First Thing Today | February 24, 2022

Good morning!

Markets surge on Russian invasion... Corn and wheat futures are trading limit up in most contracts, while soybeans are sharply higher. As of 6:30 a.m. CT, old-crop corn is 35 cents higher (daily limit) with December up 28 cents, soybeans are 35 to 55 cents higher, winter wheat futures are 50 cents higher (daily limit) and spring wheat is mostly 60 cents higher (daily limit). Front-month U.S. crude oil futures are nearly $7 higher and the U.S. dollar index is up around 900 points.

Russia invades Ukraine in ‘darkest hours of Europe’ since WWII... Russian forces invaded Ukraine in what Russian President Vladimir Putin declared as a “special military operation.” Ukrainian President Volodymyr Zelenskiy  said his country has severed diplomatic relations with Russia. He tweeted, “Russia treacherously attacked our state in the morning, as Nazi Germany did in the WW2 years. As of today, our countries are on different sides of world history. Russia has embarked on a path of evil, but Ukraine is defending itself & won’t give up its freedom no matter what Moscow thinks.” EU foreign affairs chief Josep Borrell said: “These are among the darkest hours of Europe since the Second World War.”

U.S., allies promise ‘severe sanctions’ on Russia... The U.S. and its allies will impose “severe sanctions” on Russia for its military actions against Ukraine, President Joe Biden said, without giving specifics. “Russia alone is responsible for the death and destruction this attack will bring. The world will hold Russia accountable,” Biden said. “I will be meeting with the leaders of the G7, and the United States and our allies and partners will be imposing severe sanctions on Russia,” he noted, adding the U.S. would continue to provide support and assistance to Ukraine and its people. Another U.S. official said “full-scale” sanctions against Russia would be announced today. The U.S. and Europe levied the initial tranche of sanctions against Russia earlier this week. The next steps are likely to include sanctions against more Russian banks, steps to bar U.S. financial institutions from processing transactions for major Russian banks and export controls on U.S. and foreign-made goods.

Putin warns the West... Putin said, “Anyone who tries to interfere with us, or even more so, to create threats for our country and our people, must know that Russia’s response will be immediate and will lead you to such consequences as you have never before experienced in your history.” He also said: “As for the military sphere, modern Russia, even after the collapse of the USSR and the loss of a significant part of its nuclear potential, is today one of the most powerful nuclear powers. And moreover, it has certain advantages in a number of the latest types of weapons. In this regard, no one should have any doubt that a direct attack on Russia will lead to defeat and dire consequences for a potential aggressor.” Putin described the West as an “empire of lies,” and cast Russia as the victim of decades of U.S.-led actions that weakened his country, including NATO’s eastward expansion, its military campaign in Kosovo and the U.S. invasion of Iraq.

Russia halts vessels in Azov Sea, Black Sea open... Russia has suspended movement of commercial vessels in the Azov Sea until further notice but kept its ports in the Black Sea open for navigation, Russian officials and five grain industry sources told Reuters. Russia mainly ships its grain from ports in the Black Sea. The Azov Sea is shallower and its ports have smaller capacity. Russia-based consultancy SovEcon says there are two Ukrainian ports (2 MMT to 3 MMT in annual exports) and many Russian ports (12 MMT to 15 MMT of annual exports) in the Azov Sea. SovEcon estimates Ukraine has around 6 MMT of wheat left to export in 2021-22 and 13 MMT to 14 MMT of corn. It says Russia has around 7 MMT to 7.5 MMT of wheat left to export in 2021-22 and 1 MMT to 2 MMT of corn.

EU slated to unveil a strategy to break free from Russian gas... The Washington Post (WaPo) reports the new strategy – slated to be unveiled next week – will call for a 40% reduction in fossil fuel use by the year 2030. It also calls on European energy companies to fill their storage tanks with natural gas over the summer, to reduce Europe’s dependence on Russian gas supplies next winter. In the meantime, Europeans are feeling the squeeze. “In the short and medium term, there are no good options,” Nathalie Tocci, the head of the Italian Institute of International Affairs and an adviser to EU policymakers in Brussels, told WaPo. “The problem is not now, but next fall. And by next fall we will not have found the silver bullet.” Perspective: Russia is the third-largest crude oil producer, and the world’s largest natural gas producer. (Some 40% of the EU’s natural gas supply currently comes from Russia, while Moscow’s economy depends on oil and gas exports for roughly 36% of its country’s budget.) Roughly one in 12 barrels of oil the U.S. imports comes from Russia.

USDA’s initial 2022-23 projections... USDA released is initial 2022-23 balance sheets at the start of its annual Ag Outlook Forum this morning. 

• Corn: Planted acreage of 92.0 million, with harvested acres of 84.2 million and a yield of 181 bu. per acre would produce a crop of 15.24 billion bushels. Total supply is projected at 16.805 billion bushels. Total use is projected at 14.840 billion bu., including 5.65 billion bu. for feed and residual, 6.84 billion bu. for food, seed and industrial (5.4 billion bu. for ethanol) and 2.35 billion bu. for exports. Ending stocks are projected to climb to 1.965 billion bu. (13.2% stocks:use), with the average cash price expected to decline to $5.00.
• Soybeans: Planted acreage of 88.0 million, with harvested acres of 87.2 million and a yield of 51.5 bu. per acre would produce a crop of 4.49 billion bushels. Total supply is projected at 4.83 billion bushels. Total use is projected at 4.525 billion bu., including a record 2.25 billion bu. of crush and exports of 2.15 billion bushels. That would lower ending stocks to 305 million bu. (6.7% stocks:use). The average cash price is projected to fall to $12.75.
• Wheat: Total planted acreage of 48.0 million, with harvested acreage at 39.5 million and yield of 49.1 bu. per acre would produce a crop of 1.94 billion bushels. Total supply is projected at 2.708 billion bushels. Total use is projected at 1.977 billion bu., including domestic use of 1.127 billion bu. and exports of 850 million bushels. That would raise ending stocks to 731 million bu. (37.0% stocks:use) and lower the average cash price to $6.80.  
• Cotton: Total plantings of 12.7 million acres, with harvested acreage of 10.2 million and a yield of 856 lbs. per acre would produce a crop of 18.2 million bales. Total supply is projected at 21.7 million bales. Total use is projected at 18.2 million bales, including 2.65 million bales of domestic use and exports of 15.5 million bales. That would increase ending stocks to 3.6 million bales (19.9% stocks:use). The average cash price is projected to fall to 80 cents per pound.
• Cattle: Total U.S. beef production is projected at 27.4 billion lbs., down 2% from 2021. Exports are projected to decline to 3.27 billion lbs., down 5.1% from last year. The cash steer price for 2022 is forecast to average $137.50, $15.10 above last year and the highest price since 2015.
• Hogs: U.S. pork production is projected at 27.4 billion lbs., down 1.1% from last year. Exports are expected to decline 3.1% from last year to 6.81 billion pounds. The cash hog price is projected to average $65.00, which would be down $2.29 from last year.   

China soymeal prices hit a record high... China’s soymeal prices rallied to a record high on Thursday amid worries over tight supplies in the market even as the government plans to release soybeans from state-owned reserves. Dalian soymeal futures rose 5% to hit 4,064 yuan ($643) per metric ton. Crushers did not build up much inventory before the Lunar New Year holiday because of poor margins and came back from the holiday short-bought on supplies, Zou Honglin, an analyst with the agriculture division of Mysteel in China, told Reuters. Chinese soybean inventories last Friday were 3.017 MMT, down 14.4% from the previous week, and down 33.3% from last year. Soybean meal inventories fell 47.4% from a year ago, to 385,300 MT, according to data from Mysteel.

Weekly export sales data pushed back to Friday... Due to Monday’s government holiday, USDA’s export sales data for the week ended Feb. 17 will be released Friday morning.

Cash cattle trade higher... Trading volume so far this week has been light, but the cash cattle that traded were at prices around $2 higher than week-ago. Given relatively tight market-ready cattle supplies, feedlots remain optimistic about even stronger cash prices. But the technical price action in deferred live cattle futures could deter packers from raising cash bids from current levels.

Price action the rest of the week key for hog futures... April lean hog futures posted a key bearish reversal on Wednesday. While that’s a warning sign of a top, the market has brushed off any bearish daily price moves for quite some time. That makes price action the next couple days critical to determining if the market has put in a top. Active followthrough selling today and Friday would suggest April hogs have topped and a deeper corrective pullback is likely. A late-winter pullback before the market rallies to its summertime peak is rather typical for the April hog futures.

Overnight demand news... Egypt tendered to buy an unspecified amount of wheat from multiple origins, with results of the tender expected later this morning.

Today’s reports

• 6:00 a.m. USDA Ag Outlook Forum — Office of Chief Economist
• 8:00 a.m. Outlook for U.S. Agricultural Trade: February 2022 — ERS
• 9:30 a.m. Weekly Ethanol Production — EIA
• 2:00 p.m. CE: Corn, Soybeans, Sunflowers, Sorghum — NASS
• 2:00 p.m. Crop Values — NASS
• 2:00 p.m. Livestock Slaughter — NASS