First Thing Today | July 12, 2023

Good morning!

Followthrough buying in soybeans... Soybean futures extended this week’s gains ahead of USDA’s reports during overnight trade. Corn followed to the upside, while wheat traded mostly lower. As of 6:30 a.m. CT, corn futures are trading 1 to 2 cents higher, soybeans are 12 to 14 cents higher, SRW wheat is mostly a nickel lower, HRW is steady to a penny higher and HRS is mostly 1 to 2 cents lower. Front-month crude oil futures are modestly firmer and the U.S. dollar index is more than 200 points lower this morning.

July crop reports out later this morning... USDA’s updated balance sheets in the Supply & Demand Report at 11 a.m. CT will reflect adjustments to old-crop demand forecasts based on June 1 stocks. There will be major changes on the new-crop soybean balance sheet to reflect the sharp drop in planted acreage in the June 30 Acreage Report. An expected cut to the projected corn yield is anticipated to offset the higher planted acreage estimate. USDA will also release its first all-wheat crop estimate, including the initial survey-based forecasts for other spring wheat and durum.

France forecasts lower non-EU wheat exports... France’s ag ministry expects the country to export 9.6 MMT of wheat outside the EU in 2023-24, down 500,000 MT from 2022-23. But wheat exports within the bloc are forecast to rise 1.41 MMT from last year to 7.79 MMT.

Australia warns China on barley tariffs... Australia issued a stern warning to China over its ongoing review of import tariffs on Australian barley. Despite having agreed to a 90-day review period in April, China has sought a one-month extension. In a joint statement from Foreign Minister Penny Wong, and Trade Minister Don Farrell, the Australian ministers expressed their aspiration for the tariffs to be removed soon. They warned that, should these duties remain in effect beyond the four-month period, Australia would reignite the dispute at the World Trade Organization. This disagreement traces back to 2020, when China leveled an 80.5% import tariff on Australian barley imports for a five-year span. As a result, Australia decided to take its case to the WTO.

Low water levels on the Rhine River could cause supply chain issues... Decreasing water levels on the Rhine River pose risks of a supply chain crisis like last year and could result in increased transportation costs for firms dependent on the river for commerce. Water level measurements at Kaub, a crucial point west of Frankfurt, fell below 1 meter for the first time since March, as reported by German government data compiled by Bloomberg. This figure is significantly lower than the usual seasonal average, and fuel barge transportation to certain areas of inland Europe has already been limited. There is no immediate expectation of water levels dropping back to the shallow depths seen in 2022, yet the cost of shipping on the Rhine has been rising. The current price per ton for transporting fuel between the Netherlands and Karlsruhe, Germany, is notably higher than the five-year seasonal average. Container shipper Maersk has alerted its customers to “low water surcharges” for Rhine shipments.

China cuts cotton import forecast... China’s ag ministry cut its 2022-23 cotton import forecast amid weaker-than-expected demand from the textile industry. The ministry now expects China to import 1.45 MMT of cotton, down 400,000 MT from its prior forecast and 280,000 MT less than 2021-22. Chinese cotton imports are forecast by the ag ministry to rebound to 1.85 MMT in 2023-24.

China asks banks to respond to pessimistic Goldman report... China’s financial regulator asked banks to respond to a bearish research report on the sector by analysts at Goldman Sachs, according to Bloomberg, citing sources familiar with the situation. The National Administration of Financial Regulation communicated with several of the largest Chinese banks after Goldman analysts cut ratings on some shares and lowered price targets on others. The regulator told banks to respond appropriately, without giving specific guidance, the sources said. This underscores heightened sensitivity by Beijing toward negative market commentary as the Chinese economy slows.

Push to restrict tapping of CCC funds... Republican Sens. Chuck Grassley (Iowa), Roger Marshall (Kan.), and Mike Braun (Ind.) introduced a bill, the USDA Spending Accountability Act, seeking to restrict USDA’s access to the Commodity Credit Corporation’s (CCC) funds. Currently, the Agriculture Secretary has discretion to utilize CCC funds to support farmers with various issues. However, this proposed legislation would only allow the Agriculture Secretary to disburse funds when authorized by Congress, with hopes part of the saved money will fund the forthcoming farm bill. According to a Congressional Budget Office cost estimate, this restriction could save $8 billion over a decade. Of note: Half of the savings from the bill, as suggested by Grassley, should be dedicated to long-term agricultural research and expanding foreign market development, which will likely earn bipartisan support. Braun emphasized that reductions in unauthorized, wasteful spending will support programs farmers rely on, while Marshall affirms the bill would guard against undermining the role of Congress. The senators expressed dissatisfaction over the misuse of discretionary spending, especially on spending linked to climate-related projects and trade dispute compensations. They argue this unilateral spending often lacks congressional input and oversight, allowing room for potential abuse. The senators insist that government spending should be accountable, transparent and judicially conducted, ensuring U.S. dollars are utilized for programs that have been explicitly authorized by Congress.

Greater red ink in first nine months of FY 2023... The Congressional Budget Office (CBO) estimates the federal budget deficit for the first nine months of fiscal year (FY) 2023 reached $1.4 trillion, an increase of $875 billion from the same period the previous year. This rise in deficit is attributed to an 11% decrease in revenues and a 10% increase in outlays from October to June, compared to the same timeframe in fiscal year 2022.

Wholesale beef prices continue to drop... Boxed beef prices dropped another $1.67 for Choice and $2.09 for Select on Tuesday as the seasonal decline extended. Choice beef values are now nearly $31.00 below their mid-June peak. Seasonally, prices are likely to keep sliding until retailers start gearing up for Labor Day features – or prices are deemed to be “cheap enough” to encourage value buying. With Choice beef still well above $300.00, we doubt value buying will surface anytime soon.

Wholesale pork prices surging... The pork cutout value firmed another $4.04 on Tuesday amid a more than $19.00 surge in primal belly prices. But all other cuts except butts finished higher on the day, signaling widespread price strength. With BLT season just around the corner, bellies should continue to lead the seasonal climb in wholesale pork prices.

Overnight demand news... Algeria tendered to buy a nominal 50,000 MT of soft milling wheat. Japan received no offers in its tender to buy 60,000 MT of feed wheat and 20,000 MT of feed barley.

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
• 11:00 a.m. WASDE  — WAOB
• 11:00 a.m. Crop Production — NASS
• 11:00 a.m. Meat Price Spreads — ERS
• 11:15 a.m. Cotton: World Markets and Trade — FAS
• 11:15 a.m. Grains: World Markets and Trade — FAS
• 11:15 a.m. Oilseeds: World Markets and Trade — FAS
• 11:15 a.m. World Agricultural Production — FAS
• 2:00 p.m. Livestock and Poultry: World Markets and Trade — FAS
• 2:00 p.m. Broiler Hatchery — NASS