First Thing Today | December 6, 2021
Mild price pressure to open the week... Corn, soybean and wheat futures opened firmer overnight, but are weaker and near their session lows this morning. As of 6:30 a.m. CT, corn is trading around 3 cents lower, soybeans are 4 to 5 cents lower and wheat futures are mostly 2 to 4 cents lower. Front-month crude oil futures are more than $2 higher and the U.S. dollar index is around 50 points higher this morning.
Vilsack signals USDA will unveil biofuel aid once EPA announces RFS levels... Once EPA releases its proposal for 2021 and 2022 Renewable Volume Obligations (RVOs) under the RFS, USDA Secretary Tom Vilsack said he hopes to be able to “provide more details on the distribution of $700 million of assistance” to the biofuels industry. If reports are accurate, EPA has reportedly told two Democratic Senate offices that volumes for both 2020 and 2021 will be retroactively lowered after pandemic-related delays but will be restored for 2022. The announcement will also reportedly propose changes that would allow more biofuels to qualify for credits under the RFS, including those partially processed at multiple facilities. Vilsack’s comments on the potential pairing of RVO and biofuel aid announcements could indicate the Biden administration is looking to temper potential biofuel industry disappointment on rumored lower 2020 and 2021 biofuel RVOs by announcing them alongside favorable moves on SREs and Covid-19 assistance for biofuel producers.
Biden to travel to Kansas City to tout infrastructure plan... President Joe Biden will travel to Kansas City, Missouri to promote his signature infrastructure package, signed into law last month. Biden will head to Missouri on Wednesday to discuss how the law “delivers for the American people by rebuilding roads and bridges, upgrading public transit, replacing water infrastructure, and creating good-paying, union jobs,” according to the White House. Biden has been promoting the law in several Midwestern states, including Minnesota and Michigan.
The week ahead in Washington... The focus in Congress this week will be dealing with the debt limit, with Treasury Secretary Janet Yellen saying the U.S. government will hit the ceiling on Dec. 15, though others have a later timeline. Negotiations continue in the Senate on the Build Back Better (BBB)/social spending measure. Majority Leader Chuck Schumer (D-N.Y.) is reportedly eyeing a vote as early as next week, a timeline many think will not be met. The final language and actual vote depend on centrist Sen. Joe Manchin (D-W.Va.). On the economic front, the focus will be Friday’s consumer inflation data, with another jump expected during November. For agriculture, the December crop reports will be released on Thursday, though there will be no updates to the corn and soybean crop estimates this month. That will put focus on demand projections for 2021-22.
China’s corn crop increased 4.6% this year... China's corn output rose 4.6% in 2021 to 272.6 MMT, according to the state statistics bureau. Corn acreage rose 5% this year, but the average yield fell 0.4% as flooding in the Huang-Huai-Hai River area damaged crops. Total grain output rose 2% from the previous year to a record 682.9 MMT.
China forms state-owned logistics group to strengthen supply chain... China established a new state-owned logistics group to strengthen domestic and global supply chains amid widespread disruptions caused by the pandemic. China Logistics Group is aimed at becoming a “global supply chain organizer” by developing international trade links and freight services, as well as cross-border e-commerce. The new company was formed through a merger of China Railway Materials, China National Materials Storage and Transportation Group, Huamao International Freight Limited Company Shenzhen Branch, China Logistics and China National Packaging Corporation. The group will also include as strategic investors the parent firms of China Eastern Airlines, COSCO Shipping and China Merchants Group.
China cuts RRR to boost economic activity... The People’s Bank of China will cut the reserve requirement ratio (RRR) for banks by 50 basis points, effective from Dec. 15, releasing 1.2 trillion yuan ($188 billion) in long-term liquidity to bolster slowing economic growth. This is the second time this year China’s central bank has cut the RRR. The cut will not apply to financial institutions with an existing RRR of 5%, it said, adding that the weighted average RRR for financial institutions will be at 8.4% after the new reduction. The RRR for large banks, after taking into consideration the preferential policy of targeted cuts for inclusive financing, is currently at 10.5%.
The world is decoupling from China... “China’s surprisingly rapid slowdown is eliciting familiar warnings that, as China goes, so goes the global economy. Only China may not matter as much as it once did. Not so long ago most economies were growing in close step with China. But in recent years those links weakened, then collapsed during the pandemic. Most dramatically, the correlation between GDP growth in China and other emerging markets fell since 2015 from nearly perfect (over 0.9) to barely visible (under 0.2). In the second quarter this year, China grew significantly slower than other emerging markets for the first time in three decades, which may be a sign of things to come," Morgan Stanley Investment Management Chief Global Strategist Ruchir Sharma writes in the Financial Times.
Cargill Canadian beef plant workers accept contract offer... Workers at Cargill's beef-processing plant in High River, Alberta, voted in favor of the company's latest contract offer on Saturday, averting a strike. The deal includes new procedures to ensure worker health and safety, new benefits, new rights for sick employees and “more money,” the United Food and Commercial Workers Union said. The plant processes up to 4,500 head of cattle per day, or 35% of Canada's beef-processing capacity.
Focus remains on cash cattle trade... Packers paid up for cattle again last week, though price action in live cattle futures suggests trade may sense a short-term top is close. If packers dig in their heels and don’t raise cash bids again this week, downside risk should be limited by the discount futures are trading to the cash market and relatively tight market-ready supplies.
Hog traders focused on cash trade, too... Recent trade in winter-month lean hog futures suggest traders may sense the cash market is near a seasonal low. But the cash index is down 33 cents today, ending a modest two-day increase to finish last week. Until the cash index turns consistently higher, buying in hog futures is likely to be limited given their premiums to the cash index.
Weekend demand news... Saudi Arabia purchased 689,000 MT of wheat, with the seller having the option of sourcing from the European Union, Black Sea region, North America, South America or Australia. Jordan tendered to buy 120,000 MT of optional origin milling wheat.
Today’s reports
- 10:00 a.m. Export Inspections — AMS
