First Thing Today: Firmer tone to start the week
Firmer tone to start the week... Corn, soy complex and wheat futures firmed overnight, with December HRW and December HRS futures posting new contract highs. As of 6:30 a.m. CT, corn is trading 1 to 2 cents higher, soybeans are mostly 9 to 10 cents higher and wheat futures are mostly 6 to 8 cents higher. The U.S. dollar index is just above unchanged after two-sided trade overnight, while front-month crude oil futures are around 90 cents higher this morning.
Strong demand for China state-owned wheat reserves... China sold 891,938 (88.5%) of the state-owned wheat reserves put up for auction at an average price of 2,366 yuan ($371) per metric ton. The average price was well under last Friday’s price for corn (2,640 yuan) and wheat (2,610 yuan) in Shandong. This marked the first wheat auction of 2021-22.
Russian wheat prices rise; strong demand for Aussie wheat... Russian wheat with 12.5% protein loading from Black Sea ports for supply in the first half of November was $312 per metric ton free on board (FOB) at the end of last week, up $2 from the previous week, according to Russia-based consultancy IKAR. SovEcon, another Russia-based consultancy, pegged wheat prices up $3 to $316 per metric ton. Meanwhile, demand for Australian wheat is strong, with the country’s ports fully booked through December and buyers looking to book supplies for early 2022.
U.S. posts $2.77 trillion budget gap... The U.S. posted its second-largest annual budget deficit on record for 2021 as pandemic-relief spending sustained the federal government’s massive borrowing needs. The deficit for the fiscal year through September was $2.77 trillion, compared with $3.1 trillion seen in the previous year, a Treasury Department report showed. The gap was $897 billion less than forecast in the White House’s budget outline earlier this year. As a share of the economy, the deficit narrowed to 12.4% in the fiscal year, from 15% in 2020 — the biggest since World War II.
Yellen expects inflation to return to normal levels next year... “Inflation will remain high into next year because of what’s already happened, but I expect improvement by the middle to end of next year, second half of next year,” Treasury Secretary Janet Yellen said on Sunday. “When do you expect inflation to get back to the 2% range, which is considered normal?” CNN's Jake Tapper asked Yellen on State of the Union. “I expect that to happen next year,” Yellen replied. She cited Covid-19-related issues and supply problems as some of the reasons for inflation’s recent growth at its fastest pace in 30 years. “The Covid crisis markedly diminished spending on services and caused a reallocation of spending towards goods,” Yellen explained. “The supply of goods to Americans has increased substantially, but there's still pressure there.”
Average cost of shipping continues to rise... According to Freightos, an online freight marketplace, the average cost of shipping a 40-foot container from Shanghai to Los Angeles is about $17,400, compared with just $3,700 a year ago. Meanwhile, the Port of Los Angeles is struggling to keep up with the crush of cargo containers arriving at its terminals, creating one of the biggest choke points in the global supply-chain crisis. Waiting times at the Los Angeles and Long Beach ports, which move more than a quarter of all U.S. imports, have stretched to three weeks.
The week ahead in Washington... There is growing optimism a vote on the bipartisan infrastructure bill (BIF) and a trimmed down reconciliation spending proposal will eventually go to a vote. House Speaker Nancy Pelosi (D-Calif.) expects an agreement reflecting a consensus of all 50 senators on the tax and revenue portion of the Build Back Better bill to emerge early this week. She expects the House to pass the bipartisan infrastructure plan by week’s end — congressional sources signal a push for a vote Wednesday or Thursday. A formal deal on the around $1.75 trillion social safety net/climate change plan will allow a House vote on the Senate-passed infrastructure bill before surface transportation funding runs out on Oct. 31. On the economic front, the preliminary estimate of U.S. third quarter GDP will be released on Thursday. Economists' consensus estimate is for a seasonally adjusted annual growth rate of 4% after the economy grew 6.7% in the second quarter. For agriculture, USDA will release its updated food price outlook later this morning.
Cattle on Feed data friendly; Cold Storage neutral... Last Friday’s Cattle on Feed Report showed September placements down 2.9% versus year-ago and well below expectations for a 1.4% increase. That should support deferred live cattle futures. USDA’s Cold Storage Report offered no major surprises and should have limited market impact as beef stocks increased a little more than is typical during September, while the build in pork stocks was a little shy of normal.
Sorting out last week’s cash cattle tone... Cash cattle trade was relatively quiet ahead of the Cattle on Feed Report, meaning traders will have to wait on USDA’s weighted average data later this morning to get a good read on last week’s prices. Once traders have factored in the Cattle on Feed data, attention will return to wholesale beef trade and likely showlist volumes for this week.
Cash hog weakness to continue... The CME lean hog index is down another $1.13 today, extending the recent fall in cash prices. While the national direct cash price firmed 20 cents Friday, the cash index is expected to continue to weaken. December lean hog futures finished last Friday $10.375 below where the cash index is quoted today.
Weekend demand news... Exporters reported no sales or tenders.
Today’s reports
- 8:00 a.m. Food Price Outlook — ERS
- 10:00 a.m. Weekly Export Inspections — AMS
- 2:00 p.m. Poultry Slaughter — NASS
- 3:00 p.m. Crop Progress — NASS
