First Thing Today | July 18, 2022

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Good morning!

Firmer tone to start the week... Corn, soybeans and wheat all traded solidly higher overnight amid a round of corrective buying. As of 6:30 a.m. CT, corn futures are trading 6 to 7 cents higher, soybeans are 21 to 26 cents higher and wheat futures are mostly 6 to 12 cents higher. Front-month U.S. crude oil futures are nearly $2 higher and the U.S. dollar index is down around 675 points.

Hot, mostly dry week ahead... Extreme temps will be seen across the Plains, western Corn Belt and Delta early this week and then again late in the week, resulting in crop stress, despite some scattered showers. The northern and eastern Midwest, however, will continue to see timely rainfall.

G20 fails to agree on capping Russian oil prices... Finance ministers from the G20 concluded their meeting in Indonesia over the weekend without an agreement to cap the price of Russian oil, as the U.S. had proposed. Treasury Secretary Janet Yellen continues to push a global price cap on Russian oil exports, with a target around $50 a barrel. Speaking at the outset of the G20 summit, Yellen characterized the oil price cap as both a powerful tool that would deprive Russian President Vladimir Putin of revenue and also help drive down consumer costs. Russia could copy its recent strategy on European gas sales: ship less, at higher prices, to countries that resist the cap. But some stress Siberian oil wells can’t be turned off for long periods without harming their future productivity.

Biden fails to secure OPEC+ production hike... President Joe Biden departed Saudi Arabia on Saturday without a firm commitment for an oil production hike, saying only that based on his conversations he expects “further steps in the coming weeks.” That suggests an announcement may be delayed until OPEC+’s August meeting.

Biden announces emergency board to block national rail strike... President Biden established a presidential emergency board (PEB) to tackle pay and schedule disputes between railroads and rail workers unions. The executive order issued Friday intervened in a massive strike set for today that would have delayed 30% of all U.S. freight. The White House action forces a 60-day pause to permit a “neutral” panel of three to spend 30 days coming up with a potential solution to the impasse between labor and the railroads. After PEB makes its recommendations, all sides have another 30 days to work out a deal or accept PEB’s solutions.

Fed study: Fiscal support fueled inflation... A Fed study concludes what many already knew: Pandemic fiscal support boosted inflation. Fiscal support enacted in many countries to support households during the Covid-19 pandemic helped to boost spending without increasing production, widening the mismatch between supply and demand and worsening inflation in some countries including the U.S., according to Fed research released on Friday.

Fed has long way to go to get inflation back to its target... “To get inflation back to 2%, the Federal Reserve will have to push the unemployment rate up significantly from the current 3.6%. Even an 0.5-percentage-point increase would probably mean a recession, because that’s what has always happened in the past when the unemployment rate has breached that threshold,” former New York Fed President Bill Dudley writes at Bloomberg Opinion. Meanwhile, Fed officials are preparing to lift interest rates another 75 basis points at the conclusion of its July 26-27 monetary policy meeting, the Wall Street Journal reported over the weekend. There has been recent speculation the Fed could go with a more aggressive 100-basis-point increase to interest rates.

The week ahead in Washington... Centrist Sen. Joe Manchin (D-W.Va.) said he couldn’t support a plan to fund climate measures with tax increases at this time, citing the risk of setting off more inflation. Manchin said in a radio interview Friday that he wanted to see evidence inflation was receding before committing to climate and tax provisions. Democrats have until Sept. 30 to complete a reconciliation measure. But Biden on Friday called on Democratic senators to pass a narrow bill to expand health-insurance subsidies through the Affordable Care Act and reduce the cost of prescription drugs. Biden’s statement effectively ruled out waiting any longer on Manchin. The House Agriculture Committee Subcommittee on General Farm Commodities and Risk Management on Wednesday will hold a hearing on “A 2022 Review of the Farm Bill: Stakeholder Perspectives on Title XI Crop Insurance.”  The Senate is likely to begin floor consideration during the coming week on a narrower economic competitiveness bill that would provide $52 billion in funding for semiconductor manufacturing grants and investment tax credits for the chip industry.

Indonesia temporarily scraps palm oil export tax... Indonesia has scrapped its export levy for all palm oil products until Aug. 31 amid bulging inventories. Indonesia will have to export 6 MMT of palm oil through August if it wants to cut its ballooning inventory levels back to normal, an industry association said. The country’s trade minister said authorities will set a crude palm oil reference price every two weeks, instead of monthly, so tax rates could track price movements more quickly, including when they decline. It was unclear whether the decision had been approved or when it would be implemented.

Chinese pork imports remain light... China imported 120,000 MT of pork in June, down 10,000 MT (7.7%) from May and 64.2% less than last year. Through the first half of this year, China’s pork imports at 800,000 MT fell 65.1% from the same period last year.

Big week for cattle data... In addition to the normal weekly focus on boxed beef and cash cattle trade, cattle traders will also get a barrage of key report data on Friday. USDA’s monthly Cattle on Feed and biannual Cattle Inventory Reports will provide key supply data on the U.S. cattle herd, while the Cold Storage Report will give traders an idea of how demand is lining up with supplies.

Cash hog index continues to climb... The CME lean hog index is up 76 cents to $114.15 (as of July 14), continuing its recent climb. August lean hog futures assumed lead-month status with the expiration of the July contract last Friday at a $4.325 discount to today’s cash index quote. That would be a slightly greater-than-normal seasonal decline in prices into mid-August, signaling traders feel the cash index is likely to top soon.

Weekend demand news... Egypt tendered to buy an unspecified amount of wheat to be sourced from the U.S., Canada, Australia, Argentina or Brazil.

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

 

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