but are mostly back in the red as this goes to press. Fundamentally, the reality of major gains for both bean harvest and 2nd crop corn planting in Brazil is countering further decline in Argentine crop estimates. The Black Sea “safe corridor deal” will still likely automatically renew six days from now, but there are still questions as Russia is only now joining the discussions between U.N. officials and Turkey and still insisting on sanctions relief.   But it’s still the “macro environment” for the U.S. banking system and economic outlook that has traders most unsettled this morning. Precious metals are stronger while energies and the dollar are weaker. To prevent the SVB collapse addressed in our Sunday Preview and yesterday’s Special Report from spreading further shockwaves throughout the economy, the Federal Reserve Board announced last evening the creation of a new Bank Term Funding Program (BTFP). It came from Treasury Secretary Janet Yellen, after consultation with President Biden, approved the plan for this new BTFP to offer FDIC loans up to one year to California’s SVB, New York’s Signature Bank and any other institutions that protect…

Jim Acosta, a CNN host and reporter, made one of the most uninformed statements that I have ever heard on air this weekend when he said that runs on bank deposits were irrational. He was discussing the Silicon Valley Bank (SVB) collapse caused by what may have been the first bank run on deposits ever in ‘digital banking’ history. Money now moves with the flick of a computer key. People are told “not to panic”. I have always argued that it is often smart to panic as long as it is before everyone else does. I panicked and sold all of my 2022 corn last December and “so far so good”. When pundits tell you not to panic, what they are often really saying is that you should have panicked some time before that. As in the case of SVB, those that panicked first got their money wired out of SVB before the FDIC stepped in and shut it down. There are companies in that category that will make payroll because they panicked and got their funds transferred to safety.   It seems to be a common assumption that all bank deposits are insured by the FDIC. They are not….

Grains are called slightly higher to start, but bullishness over weather will have to contend with a risk-off tone that should develop across most markets because of concern about the Silicon Valley Bank drama. In the Headlines The failure of Silicon Valley Bank is going to be felt further this week as regulators decide what to do with billions of dollars of deposits that exceeded FDIC insurance. A run on the bank reportedly produced unfulfilled withdraw requests of over $42 billion last week. Part of those deposits will be counted on by companies that need the funds to make payroll this week, so major layoffs are a possibility. There will also be risk of a domino effect when more companies and individuals attempt to move deposits out of banks that they fear are similarly vulnerable. There may be additional strength in bonds as investors move their money to safer assets, and as traders bet that interest rates will have to ease. The Federal Reserve Bank announced an emergency meeting for Monday, when options for backstopping Silicon Valley Bank will be discussed. On Friday, the market quickly adjusted its odds toward expecting a 25 basis point hike on the next meeting…

Ahead of this morning’s monthly jobs report, it was feared that good news would be bad news for markets in the sense that investors would interpret strength in the labor data to mean more interest rate hikes from the Federal Reserve Bank, which pressure stock prices but support the dollar. Even though the jobs report turned out solid enough with higher than expected payroll additions, stock futures were initially able to stage a small rebound, likely because of help from a smaller than expected rise in wage inflation. Stock market strength struggled to stick, but it was helpful for the grains that the dollar broke down and interest rates eased following the report.   Bond prices were up – and yields down – after the jobs report and in follow up from nervousness over that economy that developed from news about financial trouble at the Silicon Valley Bank. The headlines were a source of bad news that ended up being good news for those betting on interest rates topping out sooner. Market-based bets on the trajectory of the federal funds rate were moving the expected target sharply lower at the end of the week.   As for the jobs report…

On the Grains: Overnight markets are weaker again. One of the most time-honored axioms in trading is to beware markets that cannot move higher on bullish news. We’re witnessing a classic example of that in the grains since Tuesday’s WASDE showed far greater cuts in Argentina’s corn and soybean crops than the average trade estimates, followed Wednesday by the Rosario Grain Exchange pegging crops far lower still.   Then yesterday before markets even opened Brazil’s CONAB dropped the Brazilian crop to 151 MMT, 2 million lower than USDA’s figure and not far from Matthew’s estimate of only 150 MMT in this week’s Brazilian Operations Update. It was followed by weekly corn export sales of 1.41 MMT that blew the lid off expectations that ranged from 600k to 1.2 million. Didn’t matter. Corn tumbled anyway. It got caught in the downdraft of a horrendous net decline in weekly soybean sales (due to cancellations) of 23,000 tonnes against expectations for new net sales ranging from 200K to 700,000 tonnes.   What the heck is going on? The macro environment for both the U.S. and global economy is looking grimmer and grimmer and it’s feeding the bears in commodities. Stocks are down again…

Not unsurprisingly, my recent report on ‘CO2 Pipeline Project Differences’ rankled the public relations department at Navigator with what they described as an “incredibly inaccurate mischaracterization of our project.” They are not going to like this one either. That report was a loop of information stemming from conversations with subscribers and farmers dealing with the CO2 pipelines. In a subsequent conference call with Navigator, we sorted through all of the line items and at the end of the conversation my conclusion was that I got it right. It cannot be an easy job of being given the task of spinning a silk purse from the proverbial sow’s ear and I have empathy for those whose job that it is to accomplish that. Probably the biggest point of contention was my word “paid”, saying that Navigator’s model pays ethanol plants more than Summit. Technically, Navigator says that they do not pay ethanol plants anything. Summit makes the investment for their ethanol plants for the carbon capture infrastructure, which can be $25 million per plant, and splits the revenue with them. Most plants tied up with Navigator cover the cost of the carbon capture infrastructure themselves and then pay Navigator to transport…

If  you’re at the Commodity Classic down in Orlando, be sure to swing by booth 2719 and visit with Commstock broker Justin McKinney! On the Grains: Markets are firm in overnight trade after disappointing closes yesterday. Even though USDA cut Argentina’s crops to the lowest of trade estimates, the Rosario Grain Exchange just lowered them even more. They now put the bean crop at only 27 MMT vs. USDA’s new figure of 33MMT and the corn crop at only 35 MMT vs. USDA’s new estimate at 40 MMT. Yesterday’s muted reactions in corn and soybeans to USDA’s surprisingly large cuts to Argentina’s corn and soybean crops was a classic example of a market that had already “bought the rumors” and ready to “sell the fact.” Even though USDA cut both crops by near the very lowest pre-report estimates, they left Brazil’s estimate unchanged. The impact on global soybean ending stocks was only slightly below expectations. The market finished with only a slight gain for beans and well off the day’s high. As for U.S. balance sheets, soybean ending stocks came in 10 million bu. below the average trade estimate but the average farm price was left unchanged at 14.30. In…

USDA boosted the corn carryover by 75 mln bushels, about twice the increase expected in posted pre-report estimates. The entire amount came from a decline in expected exports. That should come close now to settling exports as lower prices should soon begin to bring them back some. China is waiting in the wings for a new crop corn buying opportunity. There is some reason for demand concern yet from the feeding and ethanol sectors. Between beef herd liquidation, poor pork demand and bird flu, the feeding sector has contracted. That means that there will be more corn in export channels that can instead be shipped west to ethanol plants and feedlots. Crude oil doesn’t appear to be as bullish as many expected which rains on the ethanol parade. USDA left Brazilian corn production unchanged at 125 mmts but lowered Argentine production from 47 to 41 mmts, matching the lowest pre-report trade estimate. Despite the Argentine corn production reduction, USDA actually increased projected world corn ending stock from 295.3 to 296.5 mmts. Go figure. Next up will be the planting intentions report and the trade expects more acres and given the fading la Nina, higher yields this season. I have been…

On the Grains: Overnight markets still lean soft as we go to press, awaiting the March WASDE at 11 a.m. CST. Yesterday was a combination of pre-WASDE positioning by funds and what some call a “macro day.” That’s when outside markets (stocks, crude oil, the dollar) influence trade in Ag commodities as well. The trigger was hawkish comments by Fed Chairman Jerome Powell that suggested the Fed might have to become more aggressive on raising interest rates to curb inflationary pressures still at work. The dollar soared more than a full point, always a sour note for Ag exports. The outside markets have calmed overnight so traders are again focused on what surprises (or lack thereof) we might see in the WASDE when the numbers come out. We’ve hashed and rehashed trade expectations for changes in U.S. and global ending stocks in recent days so there’s not much point in listing them all again. Suffice to say the trade focus will be on how much USDA cuts estimates for both corn and soybeans for Argentina as well as tweaking Brazil’s prospects for both crops. The risk is that USDA is unlikely to cut its Argentine estimates nearly as much as private forecasters…

The primary trade expectation for Wednesday’s WASDE report is a substantive reduction in their estimate of Argentine production due to what has become a record drought there. USDA currently has the Argentine soybean crop at 41 mmts and that it will be lowered is a given. The average trade estimate is 36.7 mmts but the low end of the range of estimates is far worse. The Argentine grain exchange has soybean production there at 33.5 mmts and that is the number that the market is more likely targeting. The soybean market has bounced back, led by soymeal, predicated on a bullish number Wednesday. The tell will be in how the soybean market reacts to a bullish number. It makes it harder to be surprised when the market has been trading a bullish fundamental for some time and expects something bullish. They have bought the rumor. How much of the Argentine loss will be offset by record soybean production in Brazil? The trade looks for USDA to hold their estimate of Brazil’s soybean crop near 153 mts. The soybean market has been at this job of pricing in the Argentine drought for some time and there is no shortage of soybeans…