First Thing Today | July 31, 2023

Good morning!

Grains sharply lower to open the week... Corn, soybeans and wheat faced heavy price pressure during the overnight session. As of 6:30 a.m. CT, corn futures are trading 12 to 14 cents lower, soybeans are 22 to 27 cents lower, SRW wheat is 19 to 24 cents lower, HRW and HRS wheat are 14 to 16 cents lower. Front-month crude oil futures are around 75 cents higher and the U.S. dollar index is modestly firmer.

Some weather stress, some improved conditions... Temps have moderated from last week’s extreme levels, though crops in the Northern Plains and upper Midwest will continue to be stressed by a lack of rainfall. Central and southern areas of the Midwest are expected to see some rains this week, along with more moderate temps. The Delta is expected to remain hot and dry.

Russia will continue dialogue on peaceful resolution of Ukraine crisis with China, Brazil and Africa... Russia’s Foreign Ministry said Moscow would continue dialogue on prospects for a peaceful resolution of the Ukraine crisis with China, Brazil and African partners, Russian state-owned news agency RIA reported. The statement followed a Russia/African summit last week at which some African leaders pressed Russian President Vladimir Putin to end the war in Ukraine.

Pope urges Russia to restore Black Sea grain deal... Pope Francis on Sunday called on Russia to reverse its decision to abandon the Black Sea grain deal. “I appeal to my brothers, the authorities of the Russian Federation, so that the Black Sea initiative may be resumed and grain may be transported safely,” Pope Francis said. Addressing crowds in St Peter’s Square, the pope urged the faithful to continue praying “for martyred Ukraine, where war is destroying everything, even grain.”

Canada ready to intervene in port dispute... The Canadian government is prepared to step in to resolve a labor dispute that threatens operations at the country’s busiest ports. This follows the dockworkers’ rejection of a mediated agreement for the second time in July. The disagreement involves more than 7,000 dockworkers who went on strike on July 1 for 13 days, significantly disrupting trade through the ports of Vancouver — which is the busiest maritime hub in Canada — and Prince Rupert in British Columbia. Labor Minister Seamus O’Regan Jr. asked the Canada Industrial Relations Board to analyze whether the dockworkers union’s rejection of the deal eliminates the possibility of a peaceful, negotiated resolution. Depending on the board’s findings, the government has the authority to either set a new collective agreement for the disputing parties or declare final binding arbitration. O’Regan stated that the Canadian government is prepared for all possible outcomes.

The week ahead in Washington... The House and Senate are on their extended summer recess and won’t return to Washington until after the Labor Day holiday. Staff work on fiscal year (FY) appropriations work will likely continue. Drafting and other work on a new farm bill will also be a task for some staffers. Look for possible Senate farm bill news this week. A short-term extension for the farm bill appears likely, but the real deadline is the end of the year. Any need for an extension, however, could see some drama playing out in the House among hard-line Republicans. The economic focus this week will be Friday’s employment data for July.

Euro zone consumer inflation eases... Consumer inflation in the euro zone slowed for a fourth straight month, posting a 5.3% annual rise in July, down from 5.5% in June. Excluding unprocessed food and energy, inflation slowed to 6.6% from 6.8%. An even tighter measure excluding food, energy and tobacco held at 5.5%. Meanwhile, the euro zone economy experienced a 0.3% growth in the second quarter, slightly better than the anticipated 0.2% expansion. This growth followed a flat first quarter, with the upward trend likely driven by a moderation in inflation.

NHTSA proposes stricter fuel economy standards for light-duty vehicles... The stricter fuel-economy standards for light-duty vehicles from the National Highway Traffic Safety Administration (NHTSA) would increase the required average fuel efficiency for new cars and trucks from 49 miles per gallon (mpg) in 2026 to 58 mpg by 2032. Proponents note this would help consumers save money at the pump and lead to decreased pollution. Although the proposal does not directly mandate automakers to produce electric vehicles (EVs), it’s believed that enforcing these rules would heavily incentivize the industry to significantly upsurge EV sales to comply. Currently, EVs only account for about 7% of U.S. vehicle sales. NHTSA will collect public comments for 60 days about the proposed rules before finalizing them.

China’s manufacturing sector improves but still contracting... China’s official manufacturing purchasing managers index (PMI) inched up to 49.3 in July from 49.0 in June but remained below the 50-point mark that signals contraction in the industry. This marked the fourth straight month of contraction in China’s manufacturing sector.

China aims to boost consumption... China’s government is looking to enhance its economic recovery by increasing consumption but is avoiding the direct fiscal support to consumers and businesses for boosting spending. To this end, the National Development and Reform Commission, the country’s main economic planning agency, has published an extensive policy document. The policy features plans to lift various government-imposed restrictions which curb consumption, for instance, limits on car purchases. Further, the document aims at developing infrastructure and organizing promotional events, such as food festivals, which can indirectly incentivize consumer spending.

NPPC’s concerns with Prop 12 compliance... The National Pork Producers Council (NPPC) expressed concerns over the potential difficulties and uncertainty the U.S. pork industry will face due to California’s Proposition 12. The report noted that the law could significantly increase costs for tradespeople and farmers. Complying with the new legislation's requirements would involve constructing pig barns at an estimated expense of $3,400 to $4,000 per sow, a cost increase of approximately 25% compared to traditional communal housing and 40% more than solo stall housing accommodating the same number of animals. NPPC is advocating for a federal resolution to the issues posed by this law.

Cattle traders remain cautious... Last week’s cash cattle trade was limited with neither packers nor feedlots willing to budge on negotiations. That means this week’s showlist will be bigger. Typically, that favors packers in cash negotiations. But with tight market-ready supplies, one week of slow sales shouldn’t handcuff feedlots. We expect traders to remain cautious buyers of futures despite bullish supply fundamentals as they prepare for what’s likely to be another week of extended cash negotiations.

Cash hog index slips... The CME lean hog index is down 3 cents to $105.81 (as of July 27), the first daily drop since the end of May. August lean hog futures finished Friday $2.61 below today’s cash quote, though traders will likely be comfortable with the discount structure with the cash index hinting that a seasonal top may be close.

Weekend demand news... South Korea purchased 65,000 MT of corn expected to be sourced from Brazil. Algeria tendered to buy a nominal 50,000 MT of optional origin soft milling wheat.

See ‘Policy Updates’ for late-breaking morning news updates... For updates to items in “First Thing Today” or any late-breaking morning news stories, check “Policy Updates” on www.profarmer.com.

Today’s reports

• 10:00 a.m. Export Inspections — AMS
• 3:00 p.m. Crop Progress — NASS