Good morning!
Wheat extends Monday’s gains... Wheat futures found followthrough buying overnight amid heightened tensions with Russia and deteriorating U.S. winter wheat conditions, while the corn and soybean markets favored the downside. As of 6:30 a.m. CT, winter wheat futures are trading 7 to 9 cents higher, spring wheat is 5 to 6 cents higher, corn futures are 1 to 2 cents lower and soybeans are 6 to 9 cents lower. Front-month crude oil futures are near unchanged, while the U.S. dollar index is more than 300 points higher this morning.
Heightened attention on Russia/Ukraine situation... The Pentagon ordered 8,500 troops on higher alert Monday to potentially deploy to Europe as part of a NATO “response force” amid growing concern that Russia could soon make a military move on Ukraine. President Joe Biden consulted with key European leaders, underscoring U.S. solidarity with allies, despite reluctance from Germany. Biden administration officials said a final decision had not been made about whether to dispatch troops, but the U.S.-based soldiers and other personnel specializing in reconnaissance, intelligence, aviation and transportation were being placed on heightened readiness to be dispatched to Europe if needed. Biden has thus far ruled out putting American troops in Ukraine but has signaled a willingness to use U.S. military personnel to bolster NATO forces if requested. French and German leaders are scheduled to meet later today in Berlin to discuss the situation. Biden and Secretary of State Antony Blinken pledged to “impose massive consequences and severe economic costs” on Russia for any “additional aggression” against Ukraine. One possible measure would be booting Russia from international banking transactions. While such an action would be devastating to Moscow, it would also hurt its European trade partners. Separately, the U.S. is keeping a close eye on potential Russian cyberattacks, which the Department of Homeland Security warned could occur if Moscow perceives a U.S. or NATO response to a potential Russian invasion of Ukraine would threaten its long-term national security.
HRW wheat deteriorates more... Individual state crop conditions ratings released on Monday showed further deterioration of the HRW wheat crop during January due to drought in the Plains. The “good” to “excellent” ratings for HRW wheat dropped to 30% for Kansas (down three points from the end of December), 16% for Oklahoma (down four points), 7% for Texas (didn’t update at the end of December), 20% for Colorado (down five points), 36% for Nebraska (down three points) and 31% for South Dakota (down seven points). The Montana rating improved two points to 14% “good” to “excellent.” When the individual state crop ratings are plugged into the weighted Pro Farmer Crop Condition Index (CCI; 0 to 500 point scale, with 500 being perfect), the HRW crop plunged to a rating of 270.4, down 54.1 points from the end of November when USDA released its final national ratings until spring.
Consultant maintains Brazil and Argentine crop estimates, lowers Paraguay soybean crop peg... Rains across Argentina and southern Brazil, along with drier conditions in central and northern Brazil were enough for Crop Consultant Dr. Michael Cordonnier to maintain his crop estimates in both countries. He estimates Brazilian production at 134 MMT for soybeans and 112 MMT for corn. In Argentina, he forecasts production at 43 MMT for soybeans and 51 MMT for corn. However, farmers in Paraguay failed to catch a break from heat and dryness and Cordonnier cut his estimate by 1 MMT to 6 MMT.
Farmers around the world feeling pinch from higher prices... Rising prices are hitting food supply chains and high fertilizer costs are weighing on farmers across the developing world, the Wall Street Journal reports. That is forcing many farmers to cut back on production, signaling global food-price bills could go higher this year after hitting decade highs in 2021. The sector is being hit in part by global energy costs, which can flow through into fertilizer prices. Major fertilizer producers including China, Turkey, Egypt and Russia have also curbed exports, further dimming supplies. Farmers in the U.S. are feeling the pinch, but the impact is likely worse in developing countries, where small farmers have limited access to bank loans. Rising prices and diminished food shipments would exacerbate hunger, which is already acute in some parts of the world.
China’s feed wheat use to fall sharply... China’s use of wheat in feed rations is expected to be far below year-ago levels, due to increased corn supplies, reduced corn prices and higher wheat prices. New government restrictions prohibiting wheat sold from state stockpiles to be used by feed producers will also slash demand for wheat as a feedstock. Feed wheat use could fall to between 10 MMT and 24 MMT in 2021-22, down from more than 40 MMT the previous year, according to Reuters.
China to allow gene-edited crops in push for food security... China has published trial rules for the approval of gene-edited plants as it seeks to bolster its food security. The new guidelines published by China’s ag ministry come amid a raft of measures aimed at overhauling its seed industry, seen as a weak link in efforts to ensure the country can feed the world’s biggest population. The draft rules stipulate that once gene-edited plants have completed pilot trials, a production certificate can be applied for, skipping the lengthy field trials required for the approval of genetically modified crops. Beijing has also recently passed new regulations that set out a clear path for approval for GMO crops.
Supreme Court to review WOTUS issue... The Supreme Court could issue a new decision outlining the scope of Clean Water Act jurisdiction by this summer. The court announced Monday it will review a decision from the 9th U.S. Court of Appeals that accepted former Supreme Court Justice Anthony Kennedy’s test in the Rapanos case in 2006. That was a split decision that wetlands and other waters fall under federal jurisdiction if they possess a “significant nexus” to navigable waters. The petition was filed by an Idaho couple, Chantell and Michael Sackett, who dispute EPA’s determination that an area of their property is wetlands. The Biden administration moved to scrap the Trump-era Navigable Waters Protection Rule (NWPR), which abandoned the “significant nexus test,” and instead largely adopted the approach detailed by Justice Scalia in the Rapanos case. The administration has proposed rolling back WOTUS to an updated version of its pre-2015 definition — to include waters with a significant nexus to traditionally navigable waters — while the agency works on a broader rewrite in a second rulemaking. The outcome of the Sackett’s case could have major implications for the ongoing WOTUS rulemakings.
South Korea’s economy grew by 4% in 2021... That was the fastest pace of expansion in 11 years. Growth was driven by greater exports and construction activity, which more than made up for the slow recovery in the Covid-hit services sectors. The South Korean central bank expects exports to continue to power growth in 2022.
CFAP 2 payouts marginally changed... Payouts under the Coronavirus Food Assistance Program 2 (CFAP 2) remained at $19.07 billion as of Jan. 23, with original CFAP 2 payouts at $14.24 billion and top-up payments at $4.83 billion ($4.82 billion prior). CFAP 1 payments were unchanged at $11.76 billion as of Jan. 23, including $10.57 billion in original CFAP 1 payments and $1.19 billion in top-up payments.
Neutral Cold Storage data... USDA reported frozen beef stocks rose 13.4 million lbs. in December, whereas the previous five-year average was an 8.8-million-lb. increase during the month. Pork stocks dropped 3.2 million lbs. versus the five-year average of a 12.8-million-lb. decline during December. While the rise in beef stock was greater than normal and the drop in pork stocks fell shy of the December average, neither was enough to have a negative price impact.
New dairy export group formed... The International Dairy Foods Association (IDFA), the Port of Los Angeles and CMA CGM announced the formation of a Dairy Exports Working Group, focused on identifying and addressing supply-chain issues hampering U.S. dairy product exports. Their focus will be on West Coast ports where the majority of U.S. dairy product exports originate. The group will also look at efforts to streamline the movement of products from the interior U.S. to the West Coast. The group seeks to find ways to aggregate and streamline U.S. dairy exports from multiple suppliers, increase rail availability in interior locations to get product to West Coast ports, see if a “fast lane” concept for vessels agreeing to depart full or with fewer empty cargo containers is a viable option, set terms for exporters using empty containers and set guarantees to fix and surpass “ghost bookings.”
Beef prices rise, but movement slows... Wholesale beef prices firmed on Monday, with Choice up $1.09 and Select $2.46 higher, but packers moved only 80 loads of product. That’s two days in a row of light movement, which could signal retailers have secured their near-term needs after actively buying beef coming out of the holidays.
Cash hog index rises again... The CME lean hog index is up another 81 cents to $78.32, though that’s $8.005 above where February lean hog futures closed on Monday. The cash market is strengthening, trader attitudes are bullish and technicals are strong, but the bigger-than-normal seasonal strength built into February hogs may limit additional near-term strength and could lead to a corrective pullback.
Overnight demand news... Iran tendered to buy up to 60,000 MT each of corn, soymeal and feed barley from unspecified origins. Japan is seeking 47,841 MT of Australian wheat in its weekly tender.
Today’s reports
- 8:00 a.m. Food Price Outlook — ERS
- 11:00 a.m. State Stories — NASS