While the extension to the Ukraine export agreement is positive for the world grain supply, there are still some obstacles for the country to overcome. We may not see an increase to exports from the country as large as some analysts predict. For one, Russia continues to attack Ukraine infrastructure, making it difficult to get inventory to export terminals. Ukraine still only has three terminals to work with, which is also a limiting factor. Shippers are also concerned with the delays it takes to get vessels inspected and need to carry elevated insurance as long as the war in the regions continues. The question for an importer is if the lower cost of the offerings from this region is enough to offset these other hurdles.

The financial markets received friendly news when the Consumer Price Index showed October inflation dipped to 7.7 percent, which was just under trade estimates. There are now thoughts in the market we have seen the worst of inflation in the U.S., which is quite possible. This does not mean we will not see interest rates continue to rise though, but it does mean we could see smaller rate hikes.

There are now thoughts we will see a 50-basis point rise in December instead of the 75-point hikes from the past several meetings. This slowing inflation also does not mean we are not heading into a recession, and in fact we may be closer than before. Global inflation is also still a major concern as many countries are still seeing rates increase.

One of the greatest inflationary concerns in the global market right now is rising food costs. World food imports this year are now projected at a record $2 trillion. Food values spiked following the Ukraine war, and while they have started to soften, are still up 10 percent on the year. Global food production is down 2.8 percent this year, which is adding to the inflated costs. Given the rising costs of raising food crops in the world, mainly corn, there are thoughts food costs will remain elevated for the foreseeable future. This is troubling news for countries that already struggle with food costs.

An underlying source of pressure for the commodity market is the current fund position and timing of the markets. This is especially the case on corn and soybeans. Funds currently hold long positions of 270,000 contracts of corn and 105,000 contracts of soybeans. Futures are also up 12 percent on the year for corn and 9 percent for soybeans for the year. The combination of these is making buying less attractive for the managed money crowd ahead of year end. In fact, it makes liquidation more likely over the next few weeks. Wheat futures have also posted advances for the year, but funds are short in that complex, making additional selling less likely.

The United States has seen improvement to its drought in the past week but is still suffering from some of the driest soil conditions in recent history. It is now believed that 67 percent of the U.S. corn production area is in some level of drought, a 4 percent improvement on the week. The U.S. soybean area is 69 percent in drought, a 2 percent improvement. The U.S. winter wheat crop is still 74 percent in some stage of drought, which is more of an immediate concern as the crop goes into dormancy.

U.S. farmers still planted more winter wheat than normal this year as high prices are encouraging. It is also believed that weather conditions will improve as the La Nina system is forecast to come to an end.

While most of the attention on Brazilian production focuses on soybeans, more interest is falling on the country’s corn output. Brazil is currently forecast to raise a corn crop of 126 million metric tons (mmt) this year, a 12 percent increase from a year ago. This will lead to elevated exports with predictions for a 17 percent increase in sales. Domestic corn consumption in Brazil is also expected to increase 6 percent, mainly for ethanol. This outlook indicates the competition the United States has seen in the global market will not subside, especially if the Black Sea continues to make exports.

The November cattle on feed report data was supportive for the complex. As of Nov. 1, the U.S. had 11.7 million head of cattle on feed, 98 percent of last year’s inventory. Placements in October were down 6 percent from 2021 at 2.11 million head. This was the lowest October placement volume on record. Markets for October were mostly as expected with 1.8 million head. While these numbers do support cattle futures, they indicate less feed grain demand potential.

The cold storage report for October 31st showed higher volumes of red meat in supply than the same month in 2021. Beef in cold storage came in at 510 million pounds, 3 percent less than the end of September, but an increase of 8 percent on the year. Frozen pork totaled 511.06 million pounds, down 5 percent from September, but well above the 442.03 million at the end of last October. Pork bellies came in at 40.2 million pounds, a 10 percent increase on the month and a huge 246 percent more than last year. Total U.S. red meat inventory at the end of October was up 11 percent on the year. 

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