First Thing Today | March 1, 2022

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Good morning!

Winter wheat futures surge to contract highs... Winter wheat futures surged overnight, taking out last week’s highs amid disruptions to wheat exports from the Black Sea region. May corn futures traded near their highs, while soybeans and spring wheat remained well below last week’s peaks. As of 6:30 a.m. CT, winter wheat futures are trading mostly 42 to 48 cents higher, spring wheat is 23 to 28 cents higher, corn is 16 to 24 cents higher and soybeans are mostly 39 to 44 cents higher. Front-month U.S. crude oil futures are more than $4 higher and the U.S. dollar index is around 250 points higher this morning.

Russia/Ukraine update... Delegations from Russia and Ukraine agreed to continue negotiations after a meeting on the border with Belarus ended Monday with few signs of progress. Russian forces are getting in position to encircle the Ukrainian capital Kyiv, U.S. officials warned on Monday. Kharkiv, Ukraine’s second-largest city came under intense missile fire on Monday.

Russia issues warning to countries supplying weapons to Ukraine... Russia’s Foreign Ministry on Monday issued an apparent warning to European Union countries providing weapons to Ukrainian defense forces. “There will be a harsh response to the EU actions. Russia will continue to ensure the achievement of vital national interests irrespective of the sanctions or their threat. It is time Western nations realized that their complete dominance in the global economy is long gone,” the Foreign Ministry told Interfax. It then warned that “EU citizens and entities involved in the delivery of lethal weapons, fuel, and lubricants to Ukraine will bear responsibility for any consequences of such actions to manifest themselves during the ongoing special military operation.”

Congress eyeing humanitarian and military aid package to Ukraine... The leading option is to include it in the massive omnibus spending bill Congress needs to pass by March 11. The White House is seeking as much as $6.4 billion, according to a request sent to Congress on Friday evening. Some $2.9 billion would be for humanitarian assistance, including for border nations facing a wave of Ukrainian refugees. The remaining $3.5 billion is for military aid via the Pentagon. Biden has already authorized hundreds of millions of dollars in new weapons for Ukraine, including Javelin anti-tank missiles and Stinger anti-aircraft missiles. Some lawmakers, including Sen. Chris Coons (D-Del.), have called for a $10 billion Ukraine package.

Sanctions expanding for Russia, but don’t include energy yet... Roughly $400 billion of Russian government money is held in the G7 and is now blocked from being exchanged or used to prop up the ruble. Switzerland will freeze Russian assets. Swiss national bank data showed that Russian companies and individuals held assets worth more than $11 billion in Swiss banks in 2020. But Russia is still pumping and exporting vast amounts of oil and natural gas to the rest of the world, delivering cash in the face of Western sanctions and a financial cushion for President Vladimir Putin. Gas exporter Gazprom PJSC and oil company Rosneft PJSC fund a large chunk of the Russian state and are among the country’s largest employers. Neither have been targeted by major Western sanctions, a sign of their importance in the global energy markets, the Wall Street Journal reports. Many observers say sanctions against Russia won’t really bite until they include energy. Meanwhile, Russia closed its stock market on Monday and it will remain closed today with no indication yet on when it'll reopen. The Kremlin barred Russians from transferring foreign currency overseas or servicing foreign-currency debt outside the country to stem the damage from Western sanctions. The central bank reportedly ordered financial institutions to block foreign clients from selling Russian securities.

Others facing sanctions, too... Belarus is now being hit with the same sanctions as Russia as it begins to deploy troops against its neighbor Ukraine. The U.S. has suspended its embassy operations in Belarus, and all American personnel have left the country, according to Special Envoy for Belarus Ambassador Julie Fisher. “Belarus’ complicity in Russia’s war against Ukraine has shown the regime’s loss of sovereign decision-making,” Fisher said. Meanwhile, China would potentially be hit by punitive economic measures imposed on Russia if its businesses and banks try to help Moscow. Two major state-owned banks in China are restricting financing for purchasing Russian commodities. But the People’s Bank of China has a multi-billion-dollar currency swap with Russia’s central bank, allowing the two nations to provide liquidity to businesses so they can continue trading, Bloomberg reports. China has also signed Russian banks onto its homegrown payments settlement system, seen as an alternative to the SWIFT network, which many Russian lenders will be banned from using.

Biden’s first State of the Union address tonight... President Joe Biden will grasp a chance to pivot on several areas tonight when he delivers his first State of the Union address to U.S. lawmakers. The speech has already seen a substantial rewrite since Russia’s invasion and will include a rebranding of his Build Back Better initiatives after they ran aground in Congress. Iowa Gov. Kim Reynolds will deliver the Republican party response following Biden’s address, and in a signal of Biden’s domestic troubles, Democratic Rep. Rashida Tlaib (D-Mich.) will also respond to the speech on behalf of the progressive wing under the umbrella of the Working Families Party.

Consultant leaves South American crop estimates unchanged... Crop Consultant Dr. Michael Cordonnier made no changes to his South American crop estimates, as weather the past couple weeks has improved enough to stabilize crops. In Brazil, Cordonnier estimates production at 124 MMT for soybeans and 112 MMT for corn. In Argentina, he pegs the crops at 39 MMT for soybeans and 49 MMT for corn. His Paraguay soybean crop stands at 5 MMT.  

Soy crush, corn ethanol use expected to be down from December... USDA is expected to report January soybean crush totaled 193.7 million bu., which would be down 4.5 million bu. (2.3%) from December’s record and 2.8 million bu. (1.4%) below last year. Corn-for-ethanol use is expected to decline 13.8 million bu. (2.8%) from December to 472 million bu., though that would be up 13.8% from last year.

China’s factory activity grows in February... China’s official manufacturing purchasing managers index (PMI) inched up to 50.2 in February from a 50.1 reading the previous month. The Caixin/Markit manufacturing PMI rose to 50.4 from a two-year low of 49.1 in January. The data showed both smaller, privately owned factories and larger, stated-owned manufacturers both expanded, though inflationary pressures remain a concern.

Futures, cash cattle headed in opposite directions... Last week’s average cash cattle price firmed 86 cents to $143.22. February live cattle futures expired $2.72 below that level and the new lead-month April contract closed $1.795 below last week’s cash price on Monday. Cash sources expect the cash market to continue to strengthen into spring, meaning futures are undervalued, though that may not matter as long as outside markets remain such a major price determinant.

Pork cutout unable to hold morning gains, cash index continues to climb... The pork cutout value firmed $7.60 Monday morning, but fell to a $1.05 loss for the day, largely because ham prices plunged more than $25 from their morning high. Meanwhile, the CME lean hog index is up another 69 cents to $99.09. April hogs finished Monday $4.41 below the cash index.

Overnight demand news... Taiwan tendered to buy 65,000 MT of corn to be sourced from the U.S., Brazil, Argentina or South America. Japan is seeking 83,136 MT of U.S. wheat in its weekly tender. Tunisia tendered to buy 75,000 MT of optional origin durum wheat.

Today’s reports

 

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