Traders Focus on Today’s USDA Update of Supply/Demand Forecasts (WASDE)

Posted on 04/09/2021 7:14 AM

Pelosi sees two bills for Biden plan


In Today’s Digital Newspaper


Market Focus:
• Commodity traders expect some changes in today’s USDA WASDE report
Powell repeats view that any upward pressure on prices is ‘transitory’
• Early 2021 consensus that U.S. dollar would trend lower was wrong
• Cboe Volatility Index closed at its lowest level since February 2020
• GM idles plants as chip shortage worsens
• China’s car sales recorded strongest quarterly growth in recent decades
• Texas cotton producers and merchandisers both looking closely at rain forecasts  •
• Ag demand update

Operations return to normal at Ukrainian ports after Russian military drills in the region
Argentine producers holding onto as many beans as they can

French soft wheat rating holds strong

Nutrien to cut emissions by 30% by 2030, including a carbon credit program  

Beef prices still rocketing higher, but cattle futures take a breather

Impressive bull run for lean hogs continues


Policy Focus:
• Manchin again says he would never support ending or modifying filibuster
• Pelosi sees two bills for Biden plan
• Senate to hold hearing on Highway Trust Fund


China Update:
• Senate approach to counter China is taking shape
• Chinese data raises inflation watch
• China finally hikes its corn import forecast

Energy & Climate Change:

• Biden to seek strategy on climate risks for public, private financial asset  
• Dakota Access Pipeline next focus with court date today

Food & Beverage Industry Update:
• McDonald’s closing hundreds of its Walmart restaurants
• FDA issues enforcement discretion guidance for unique facility identifier requirement

Coronavirus Update:
• Canada's most populous province declares another stay-at-home order  
• Powell: Covid-19 vaccination outside U.S. is threat to economic outlook


Other Items of Note:
• Iran’s chief negotiator at nuclear talks: sides focusing on removing U.S.
• Russia-Ukraine tensions
• Highest U.S. border crossings on record
• STB adopts final rule on demurrage billing requirements
• Cotton AWP declines again




Equities today: U.S. futures are indicating mixed openings. In Asia, most major benchmarks closed lower. The Shanghai Composite Index shed 0.9%, and Hong Kong’s Hang Seng Index declined 1.1%. South Korea’s Kospi edged down 0.4%.


     U.S. equities yesterday: The Dow rose 57.31 points, 0.17%, at 33,503.57. The Nasdaq gained 140.47 points, 1.03%, at 13,829.31. The S&P 500 was up 17.22 points, 0.42%, at 4,097.17. In bond markets, the yield on the 10-year Treasury note ticked up to 1.669%, from 1.632% Thursday. It remains below the 1.749% it hit at the end of last month.


On tap today:


     • U.S. producer-price index for March is expected to rise 0.4% from the prior month. (8:30 a.m. ET)
     • Canadian employers are expected to add 100,000 jobs in March and the unemployment rate to tick down to 8% from 8.2% a month earlier. (8:30 a.m. ET)
     • U.S. wholesale inventories for February are expected to rise 0.5% from the prior month. (10 a.m. ET)
     • USDA WASDE, noon ET. Analysts fully anticipate USDA will cut its estimate of old-crop corn carryover, but uncertainty as to how much. Analysts surveyed by Reuters signal they expect corn carryover to drop 106 million bu. from March to 1.396 billion bu. But Pro Farmer expects upward revisions to exports, feed/residual use and ethanol grind to drop carryover more in the 1.2 billion bu. vicinity. Soybean carryover is expected to edge down from an already tight 120 million bu. March estimate. Wheat carryover is expected to rise 11 million bu. to 847 million bu., while U.S. cotton carryover is expected to dip 90,000 bales to 4.11 million bales on a boost to exports and a slight cut to production, according to analysts polled by Bloomberg.
     • Dallas Fed President Robert Kaplan speaks to an Engage Undergraduate Investment Conference at 10 a.m. ET and to a Real Estate Roundtable event at 12 p.m. ET.
     • Baker Hughes rig count is out at 1 p.m. ET.
     • CFTC Commitments of Traders report, 3:30 p.m. ET.


Fed Chair Jerome Powell yesterday repeated his view that any upward pressure on prices is "transitory," while price increases resulting from supply chain bottlenecks should "eventually resolve themselves.” In remarks to the International Monetary Fund, Powell stated several factors were putting the nation "on track to allow a full reopening of the economy fairly soon." He also expressed concern over long-term "labor market scarring" and assured continued support for those out of work due to the pandemic. An unexpected rise in the number of Americans filing new claims for unemployment benefits kept a lid on the Wall Street buying enthusiasm on Thursday, but also led investors to trust Powell's statements of continuous support and calmed inflation jitters. "The pandemic accelerated changes in business," Powell declared at the IMF meeting. "It's important to remember we're not going back to the same economy. This will be a different economy. Businesses are adopting more efficient technologies and that may lead to hiring perhaps fewer people."


     Traders will be watching the latest report from the Labor Department this morning, which will disclose producer prices for March. The headline Producer Price Index is expected to rise 0.5% month-over-month, matching the gain seen in February.


Market perspectives:


     • Outside markets: The U.S. dollar index is firmer on a bounce after solid selling pressure seen much of this week. Nymex crude oil prices are slightly up and trading around $59.75 a barrel. Meantime, the yield on the benchmark 10-year U.S. Treasury note is presently fetching around 1.66%.

     • Early 2021 consensus that U.S. dollar would trend lower was wrong. The ICE U.S. Dollar Index, a measure of the currency against six major rivals, has so far bounced nearly 3% this year following a decline of 6.7% in 2020. In the first quarter alone, the dollar climbed 7.2% against the Japanese yen, while the euro in March dropped the most in three years against the greenback. What happened? Signs suggest the U.S. will outperform other major economies as Europe struggles with its Covid-19 vaccine rollout. A robust U.S. economic performance could also mean divergence in monetary policy, with the Fed tightening monetary policy relatively more quickly than the ECB. "That could see the pace of dollar appreciation accelerate this year," BofA wrote in a recent research note. Last month, Fed policymakers signaled that expectations for interest rates be kept at near zero through 2023, but some money markets are already positioning for a rate rise as soon as next year.


     • Cboe Volatility Index (VIX), also known as the "fear gauge," closed at its lowest level since February 2020 amid calm in stock markets that are trading around record levels. The VIX, a measure of expected price swings, ended the day below the key level of 20 for a seventh straight session.


     • Crude oil is narrowly mixed, with U.S. crude trading around $59.65 per barrel while Brent is around $63.15 per barrel. Futures were mixed in Asian action, with U.S. crude up 11 cents at $59.71 per barrel and Brent down two cents at $63.18 per barrel.


     • GM idles plants as chip shortage worsens. Scant supplies of in-demand semiconductors prompted the auto giant to halt production at several North American factories and extend shutdowns at others.


        Auto Prod   


     • China’s car sales recorded their strongest quarterly growth in recent decades, returning to pre-pandemic levels. Retail sales of passenger cars jumped 69% from a year earlier, the China Passenger Car Association said today. In the first quarter last year, Covid-19 sent sales plummeting 41%.


       China cars


     • Texas cotton producers and merchandisers are both looking closely at rain forecasts ahead. During the month of May into mid-June, critical insurance-related cotton planting deadlines unfold. On-site observations in Texas show a significant need for rainfall to get cotton planting underway. With an 83-cent a lb insurance guarantee, cotton users fear that unless rainfall comes before the various final plating date deadlines, producers will opt for the insurance payout.


     • Ag demand: Iraq’s state grain buyer is thought to have purchased around 60,000 MT of rice to be sourced from Pakistan.


Items in Pro Farmer's First Thing Today include (Link to subscribe to FTT):

     • Operations return to normal at Ukrainian ports after Russian military drills in the region
     • Argentine producers holding onto as many beans as they can

     • French soft wheat rating holds strong

     • Nutrien to cut emissions by 30% by 2030, including a carbon credit program  

     • Beef prices still rocketing higher, but cattle futures take a breather

     • Impressive bull run for lean hogs continues




— Manchin again says he would never support ending or modifying the filibuster. Democratic hopes that they could convince Sen. Joe Manchin (D-W.Va.) to modify or end the filibuster were crushed this week. "There is no circumstance in which I will vote to eliminate or weaken the filibuster," Manchin wrote in a Washington Post op-ed published Wednesday night. He described the stand as sticking up for small and rural states and said that only through compromise between Republicans and Democrats would the Washington paralysis end. The means Democrats and the Biden White House will have to compromise to get the 60 votes they need on must-pass bills not tied to reconciliation.  


— Pelosi sees two bills for Biden plan. House Speaker Nancy Pelosi (D-Calif.) said she expects President Joe Biden’s $2.25 trillion jobs/infrastructure proposal and another focused on social spending to support families will be packaged into two bills by Congress. The White House has said that Biden will propose an American Families Plan as soon as this month, besides the American Jobs Plan unveiled last week. The second bill will include expanded benefits for child care and some health measures. Some Democrats have called for both proposals to be wrapped into one giant package, fearing that there won’t be enough time and political capital to pass two multitrillion-dollar bills following the $1.9 trillion coronavirus relief law in March. Speaking in a virtual press conference yesterday, Pelosi said the House could pass the first infrastructure-focused bill before Congress’s July 4 recess, with the Senate finishing its work before August. She said she hopes that plan will be bipartisan, but she isn’t ruling out using the budget reconciliation process as a tool to pass some of the provisions without any Republican support. That is the same process Democrats used to pass the Covid-19 relief bill.


— Senate to hold hearing on Highway Trust Fund. The Senate Environment and Public Works Committee plans a hearing April 14 on Highway Trust Fund solvency, the Surface Transportation Funding Alternatives Program and other user-based revenue solutions. Robert Poole, director of transportation policy at Reason Foundation, said he is testifying next week at the hearing. Poole said the U.S. is not ready to plug in a federal mileage-based user fee yet and the public is not on board. “There’s probably, I hate to say it, another decade of research and larger pilot programs including maybe a federal one,” Poole said at a virtual event hosted by Squire Patton Boggs.


     Meanwhile, the Senate Banking, Housing and Urban Affairs Committee April 15 will also hold a hearing on surface transportation reauthorization and public infrastructure investment.




Senate approach to counter China is taking shape. A bipartisan bill was introduced directing the U.S. government to adopt a policy of “strategic competition” with China to “protect and promote our vital interests and values.” The 283-page bill crafted by the Senate Foreign Relations Committee is part of a push by Majority Leader Chuck Schumer (D-N.Y.) to vote this spring on a broad, bipartisan package designed to confront China’s economic and geopolitical power. The measure seeks infrastructure investment and technology developments to compete with China on global supply chains, science and technology. Besides the legislation introduced yesterday, the centerpiece of Schumer’s broader plan is the Endless Frontier Act, a bill to boost U.S. semiconductor development. The Senate Commerce Committee will hold a hearing on that proposal on April 14. The Foreign Relations panel is scheduled to act on its bill the same day.


— Chinese data raises inflation watch. China’s producer price index (PPI) climbed in March by the most since July 2018, rising 4.4% compared with year-ago. Higher commodity prices and strong domestic demand fueled the rise in factory-gate prices. China’s consumer price index (CPI) increased 0.4% last month, though food prices dropped 0.7% on a 18.4% year-over-year plunge in pork prices. Economists will focus on how actively Chinese factories pass on rising prices to consumers, both domestically and overseas. Any problem with global inflation is likely to start in China.


China finally hikes its corn import forecast. China’s ag ministry hiked its 2020-21 corn import forecast from 10 MMT to 22 MMT, an overdue increase considering its purchases and imports to date. Soaring domestic corn prices have made Chinese traders and feed users voracious buyers of corn and other feed ingredients like barley, sorghum and even wheat to help rebuild its hog herd. In response to African swine fever, China no longer allows the feeding of swill to pigs, amplifying its feed needs. USDA projects China will import 24 MMT of corn this marketing year and some analysts forecast the country could bring in more than 30 MMT of the grain. Another notable chance to China’s balance sheet was it raised its cotton import projection by 2000,000 MT, with imports now projected at 2.4 MMT. There has been speculation corporations’ shunning of cotton from Xinjiang region over forced labor allegations would boost Chinese imports. China made no changes to its soybean balance sheet, with imports still projected at 98.1 MMT.




— Biden to seek strategy on climate risks for public, private financial assets. President Joe Biden plans to direct his administration to develop a strategy on climate-related risks for public and private financial assets, according to a report by Bloomberg News, based on a document the news service said they have seen. The action is expected to come via an executive order that is not yet completed, with the report indicating the government-wide strategy would be required to be developed within 120 days.


     Several portions of the government would be involved, including the Treasury Department, Office of Management and Budget, National Economic Council, the report said. The Treasury Department would also work with the Financial Stability Oversight Council to share climate-related financial-risk data and issue a report within six months on efforts to address such risks within the respective purviews of each independent regulatory agency. 


     The action would require identification of the primary drivers of federal climate-risk exposure and then develop ways to quantify that risk for future budget plans from the administration.


— Dakota Access Pipeline next focus with court date today. The future operation of the Dakota Access Pipeline (DAPL) is the next energy-related issue that is poised for a decision relative to whether the pipeline that carries crude oil from North Dakota to other areas of the country will be able to keep operating. A hearing is set for today in the U.S. District Court for the District of Columbia on the DAPL, with rising expectations the pipeline could be shut down. The pipeline carries up to 570,000 barrels per day of crude from North Dakota and has been allowed to remain in operation despite the court cancelling a key permit for the pipeline and ordering a new environmental review of the DAPL route. The court threw out the permit that had allowed the pipeline to run through Lake Oahe.


     The U.S. Army Corps of Engineers is expected to update the court on plans for the pipeline, which could include the lengthy process of shutting it down. If that were to happen, the transit of Bakken crude would have to be shifted to smaller pipelines or be handled by rail.


     Ahead of the court date, North Dakota Attorney General Wayne Stenehjem sent a letter April 2 to the U.S. Army Corps of Engineers, seeking to be involved in the decision-making process on the pipeline owned by Energy Transfer LP. The Corps update could include the lengthy process of shutting it down. If that were to happen, the transit of Bakken crude would have to be shifted to smaller pipelines or be handled by rail. If the pipeline is shutdown, lawsuits are expected to be filed.




— McDonald’s is closing hundreds of its Walmart restaurants. The closures will leave around 150 McDonald’s stores at U.S. Walmart locations, down from roughly 1,000 at the peak of the 30-year partnership between the two companies.


— FDA issues enforcement discretion guidance for unique facility identifier requirement. The U.S. Food and Drug Administration (FDA) has issued enforcement discretion guidance to provide domestic and foreign facilities that manufacture, process, pack, or hold food for human or animal consumption in the United States until the end of the next food facility registration cycle — Dec. 31, 2022 — to submit a unique facility identifier (UFI) when completing their registration. 




 Summary: Global cases of Covid-19 are at 134,035,138 with 2,904,504 deaths, according to data compiled by the Center for Systems Science and Engineering at Johns Hopkins University. The U.S. case count is at 31,003,070 with 560,115 deaths. The Johns Hopkins University Coronavirus Resource Center said that there have been 174,879,716 doses administered, 61,317,491 have been fully vaccinated, or 18.7% of the U.S. population.


— Canada's most populous province just declared another stay-at-home order for the next four weeks. New, more contagious variants have taken hold in the country, which has had one of the slowest vaccine rollouts of major economies due to supply-chain issues and faulty government coordination. Data collected by a University of Oxford research project shows Canada had provided one or more doses to about 16% of its population as of Tuesday, whereas the U.S. had covered 32% of its population. Canada is also experiencing a shortage of doses that is partly related to the nature of its contracts with vaccine manufacturers. Canadian authorities say they are in talks with suppliers about speeding up the country’s timetable for vaccine deliveries.


— Federal Reserve Chairman Jerome Powell said the sluggish progress of Covid-19 vaccination outside the U.S. is a key threat to the economic outlook. While the U.S. is on track to vaccinate three-fourths of its population by late June and other wealthy countries are following suit, emerging-market economies are on pace to vaccinate just 28% of their populations by the end of the year.




— Iran’s chief negotiator at nuclear talks in Vienna said the sides were focusing on removing U.S. sanctions in a single step, in a statement of progress that didn’t specify what Tehran was offering in return. However, in Washington, the State Department declined to respond directly to the Iranian claim but said the White House's position remains that the U.S. will remove sanctions only after Iran returns to compliance with the nuclear deal.


— Russia-Ukraine tensions. In a phone call on Thursday, German Chancellor Angela Merkel told Russian President Vladimir Putin to scale down Russia’s military presence on its border with Ukraine, where Moscow has recently massed an unusual number of troops, alarming NATO and sparking panic among Western leaders. “The Chancellor demanded that this build-up be unwound in order to de-escalate the situation,” the German government said in a statement. In turn, Putin accused Ukraine of “provocative actions,” while Russia has said that its troops are simply on the defensive. Washington has also become increasingly worried about Russia’s border aggressions. “These are all deeply concerning signs,” White House Press Secretary Jen Psaki said on Thursday. Meanwhile, Ukrainian President Volodymyr Zelensky has flown to the eastern frontline to boost morale among soldiers, just two days after he urged NATO to find a path for Ukraine to join the alliance — a move that Moscow rejected at once, warning that it could escalate tensions along the border.


— Highest border crossings on record. Just under 19,000 unaccompanied children crossed the Mexican border into the U.S. during the month of March, the highest figure on record. Though the number of migrants traveling to the U.S. increased during the Trump administration’s final year in office, the record number coincides with a Biden administration decision to exempt children from a pandemic-related order that gives U.S. officials powers to immediately expel migrants without offering asylum.


— STB adopts final rule on demurrage billing requirements. The Surface Transportation Board (STB) adopted a final rule on April 6 requiring Class I rail carriers to include certain minimum information with demurrage invoices so rail customers can better verify the accuracy of carriers’ bills.


— Cotton AWP declines again. The Adjusted World Price (AWP) for cotton is at 64.92 cents per pound, effective today (April 9), down from 65.59 cents per pound the prior week, down for a third straight week. Meanwhile, USDA will establish Special Import Quota #25 for 38,619 bales of Upland Cotton April 15 applying to Upland Cotton purchased not later than July 13 and entered into the U.S. not later than Oct. 11.



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