First Thing Today | January 26, 2022
Wheat retreats from recent gains overnight... The wheat market faced profit-taking and corrective selling overnight following strong gains the first two days this week. Corn was pulled slightly lower by wheat, while soybeans favored the upside in two-sided trade. As of 6:30 a.m. CT, winter wheat futures are 11 to 14 cents lower, spring wheat is mostly 13 to 15 cents lower, corn is mostly 2 to 3 cents lower and soybeans are mostly 1 to 3 cents higher. Front-month crude oil futures are around 75 cents higher and the U.S. dollar index is about 150 points higher this morning.
NATO: Still a way to avoid Russia/Ukraine crisis... NATO says there is still a diplomatic way out of the Russia/Ukraine crisis, but Russia must show it’s ready to engage in good faith in political talks. Yesterday, Ukrainian Foreign Minister Dmytro Kuleba told CNN Ukraine “will not allow anyone to impose any concessions” on his country as part of efforts to de-escalate the threat. The Kremlin denies it is planning to invade and argues that NATO support for Ukraine, including increased weapons supplies and military training, constitutes a growing threat on Russia’s western flank. On Tuesday, President Joe Biden said he would consider personally sanctioning Russian leader Vladmir Putin, a threat which a Kremlin spokesman said would be tantamount to breaking off relations. Russian Foreign Minister Sergei Lavrov signaled that Moscow would respond to any “aggressive” action by the U.S. and its allies.
Major snowfall will provide isolated relief for a small portion of HRW wheat areas... An “impressive snow event” occurred Tuesday in the west-central Plains. World Weather Inc. reports, “Snow accumulations in a relatively narrow band extending from east-central Colorado into west-central Kansas varied from 10 to 27 inches, causing road closures and some livestock stress. The snow, when melted, will lead to a small region of improved topsoil moisture for a portion of hard red winter wheat country.” However, the weather watcher notes: “The area impacted by the greatest precipitation was extremely small relative to the entire hard red winter wheat production region. Most of the high Plains region from eastern Colorado [to] interior western parts of Kansas and western Texas continue to deal with drought and no serious change in the long-term outlook is expected.”
Fed expected to signal start of monetary tightening cycle... The Fed is expected to signal plans to start raising interest rates in March at the conclusion of the two-day monetary policy meeting to combat surging inflation. Fed officials will not provide updated economic and interest rate projections, but Chair Jerome Powell will hold a press conference. His words will be scrutinized for clearer direction on the path the Fed will take on interest rates and reducing its massive balance sheet in the months ahead.
The nation’s busiest container-port complex is showing signs of supply-chain fatigue... Import volumes at the ports of Los Angeles and Long Beach slumped 14% in December, the Wall Street Journal notes, even as the lineup of vessels waiting to unload at the gateway stretches to more than 100 ships. Loaded container imports tumbled to the lowest monthly level since June 2020 and fell year-over-year for the fourth straight month. Shipping industry experts say strained handling operations across the region may have hit a wall after running at a breakneck pace since the summer of 2020. The ports also face growing competition as importers look to get around the key supply-chain chokepoint. Container volumes at East Coast ports are growing and hopes for a fresh start to 2022 for Los Angeles-Long Beach have been met by a new, bigger wave of Covid-19 cases among dockworkers.
Chip issues drive more manufacturing supply-chain concerns... U.S. manufacturers and other companies are down to less than five days of inventory for key chips, raising concerns that any disruption in deliveries would rapidly cascade across manufacturing supply chains. The U.S. Commerce Department issued the report based on surveys that showed companies typically maintained 40 days of inventory for key chips in 2019. With inventories now wafer-thin, a closure of a supplier’s overseas factory for more than a few days can cause them to exhaust their stockpile. The report said the lead time for delivery of some chips in particularly short supply has doubled to between 103 and 365 days. The Biden administration is pressing for funds for a plan to increase domestic chip production. But building a factory for the complex electronic products can take years.
OPEC, Russian oil output falls short... OPEC and its Russia-led partners have promised to increase oil production to pre-pandemic levels this year but are falling short of those public commitments, stoking fast-rising global crude markets, the Wall Street Journal reports. Overall, the Organization of the Petroleum Exporting Countries (OPEC) and its Russia-led allies are pumping 790,000 barrels a day below their publicly stated targets, the International Energy Agency said. Instead of curbing prices, the group’s inability to increase production as promised has become a reason for traders to bet on higher prices.
DOE approves more exchanges of SPR crude... The Department of Energy (DOE) announced approval of seven additional exchanges totaling 13.4 million barrels of crude oil from the Strategic Petroleum Reserve (SPR) as part of their effort to combat high oil prices. DOE said exchange contracts were signed with Shell Trading US Company (4.2 million barrels); Trafigura Trading LLC (3 million barrels); Phillips 66 Company (2.3 million barrels); Macquarie Commodities Trading (2 million barrels); Chevron U.S.A. Inc. (0.885 million barrels); ExxonMobil Oil Corporation (0.515 million barrels); and BP Products North America (0.5 million barrels). DOE said this action brings the total of SPR crude released or exchanged to nearly 40 million barrels, the second largest tapping of the SPR in history. Those receiving the oil via exchanges will return the amount of crude received with an additional amount that depends on the length of time they hold the oil.
Marubeni to sell Gavilon grain business to Glencore... Japanese trading house Marubeni says it will sell its U.S.-based Gavilon grains business to commodities trader Glencore’s Viterra division for $1.125 billion, plus working capital. The deal is expected to be worth up to $3.5 billion. Marubeni will keep Gavilon’s fertilizer business and some grain export facilities.
China suspends pork imports from Italy... China’s ag ministry says it has suspended pork imports from Italy after the country recently detected African swine fever in a wild boar.
Cash cattle trade starts around steady prices... Initial cash cattle activity occurred around $137 in the Southern Plains on Tuesday, roughly steady with last week’s trade. Sales volume was light as most feedlots are seeking higher prices, while packers may be reluctant to raise bids, especially after the early initial sales at steady prices.
Hogs extend rally... Hog futures surged Tuesday following a court-ordered delay to California’s Proposition 12 rule. February hogs pushed to their highest level since July and deferred contracts scored new highs. The front-month contract finished Tuesday $9.00 above today’s CME lean hog index quote, while deferred contracts are overbought. The market is due for a correction, but bulls have strong momentum.
Overnight demand news... South Korea purchased around 193,000 MT of corn originating from the U.S. or Black Sea/eastern Europe. In a separate tender, South Korea purchased up to 70,000 MT of corn originating from the U.S. or Black Sea/eastern Europe. The Philippines purchased 35,000 MT of Australian feed wheat.
Today’s reports
- 9:30 a.m. Weekly Ethanol Production — EIA
- 1:00 p.m. FOMC meeting concludes — Fed
- 2:00 p.m. Livestock and Meat Domestic Data — ERS
- 2:00 p.m. Broiler Hatchery — NASS
- 2:00 p.m. Peanut Stocks and Processing — NASS
