First Thing Today | July 5, 2022

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Good morning!

No overnight grain trade... Grain markets resume trading at 8:30 a.m. CT following the holiday weekend. Livestock markets also open at 8:30 a.m. CT. The U.S. dollar index is more than 1,100 points higher this morning, trading at the highest level since late 2002. Front-month U.S. crude oil futures are around 50 cents lower this morning.

Evidence inflation is cooling... Recent falling U.S. Treasury yields are one early clue U.S. inflation may have peaked. The yield on the 10-year U.S. Treasury note is fetching 2.891%. Another clue is falling commodity prices. “Moderating commodity prices are clear evidence that inflation is cooling,” said Louis Navellier, chief investment officer at money manager Navellier & Associates, in a Wall Street Journal item that concludes oil, wheat, natural gas, lumber, corn and other raw materials “ended a tumultuous quarter near or lower than March prices.”  JPMorgan Chase & Co. commodity strategist Tracey Allen said about $15 billion moved out of commodity futures markets during the week ended June 24. It was the fourth straight week of outflows and brought to about $125 billion the total that has been pulled from commodities this year, a seasonal record that tops even the exodus in 2020 as economies closed.

Russian-held part of southern Ukraine sells grain to Middle East... Russian-installed authorities in the southeastern Zaporizhzhia region of Ukraine, partly under Russian control, said on Tuesday that an agreement had been reached to sell grain abroad, mainly to the Middle East, TASS reported. The state-run news agency cited Yevgeny Balitsky, the head of the Russian-installed administration of the Zaporizhzhia region, as saying the planned deals included sales to Iraq, Iran and Saudi Arabia. He said Russian agricultural traders and state companies were buying grain from the region’s farmers. Ukraine has accused Russia of stealing grain from territories that Russia’s army has seized. Meanwhile, Turkish customs authorities have detained a Russian cargo ship carrying grain that Ukraine says is stolen, the country’s ambassador to Turkey said on Sunday.

Talks continue on restarting Ukrainian grain exports... Ukraine is holding talks with Turkey and the United Nations (UN) to secure guarantees for grain exports from Ukrainian ports, President Volodymyr Zelenskyy said on Monday. “Talks are in fact going on now with Turkey and the UN (and) our representatives who are responsible for the security of the grain that leaves our ports,” Zelenskyy told a news conference alongside Swedish Prime Minister Magdalena Andersson. “This is a very important thing that someone guarantees the security of ships for this or that country – apart from Russia, which we do not trust. We therefore need security for those ships which will come here to load foodstuffs.” Zelenskyy said Ukraine was working “directly” with UN Secretary General Antonio Guterres on the issue and the organization was “playing a leading role, not as a moderator.”

Consultant raises Brazil corn crop forecast... Brazilian farmers continue to report variable safrinha corn yields due to irregular rainfall and pest pressures, but good yields in central Mato Grosso are compensating for lower yields in other areas. As a result, Crop Consultant Dr. Michael Cordonnier raised his Brazilian corn crop estimate by 2 MMT to 112 MMT and he says production “might move a little higher” by the time harvest is complete. Brokerage StoneX raised its Brazilian corn crop estimate by 2.5 MMT to 119.3 MMT. The safrinha corn harvest in Brazil was 31% done as of late last week, according to AgRural. StoneX also raised its Brazilian soybean crop estimate by 2.6 MMT to 127 MMT.

Canadian acreage estimates out this morning... Statistics Canada is expected to report all-wheat plantings of 24.7 million acres, which would be down 300,000 acres from spring intentions but up 1.3 million acres from last year. Canola seedings are expected to total 21.3 million acres, up 400,000 acres from April but down 1.2 million acres from last year.

Indonesia raises palm oil export quota amid farmer ‘emergency’... Indonesia raised the palm oil export quota in a bid to cut soaring inventories of the edible oil, a trade ministry official said on Tuesday, without providing specific details. Industry officials warned farmers faced an “emergency” due to falling prices amid the inventory backlog caused by a three-week export ban that ended May 23.

Biden may announce a rollback of some U.S. tariffs on Chinese consumer goods this week... President Joe Biden may also announce a new probe into industrial subsidies that may lead to more duties in strategic areas like technology, Bloomberg and the Wall Street Journal reports. Chinese Vice Premier Liu He and U.S. Treasury Secretary Janet Yellen spoke by videoconference about topics including American tariffs on Chinese goods, amid expectations that the Biden administration could roll back some of the duties on more than $350 billion in Chinese imports this week. The Treasury Department described the conversation as “candid and substantive.” A reduction would mark Biden’s first major policy step on trade ties between the world’s two biggest economic powers and go against the leverage U.S. Trade Representative Katherine Tai wants to keep.

The week ahead in Washington... Congress is on recess this week. On Thursday, the House Agriculture Livestock and Foreign Agriculture Subcommittee will hold a listening session on “A 2022 Review of the Farm Bill: Perspectives from the Field,” to gather input from producers and consumers. The economic focus will be Friday’s employment report for June, which is expected to show the U.S. economy added 250,000 non-farm payrolls last month. The unemployment rate is expected to hold at 3.6%.

China plans infrastructure fund to boost economic growth... China will set up a state infrastructure investment fund worth 500 billion yuan ($74.7 billion) to spur infrastructure spending and revive a flagging economy, two people with knowledge of the matter told Reuters. The fund is expected to be set up in the third quarter, the sources said without providing further details.

Germany posts first trade deficit since 1991... Europe’s largest economy registered its first monthly trade deficit since May 1991. German imports rose 2.7% on the month, more than economists had expected, while exports fell 0.5%. The divergence led to a gap of €1 billion ($1.04 billion), which hadn’t been seen since just after the country reunited more than 30 years ago. Warning on Monday that Germany faced a “historic challenge,” chancellor Olaf Scholz added that “the crisis won’t pass in a few months” because Russia’s war in Ukraine “has changed everything, and supply chains are still disrupted by the pandemic.” Rainer Dulger, head of the Confederation of German Employers’ Associations, said Germany was facing the “toughest economic and social crisis since reunification… Difficult years lie ahead of us,” he added. “We can no longer take for granted the continuous economic growth that we experienced before the Covid-19 pandemic and the Ukraine war.”

Germany finds new cases of ASF... Two more case of African swine fever (ASF) have been confirmed on hog farms in Germany, the country’s ag ministry announced. One was in the western state of Lower Saxony, which was previously free of the disease and the other was in the eastern state of Brandenburg where the disease has been found before. Lower Saxony is Germany’s largest hog production area with about 6.4 million head, Germany’s national statistics office says.

China calls on hog sector to ensure steady supply as prices surge... China’s state planner urged hog producers to ensure steady supplies after prices surged in recent months. Hog prices in the world’s top pork producer are up 50% since early May, driven in part by tighter supplies following a reduction in the breeding herd. But the main reason is “irrational reluctance to sell and secondary fattening in the market,” the National Development and Reform Commission (NDRC) said. Secondary fattening refers to farmers buying market-ready hogs and raising them to heavier weights to benefit from high margins.

Weak period for beef demand... The Fourth of July is the last big “beef holiday” until Labor Day. Beef demand typically slumps until retailers start making purchases for Labor Day features around mid-August. But even if the beef market slumps and pulls cash cattle prices lower, nearby live cattle futures already hold sizable discounts to the cash market.

Summer-month hogs at discounts to cash... The cash hog market has slipped for a couple days in a row, which may suggest the summer high has been posted. But July futures finished last Friday slightly below the cash index and August hogs ended at around a $7.75 discount. The current price structure already anticipates a seasonal pullback in cash prices.

Weekend demand news... Egypt purchased around 444,000 MT of wheat, including 214,000 MT Russian, 170,000 MT French and 60,000 MT Romanian. South Korea tendered to buy up to 140,000 MT of optional origin corn to be sourced from the U.S., Black Sea/eastern Europe, South America or South Africa. South Korea tendered to buy up to 130,000 MT of optional origin feed wheat, excluding Argentina, Pakistan, Denmark and China. Japan is seeking 122,420 MT of wheat from its weekly tender.

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

 

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