First Thing Today | December 20, 2021

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Good morning!

Risk-off trade to start the week... Corn, soybean and wheat futures were unable to sustain initial strength overnight and are trading near session lows this morning as the overall marketplace adopted a general risk-off stance. As of 6:30 a.m. CT, corn is trading 2 to 4 cents lower, soybeans are 3 to 5 cents lower and the wheat market is mostly 8 to 13 cents lower. Front-month crude oil futures are more than $2 lower, while the U.S. dollar index is holding near unchanged.

Warmer, mostly dry outlook for southern Brazil, Argentina... Some rains fell on southern Brazil over the weekend, but they weren’t enough to stop net drying in the region. The situation was similar in northern Argentina. Periodic rains will occur across cropping areas of both countries this week but conditions are expected to be seasonably warm and mostly dry. World Weather Inc. says, “South America weather will continue to follow La Nina traditions with Argentina and southern Brazil getting less-than-usual rainfall, but enough to hold together crop development. This trend will continue for the next couple of weeks, but rainfall will be lighter than usual and temperatures slightly warmer biased.”

Russia proposes stricter wheat export tax formula... Russia plans to implement a stronger wheat export tax formula with a higher multiplier if prices rise to $375 per metric ton and it would increase again if prices get to $400 per metric tons, according to a proposal released late Friday. Russian wheat with 12.5% protein loading from Black Sea ports was at $334 a metric ton last week. As we reported in “Evening Report” on Friday, Russia also plans to cap grain exports at 11 MMT from Feb. 15 through June 30, 2022, including 8 MMT of wheat.

China’s November corn imports plunge, but sorghum and barley arrivals surge... China imported 790,000 MT of corn in November, the lowest volume in 19 months -- down 39.2% from October and 35.7% below year-ago. China’s imports of wheat at 750,000 MT in November were down 7.2% from last year. Arrivals of sorghum surged 117.3% to 530,000 MT and barley imports jumped 37.3% to 1.53 MMT.

China cuts interest rates... China's central bank cut its main interest rate for the first time in 20 months, as authorities step up efforts to boost an economy that has been hit by pandemic-related curbs, a real estate slump and an unprecedented crackdown on private enterprise. The People’s Bank of China today lowered its one-year loan prime rate (LPR) by 5 basis points to 3.8%. The LPR is the rate at which commercial banks lend to their best customers and it serves as the benchmark rate for other loans. While the rate cut is small, it’s the first such move since April 2020, when China slashed the LPR to boost its Covid-hit economy, which had just contracted for the first time in more than 40 years.

Most other central banks focus on dealing with rising prices... The Omicron variant of Covid is circling the globe, closing borders and sparking new restrictions on economic activity. But most central banks, instead of loosening monetary policy to prop up their economies as they did at the start of the pandemic, are moving to unwind stimulus and raise interest rates. Central bank officials worry that rather than simply threatening to curtail economic growth, a surge in Covid-19 cases could also prolong supply-chain disruptions and keep inflation elevated.

The week ahead in Washington... The Senate left town on Sunday morning without voting on President Joe Biden’s $1.75 trillion (or higher) social and climate spending plan, dubbed the Build Back Better (BBB) Act. Centrist Sen. Joe Manchin (D-W.Va.) left no doubt that he cannot support the measure, imperiling the president’s agenda, citing rising consumer prices, a growing federal debt and the arrival of a new Covid variant as reasons he could not supply his must-have vote to help his party adopt its signature spending package. Senate Majority Leader Chuck Schumer (D-N.Y.) promised to bring up BBB despite Manchin’s objections and vote on it “until we get something done.” Schumer pledged to force a showdown over voting rights legislation and threatened to try to change Senate rules on the filibuster. Both Manchin and Sen. Kyrsten Sinema (D-Ariz.) are opposed to any such rule changes. The economic data highlights this week are consumer confidence data on Wednesday and inflation figures on Thursday. For agriculture, there will be a flurry of livestock data, including the Cold Storage Report on Wednesday and the Cattle on Feed and Hogs & Pigs Reports on Thursday. Markets and government offices are closed on Friday for Christmas.

Goldman Sachs cuts 2022 GDP forecast... Citing the “apparent demise” of BBB, the Wall Street bank now expects GDP to grow at an annualized pace of 2% in the first quarter, down from 3% previously. Goldman Sachs also trimmed its GDP forecasts for the second quarter to 3% from 3.5% and the third quarter to 2.75% from 3%. It pointed to the expiration of the child tax credit and the lack of spending in other areas that had been anticipated.

Russia gives demands for easing Ukraine border presence... Russia released a list of demands that it wants from the West to ease tensions on its border with Ukraine, where Russia has massed tens of thousands of troops. They include a ban on Ukraine joining NATO and a limit to the deployment of NATO troops in the region. Russia’s government has previously said failure to agree to the proposal would lead to a “military response.”

China’s pork imports plunged in November... China imported 200,000 MT of pork in November, the same amount as October but down 38.7% from last year. Through the first 11 months of this year, Chinese pork imports at 3.54 MMT fell 10.3% from the same period last year.

Weaker cash cattle expectations... Cash cattle prices softened last week and are expected to be weaker again, as packers will run holiday-shortened schedules through year-end. Attention will be on whether the wholesale beef market can put in a low, which is likely needed before packers start raising cash cattle bids again after the holidays.

Ham prices remain volatile... The pork cutout value fell $5.67 on Friday, though most of the decline was due to a $22-plus plunge in ham prices. That could be the start of what is typically a price collapse once Christmas ham buying is completed. But at current levels, ham prices aren’t pricey by historical standards, which could limit seasonal pressure.

Weekend demand news... Jordan tendered to buy 120,000 MT of optional origin milling wheat. Algeria tendered to buy 50,000 MT of durum wheat from unspecified origins.  

Today’s reports

 

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