First Thing Today | May 4, 2022
Good morning!
Firmer price action overnight... Trade was relatively light in the grain and soy markets for much of the overnight session, but buyer interest has picked up early this morning. As of 6:30 a.m. CT, corn futures are trading 3 to 6 cents higher, soybeans are 6 to 9 cents higher, winter wheat futures are 20 to 24 cents higher and spring wheat is 15 to 17 cents higher. Front-month U.S. crude oil futures are more than $4 higher and the U.S. dollar index is around 100 points lower this morning.
Another Fed rate hike coming this afternoon... The Fed is widely expected to raise interest rates by 50 basis points at the conclusion of the two-day Federal Open Market Committee meeting. But it will be what Fed Chairman Jerome Powell says during his press conference that will garner the most attention. Powell may provide new signals about how high officials think interest rates are likely to rise in the coming year or two and plans to shrink the central bank’s $9 trillion balance sheet.
La Niña could bring a dry 2022... “The dice are loaded for a lot of big fires across the West,” said Park Williams, a climate scientist at UCLA. “And the reason for that is simple: The vast majority of the western U.S. is in pretty serious drought.” If NOAA is correct, high temperatures and the lingering La Niña will have major impacts on urban and agricultural water use across the American West, including California’s increasingly extreme fire season. The federal government has already announced it will delay water releases from Lake Powell, the nation’s second-largest reservoir, because of worsening drought conditions along the Colorado River. To boost the shrinking reservoir, the U.S. Bureau of Reclamation said Tuesday it plans to hold back water to reduce risks of the lake falling below a point at which Glen Canyon Dam would no longer generate electricity. La Niña typically brings dry winters to Southern California and the Southwest. Now, with California’s rainy season largely past and a hot dry summer rapidly approaching, forecasters say La Niña has a 59% chance of continuing through the summer, and up to a 55% chance of persisting through the fall. Experts say this summer could be a repeat of last year, when fires burned more than 2.5 million acres across California — more than any other year except 2020. In the northern U.S., La Niñas are typically associated with colder, stormier-than-average conditions and increased precipitation. In the southern U.S., they’re known for warmer, drier and less stormy conditions.
EU to propose ban on all Russian oil imports... Brussels will propose a phased-in ban on imports of all Russian oil as member states prepare to discuss a sixth package of penalties against Moscow for its invasion in Ukraine. The measure would ban the import of crude oil in the next six months and refined oil product imports by the end of 2022.
Europe racing to stock up on oil and natural gas before tighter sanctions on Russian energy... Terminals to import liquefied natural gas took in a record amount of the fuel for the time of year in April, according to commodity-tracking firm Vortexa. Oil imports from non-Russian suppliers, meanwhile, hit their highest level since the start of the pandemic. Governments and companies are preparing for Russian imports to slow by seeking alternative sources from the U.S., Africa, the Middle East and Asia — as well as squeezing more supply out of Europe itself.
Ukraine’s April grain exports a third of year-ago... Ukraine exported 923,000 MT of grain in April, according to APK-Inform. That was down from 2.8 MMT for the month last year. The total included 768,486 MT of corn and 127,130 MT of wheat. Ukraine also exported 151,529 MT of sunflower oil and 169,681 MT of oilseeds, mostly sunseeds.
India plans less wheat, more rice in food program... India will allocate more rice instead of wheat for a food welfare program that entitles millions of poor citizens to 5 kilograms of free grain per month, according to a federal government order. The allocation of wheat for the Prime Minister’s Poor Welfare Grain Program has been cut to 7.1 MMT from 18.2 MMT. The allocation of rice has been raised to 32.7 MMT from 21.6 MMT previously. The reduced wheat allocation for the free food program comes amid expectations India will snap a string of five consecutive record wheat crops after a harsh heat wave in mid-March cut production.
Lure of current commodity prices acknowledged by Vilsack in CRP announcement... “Our conservation programs are voluntary, and at the end of the day, producers are making market-based decisions as the program was designed to allow and encourages,” he noted. That suggests USDA will not likely come close to the legislated maximum of 27 million acres to be in CRP for fiscal year (FY) 2023. With 22.1 million acres in the program currently, contracts on 4 million acres expiring Sept. 30, and only 2 million acres enrolled via this general signup, the program will remain millions of acres shy of the legislative cap which this USDA views as a goal, not a limit as is stated in law.
USTR starts required review of Section 301 tariffs on China... The Office of the U.S. Trade Representative (USTR) has readied a notice to appear in the Federal Register that it is launching the four-year review of the Section 301 tariffs put in place on China July 6, 2018, and Aug. 23, 2018. Under the Trade Act of 1974, the first step in the four-year review process is notifying representatives of domestic industries which benefit from the trade actions of the possible termination of the tariffs and provide them the opportunity to request that the tariffs be continued. They have a 60-day window to make those requests. For tariffs imposed via the July 6, 2018, action, those seeking to have the tariffs continued must submit their requests between May 7 and July 5. For the Aug. 23, 2018, action, comments are due between June 24 and Aug. 22. The review is taking place amid a backdrop of discord within the administration as U.S. Trade Representative Katherine Tai has pushed to keep the tariffs in place to preserve leverage with China relative to Beijing living up to terms of the Phase 1 agreement, while others including Treasury Secretary Janet Yellen have suggested removing tariffs would be a potential way to temper inflation.
Unintended consequences re: climate change provisions... Industry lawyers are warning that the climate change provisions of the Biden administration’s new environmental permitting rules will throw more proposed projects into the courts — potentially jeopardizing the very projects the White House wants to promote. Wind farms, solar arrays, and renewable energy transmission lines — all parts of the White House’s bid to cut domestic greenhouse gas emissions in half by 2030 — could be affected, according to attorneys.
Wholesale beef prices dive, movement improves... After a slow day of movement on Monday amid higher prices, yesterday’s losses in wholesale beef (down $3.00 for Choice and 89 cents for Select) triggered much stronger retailer buying as 176 loads changed hands. Tuesday’s wholesale beef trade provided more proof that retailers may be selective buyers of beef at current prices. Historically, the next two weeks are a period when grocers actively stock up beef for early summer features as the grilling season kicks off.
Hog market still trying to find a bottom... Funds continue to liquidate long positions in lean hog futures, further narrowing discounts summer-month contracts hold to the cash index. The technical posture and current price levels are too bearish, in our opinion – and the market is oversold. But more near-term price pressure is possible as the path of least resistance is down. A market bottom isn’t likely until money flow shifts.
Overnight demand news... South Korea purchased 50,000 MT of U.S. milling wheat. Taiwan purchased 55,000 MT of corn – expected to be sourced from South Africa. Tunisia tendered to buy 100,000 MT of soft wheat and 75,000 MT of feed barley – both optional origin.
See ‘Policy Updates’ for late-breaking morning news updates... For updates to items in “First Thing Today” or any late-breaking morning news stories, check “Policy Updates” on www.profarmer.com.
Today’s reports
- 9:30 a.m. Weekly Ethanol Production – EIA
- 1:00 p.m. FOMC meeting concludes – Fed
- 2:00 p.m. Broiler Hatchery— NASS
- 2:00 p.m. Milk cows and production by State and region (Annual) — ERS
- 2:00 p.m. Dairy Products— NASS
- 2:00 p.m. Noncitrus Fruits and Nuts - Annual — NASS
