First Thing Today | February 22, 2022
Markets surge amid escalating geopolitical tensions... Grain and energy markets had a big price response overnight to escalating tensions between Russia and Ukraine as U.S. markets reopened following the three-day weekend. Markets have backed off their overnight highs but remain solidly higher. As of 6:30 a.m. CT, winter wheat futures are mostly 13 to 17 cents higher, spring wheat is 9 to 12 cents higher, corn is 3 to 8 cents higher and soybeans are 5 to 13 cents higher. Front-month crude oil futures are around $3 higher and the U.S. dollar index is about 150 points lower this morning.
Russia/Ukraine situation escalates... Russian President Vladimir Putin on Monday announced he’s recognizing two self-proclaimed separatist republics in eastern Ukraine. Putin signed aid and cooperation pacts with separatist leaders at a Kremlin ceremony after a televised address in which he stated: “I consider it necessary to take the long overdue decision to recognize the independence and sovereignty of the Donetsk People’s Republic and the Luhansk People’s Republic.” He ordered “peacekeeping forces” into the separatist areas of Ukraine. Russian troops entering disputed territories within Ukraine will not amount to an invasion in the eyes of the White House, according to a senior administration official. Congress’ bipartisan delegation to the Munich Security Conference said lawmakers would work together on any emergency supplemental legislation to support NATO and Ukraine. Key will be what the White House considers an invasion. Putin’s new strategy would mean the end of the Minsk agreements — signed after Russia-backed separatist forces surrounded several thousand Ukrainian soldiers — that have maintained a threadbare cease-fire in the Donbas since 2015 after Moscow seized Crimea. But it could also provide cover for Moscow to begin its blitz into Ukraine. Putin awaits more reaction from the U.S., Europe and NATO as he ponders his next move.
Biden administration sanctions key off whether there has been a Russian invasion... After he took flak last month for speculating about a potential “minor incursion” by Russia into Ukrainian territory, President Joe Biden spelled out exactly what would trigger the brutal sanctions he’d promised if Putin attacked Ukraine. “Any assembled Russian units move across the Ukrainian border, that is an invasion,” Biden told reporters. Such a move, he added, would bring a “severe and coordinated economic response.” The White House is expected to announce new sanctions on Russia today, but they are not to be as severe as Biden and a host of other administration officials threatened prior to Putin’s latest moves. The administration is coordinating with allies on the announcement, the official said.
Germany halting Nord Stream 2 pipeline... German Chancellor Olaf Scholz announced he’s halting the Nord Stream 2 pipeline over the Russia/Ukraine crisis, per Deutsche Welle. “In light of the most recent developments we must reassess the situation in particular regarding Nord Stream 2,” Scholz said at a news conference. Germany’s economy minister says the country has a secure supply of gas, though this move will cause price impacts. A spokesperson for the EU Commission says Germany’s decision on Nord Stream 2 won’t change the energy supply to the bloc.
Wetter forecast for Argentina, southern Brazil... Argentina is expected to be wetter over the next week to 10 day, according to World Weather Inc. The forecaster says most of the country will receive some needed rains at some point. Rains are expected to be lighter across central and northern Brazil, which is welcome for mature soybeans. Far southern areas of the country will receive some needed rains.
Cordonnnier cuts Argentine crop estimates, Brazilian forecasts unchanged... Crop Consultant Michael Cordonnier cut his Argentine soybean and corn crop estimates by 1 MMT each to 39 MMT and 49 MMT, respectively, after a week of generally dry conditions across most of the country. He left his Brazilian estimates unchanged at 124 MMT for soybeans and 112 MMT for corn. Cordonnier also left his Paraguay soybean crop peg at 5 MMT.
The week ahead in Washington... Congress is on recess this week, so it will be quiet on the legislative front. Focus will be on the U.S. response to the Russia/Ukraine situation. The biggest economic report is Friday’s personal consumption expenditure data, which is expected to show a continued hot inflation pace in January. The second estimate of Q4 GDP on Thursday is expected to see an upward revision. The ag focus this week is on USDA’s Annual Outlook confab on Thursday and Friday. USDA analysts on Friday will release their best guesstimates (not based on surveys) of supply and demand forecasts for the 2022-23 marketing year.
Fed's Bowman suggests larger March rate hike... Federal Reserve Governor Michelle Bowman suggested Monday the central bank could raise interest rates at a faster pace than in previous cycles, as inflation remains “much too high.” In a speech to a convention of bankers, Bowman said she supported raising rates when the Fed’s monetary policy panel meets March 15-16. She added she will be “watching the data closely to judge the appropriate size of an increase,” opening the door to a larger-than-typical rate hike. While the Fed usually hikes or cuts interest rates in 0.25 basis point increments, a few expect the bank to raise rates by 0.5 basis points in March.
China increases fiscal support in effort to boost economy... China announced plans to slash taxes and increase payments to local governments as part of efforts to boost slowing economic growth. The country’s finance minister said tax and fees cuts in 2022 would exceed the $174 billion reduction last year. The central government will also send more funds to local governments, with the most earmarked for underdeveloped regions.
China to increase production of soybeans and other oilseeds... China will improve production capacity of soybean and other oilseeds, while maintaining stable grain acreage, in an effort to bolster food security. China will increase subsidies for land rotation programs and rewards for edible oils production. Beijing also said it will actively deal with unfavorable impacts from late planting of wheat and strictly control corn-based fuel ethanol production, according to the official Xinhua news.
China sells 97% of wheat put up for auction, will sell soybean and edible oil reserves... China sold 509,089 MT of the 525,704 MT of state-owned wheat reserves put up for auction last week at an average price of 2,698 yuan ($426) per MT. Interest in the state wheat reserves remains high and the average price increased from 2,590 yuan ($409) per MT the previous week. China’s National Food and Strategic Reserves Administration says the country will sell some soybean and edible oil stocks from state reserves, without providing details of timing or volume.
China bans Canadian poultry/products... China banned poultry and poultry product imports from Canada to prevent the H5N1 bird flu, effective Feb. 21.
Cold Storage Report out this afternoon... The report will detail meat stocks held in frozen storage as of Jan. 31. The five-year average is a 2-million-lb. decline in beef stocks and a 56.7-million-lb. build in pork inventories during January.
Cattle futures may be signaling a short-term top... February live cattle futures posted a contract high last week behind the strengthening cash market. But deferred futures paused, with the April contract finishing lower, despite the strong cash fundamentals. That’s a warning sign the market may have put in a short-term top. How traders react this week will be key to near-term price direction for futures.
Hogs overdue for a correction... Hog traders ignored the overbought status of futures and the market didn’t facing corrective selling ahead of the three day weekend, despite the price surge over the past five weeks. Attitudes are strong and bulls have full control, but there will be risk of corrective selling if the buyer interest lets up this week.
Weekend demand news... Taiwan bought 65,000 MT of corn that can be sourced from the U.S., Brazil, Argentina or South Africa.
Today’s reports
- 10:00 a.m. Export Inspections — AMS
- 10: 00 a.m. Fruit and Tree Nuts Data — ERS
- 10:00 a.m. Vegetables and Pulses Data — ERS
- 11:00 a.m. State Stories — NASS
- 2:00 p.m. Chickens and Eggs - Annual — NASS
- 2:00 p.m. Cold Storage — NASS
- 2:00 p.m. Poultry Slaughter — NASS
