First Thing Today | August 15, 2022
Good morning!
Hefty price pressure to open the week... Soybeans led a round of heavy, broad-based selling across the grain and soy markets overnight amid favorable weather, heightened Chinese tensions and economic concerns, and pressure from outside markets. As of 6:30 a.m. CT, soybeans are trading 35 to 41 cents lower, corn is 15 to 16 cents lower and wheat futures are 17 to 24 cents lower. Front-month crude oil futures are around $4.50 lower and the U.S. dollar index is more than 550 points higher.
Rains, cooler temps for the next two weeks... Both the European and GFS models and their ensembles are signaling rains and cooler temps for most areas of the Corn Belt during the next two weeks. The Delta and Southeast will experience a mix of sunshine and rains, along with seasonal temps the next two weeks. World Weather Inc. says, “At least some rain will fall in these drier areas while temperatures are cooler biased in the next two weeks resulting in at least partial relief to crop stress, but more rain will still be needed.”
U.S./China tensions flare as more lawmakers visit Taiwan... Five U.S. lawmakers arrived in Taipei on an unannounced visit late Sunday, following a visit by House Speaker Nancy Pelosi earlier this month. In response, the People’s Liberation Army Eastern Theatre Command organized multi-service joint combat readiness patrols and combat drills in the sea and airspace around Taiwan on Monday. The exercises were “a stern deterrent to the United States and Taiwan continuing to play political tricks and undermine peace and stability across the Taiwan Strait.” China’s defense ministry said the lawmakers’ trip infringed on China’s sovereignty and territorial integrity and “fully exposes the true face of the United States as a spoiler and spoiler of peace and stability in the Taiwan Strait.”
China unexpectedly cuts interest rates amid dour economic data... The People’s Bank of China (PBOC) said it was lowering the rate on 400 billion yuan ($59.33 billion) worth of one-year medium-term lending facility (MLF) loans to some financial institutions by 10 basis points (bps) to 2.75% from 2.85% previously. PBOC also injected 2 billion yuan through seven-day reverse repos while cutting the borrowing cost by 10 bps to 2.0% from 2.1% previously. The surprise rate cut by PBOC came on the heels of disappointing economic data, as Chinese factory output, investment, consumer spending and real estate all weakened in July. The dour Chinese news added to fears of a global recession.
Ukrainian grain exports continue... Two more ships carrying grain left from Ukraine's Black Sea ports on Saturday, Turkey’s defense ministry said, bringing the total number of vessels to depart the country since the grain export deal was signed to 16. The first ship carrying Ukrainian wheat to be exported under the deal arrived in Istanbul for inspection on Sunday. The priority is “to free up space in the Ukrainian ports and get all those vessels frozen there the last few months to leave Ukraine with cargo, so [they] can get new ships in,” said a United Nations official.
Inflation concerns build in U.S. small business sector... Some 37% of U.S. small-business owners say inflation was their No. 1 concern, according to a July survey by the National Federation of Independent Business (NFIB). That was the highest level since 1979. “The uncertainty in the small business sector is climbing again as owners continue to manage historic inflation, labor shortages and supply chain disruptions,” NFIB Chief Economist Bill Dunkelberg said.
Fed officials: Fiscal policy helped fuel inflation... Government programs to help people through the pandemic fueled inflation, Federal Reserve economists François de Soyres, Ana Maria Santacreu and Henry Young write in a discussion paper. “We show that generous fiscal support contributed to an increase in the demand for consumption goods during the pandemic, but industrial production did not adjust quickly enough to meet the sharp increase in demand. This imbalance between supply and demand across countries led to high inflation... [But] one should also recognize the positive role played by generous government support throughout this unprecedented crisis. The large spending supported a strong economic rebound, with both GDP and employment recovering at a remarkable pace, likely preventing worse outcomes despite the price pressures that may have resulted from the spending.”
Russia’s GDP contracts less than expected... Russia’s GDP contracted 4% in the second quarter of this year, the first full quarter since Russia invaded Ukraine Feb. 24, the country’s statistics agency said Friday. The Russian economy was hit by a wide array of western sanctions, which have targeted its energy and financial sectors following its military assault on Ukraine. However, the 4% decline between April and June was much less than analysts expected.
Japan’s economy rebounds to pre-pandemic level in Q2... The world’s third-largest economy expanded 0.5% in the three months to June from the previous quarter and 2.2% on an annualized basis. Adjusted for inflation and seasonal factors, Japan’s economy in the latest quarter was bigger than in the final quarter of 2019, the first time it has accomplished that since the Covid-19 pandemic hit in early 2020.
Strong rebound expected in NOPA August crush... Members of the National Oilseed Processors Association (NOPA) are expected to report July soybean crush totaled 171.5 million bu., according to a Reuters survey. If realized, that would be up 4.2% from June and 10.6% above last year. It would also be the largest crush since March and the second biggest tally for July, behind only 2020. Soyoil stocks are expected to decline for a fifth straight month to a 10-month low of 1.713 billion pounds.
Indonesia to raise crude palm oil reference price... Indonesia will set crude palm oil reference price at $900.52 per metric ton for Aug. 16-31, up from $872.27 per metric ton the first half of the month, a senior official at the ministry of economics said on Monday. The reference price would place the export tax of crude palm oil at $74 per metric in that period. Indonesia has waived palm oil export levies until the end of August.
The week ahead in Washington... It will be a relatively quiet week with both the House and Senate on an extended summer recess after passing a slimmed-down version of President Joe Biden’s tax, climate and drug price measure. The U.S. will unveil a new trade plan with Taiwan in the coming days, the White House said, intended to deepen ties with the island. The economic focus will be Wednesday’s U.S. retail sales data and minutes from the latest Fed monetary policy meeting.
Firmer cash cattle expectations again this week... Traders will have to wait until later this morning to get the official cash cattle price for last week, though it seemingly increased for a second straight week. Traders come into this week cautiously optimistic cash prices will firm again.
Cash hog market remains well supported... The CME lean hog index is up 7 cents to $121.93 (as of Aug. 11) and just 75 cents below last year’s peak. Even if the cash index doesn’t top year-ago, there’s no reason to expect a sudden sharp drop. While slaughter supplies are starting to build seasonally, cash sources continue to signal packers are pulling hogs forward, which is supported by declining weights. That suggests the cash hog market will remain well supported.
Weekend demand news... Saudi Arabia purchased 180,000 MT of wheat.
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
- 10:00 a.m. Export Inspections — AMS
- 11:00 a.m. Feed Grains Database — ERS
- 2:00 p.m. Dairy Monthly Tables and Dairy Quarterly Data — ERS
- 2:00 p.m. Season Average Price Forecasts — ERS
- 2:00 p.m. Wheat Data — ERS
- 3:00 p.m. Crop Progress — NASS
