First Thing Today | January 10, 2022
Weaker prices to start the week... Wheat futures are trading low range this morning, while corn and soybeans are near midrange. As of 6:30 a.m. CT, corn is trading around 2 cents lower, soybeans are 6 to 7 cents lower, winter wheat futures are 2 to 5 cents lower and spring wheat is mostly 5 to 8 cents lower. Front-month crude oil futures are around 50 cents lower and the U.S. dollar index is more than 200 points higher this morning.
Crop stress will build in Argentina... Hot, dry conditions were seen across Argentina during the weekend and will continue this week, which will increase crop stress, especially in the driest northern and eastern areas. Some areas of southern Brazil received rains over the weekend, but heat and dryness will be seen this week, especially Rio Grande do Sul, while northern Brazil will remain wet through midweek. After that, drier conditions are expected in central and northern Brazil, which will be beneficial for maturing soybeans in those regions.
Russia/Ukraine update... On Friday, NBC News reported that “U.S. officials are ready to propose discussions on scaling back U.S. and Russian troop deployments and military exercises in Eastern Europe.” But the report garnered quick pushback from the White House. On Thursday, British Foreign Secretary Liz Truss warned Russia that the U.K. is working on “high impact” sanctions Western powers could implement over allegations that Moscow is plotting to invade Ukraine. Secretary of State Antony Blinken on this week’s talks with Russia, on ABC’s This Week: “To make actual progress, it’s very hard to see that happening when there’s an ongoing escalation, when Russia has a gun to the head of Ukraine, with 100,000 troops near its borders, the possibility of doubling that in very short order. So, if we’re seeing de-escalation, if we’re seeing a reduction in tensions, that is the kind of environment in which we could make real progress, and again, address … reasonable concerns on both sides.” In a rare public and preemptive manner, U.S. officials told the New York Times what sanctions Russia can expect to face if it invades Ukraine. On the table: “cutting off Russia’s largest financial institutions from global transactions, imposing an embargo on American-made or American-designed technology needed for defense-related and consumer industries, and arming insurgents in Ukraine.”
Ports update... Covid-19 cases among dockworkers combined with a pandemic-fueled surge in cargo volumes to create a rare bottleneck at the Port of New York and New Jersey. By mid-afternoon last Friday, as a snowstorm interrupted operations, the port listed 11 ships at anchor, about the same as the 12 to 13 ships at anchor at the start of the new year. On the West Coast, there aren’t many visible signs of improvement. The average wait for berth space for ships arriving into Los Angeles hit a record 23.4 days last week, up from 20.9 on Dec. 1.
The week ahead in Washington... The Build Back Better (BBB) initiative is on ice as centrist Sen. Joe Manchin’s (D-W.Va.) $1.8 trillion spending offer for the social spending measure appears no longer to be on the table. The Senate Banking Committee conducts a hearing on Tuesday to weigh the renomination of Jerome Powell as chair of the Federal Reserve for another four-year term. Lael Brainard’s nomination as vice chair will be taken up by the same committee on Thursday, Jan. 13. Powell likely has the votes for an easy confirmation process. Brainard has strong support from Sen. Elizabeth Warren (D-Mass.) and other Democrats, but she will likely face some opposition from Republicans. Officials from NASA and NOAA (National Oceanic and Atmospheric Administration) will release their annual climate change report later today. On the economic front, U.S. consumer price data will be released on Wednesday, with producer price data scheduled for Thursday. The University of Michigan consumer sentiment index will be released on Friday. For agriculture, USDA’s barrage of January crop reports will come Wednesday, including final 2021 production estimates for corn and soybeans, Dec. 1 grain stocks, winter wheat seedings, along with updated U.S. and global balance sheets.
China sells 100% of wheat from its first auction... China sold all 506,568 MT of state-owned wheat reserves put up for auction last week. The 2014 and 2015 wheat stocks were sold at an average price of 2,707 yuan (around $425.00) per metric ton and was only available to millers. China will hold another auction with a similar quantity for sale on Wednesday.
Farm Bureau: more bipartisanship, more trade agreements, and more than just talk about climate... Any big convention can get its message lost in the number of presentations. But American Farm Bureau Federation President Zippy Duvall’s remarks to the annual convention was pointed: “Agriculture goes a lot deeper than just being … about climate.” His message to President Joe Biden and his trade policy officials: More trade agreements, including rejoining the renamed Trans-Pacific Agreement (TPA) and a Phase 2 for the expired trade accord with China. USDA Secretary Tom Vilsack addresses the meeting today, while Biden delivers his remarks via a recorded message.
WHIP+ for 2020 and 2021 disasters, including livestock and dairy, still awaited... USDA Secretary Tom Vilsack last year said regulations for some likely changes for the program could come in December. That did not occur, repeating an extended timeline for the aid program that has become all too common. USDA operation of the 2018 and 2019 programs was one of if not the worst implemented program in decades. Some information could surface this week as various groups will be meeting with USDA about the program.
Gov’t vaccine mandate is near... The departments of Treasury, Transportation and Agriculture as well as the General Services Administration, Social Security Administration and Nuclear Regulatory Commission are all expected to begin suspending employees who are not complying with the mandate in the coming weeks. The White House in November told agencies to hold off on harsher penalties until after the new year and to focus on education and counseling for those who had not complied with the mandate. Now, the Office of Management and Budget (OMB) says agencies can move forward with stricter measures at their discretion. Just under 98% of USDA’s 75,955 permanent employees are complying with the mandate, meaning about 1,587 employees are facing counseling and potentially more drastic measures.
Summers issues another warning... Former Treasury Secretary Lawrence Summers said even after the Fed’s recent hawkish pivot and after a selloff in Treasuries, both policy makers and investors are still underestimating what will be required to bring down inflation.
China's agricultural prices: -4.2% with hogs, +8.8% without them... How is farm price inflation affecting China? Dimsums blog calculated changes from major commodity prices collected over the past two years from the National Bureau of Statistics raw material price reports and the ag ministry to assess the overall picture, which it says is “quite cloudy.” Several ag commodities in China posted double-digit price increases in 2021. However, the average 42% in hog prices swamped everything else. Cotton prices had the strongest increase, a 38% rise from 2020. Eggs, corn, soymeal, soybeans and raw milk prices were up by 13% to 30%. Wheat, mutton and beef prices posted single-digit increases. Rice prices have been falling due to weak downstream demand, with many provinces launching minimum price purchases to put a floor under prices following the 2021 harvest. Chicken and peanut prices were down 2% and 5%, respectively. An overall index (weighted by value of these commodities' output) comes out to an average -4.2% price change in 2021. Hogs had an outsized influence on the index due to the huge value of their output. Recalculating the index excluding hog prices yields an 8.8% weighted average price increase, Dimsums calculates.
Cattle traders will monitor cash market... To stop short-term downward momentum in cattle futures, the cash cattle market likely must show some strength. That may depend on how much production plants lose to absenteeism due to Covid. While worker shortages weren’t widespread or severe last week, they did impact some plants and could have been a partial reason for the lower cash trade. Another factor in this week’s cash trade will be how much of last week’s showlist was cleaned up late Friday.
Cash market the focus for hog traders, too... The CME lean hog index is up 16 cents to $73.73. Despite the sharp drop in February lean hog futures last Friday, the lead-month contract ended $5.92 above the cash index quote. While that’s a relatively normal premium for this time of year, bears finished last week with momentum and could try to press the market lower.
Weekend demand news... South Korea tendered to buy up to 136,000 MT of optional origin corn. Iraq extended its deadline on a tender to buy at least 50,000 MT of milling wheat, which is restricted to about eight trading houses in the U.S. and Canada.
- 10:00 a.m. Export Inspections — AMS