First Thing Today | June 3, 2022

Good morning!

Mostly weaker near end of overnight trade... Two-sided trade was seen in grain and soy futures overnight, but markets are softening this morning, led lower by soybeans and soyoil. As of 6:30 a.m. CT, corn futures are trading narrowly mixed, soybeans are 7 to 10 cents lower, SRW wheat futures are 6 to 7 cents lower, HRW wheat futures are narrowly mixed and HRS wheat is mostly 6 to 8 cents higher. Front-month crude oil futures are around 35 cents lower and the U.S. dollar index is near unchanged.

Belarus ready to discuss transit of Ukrainian grain... Belarus leader Alexander Lukashenko said Minsk was ready to discuss the possible transit of Ukraine’s grain via his country, with some “compromises.” Local newspaper Belarus Today quoted Lukashenko as saying, “Now everyone is looking for logistics... Okay, we can talk. We do not mind: bring it through Belarus, but there must be compromises,” without specify what compromises he sought. Exports from Ukraine via Belarus have been one of the options in wide discussions led by the United Nations which aim to boost global grain supply. Unblocking of Ukraine’s Black Sea ports is another option. U.N. Secretary-General Antonio Guterres cautioned earlier this week that any agreement to unblock shipments of commodities from the region was still a ways off because “the fact that everything is interlinked makes the negotiation particularly complex.” Moscow and Minsk have blamed Western sanctions for disrupting exports of grains and fertilizers. The problem is caused by “the policies that the West and the rich countries, especially the United States, are pursuing today,” Lukashenko was quoted by news agency Belta as saying.

Hurdles galore in getting grain out of Ukraine... Here a few of them cited by Bloomberg:

• Naval escorts are possible, but there are differences and dangers with this possible option.
• Possible overland to the Baltic. The task is complicated by a dearth of truck drivers and the fact that the Soviets used a wider track gauge than the European standard.
• Ports in Romania and Poland are backed up with traffic or at capacity. Trade officials warn that bottlenecks will get worse as the rest of Europe starts harvesting its wheat next month.

U.S. announces more sanctions... The U.S. added 71 entities based in Russia and Belarus to the Entity List that prohibits American firms from doing business with them without getting a government license. The U.S. Treasury Department also announced a new round of sanctions targeting what it said were yachts linked to Vladimir Putin as well as allies of the Russian president, in the latest set of penalties over the war in Ukraine.

Global food prices ease but still near recent record high... The UN Food and Agriculture Organization (FAO) global food price index eased for a second straight month after hitting a record high in March but was still 22.8% above year-ago. Declines in the price of vegoils, dairy and sugar more than offset increases in cereal grains and meat. Compared to year-ago, prices surged 13.6% for meat, 16.9% for dairy, 29.7% for cereal grains, 31.1% for vegoils and 12.6% for sugar.

Gas, diesel prices hit another record, will keep climbing... The national average retail price of regular unleaded gasoline reached a record $4.761 today, according to AAA, up 16 cents from a week-ago and $1.72 (56.5%) above last year. The average price of diesel reached a record $5.581, up nearly $2.40 (75.2%) from last year. The average gasoline price topped $6 in California, while Washington, Oregon, Nevada, Arizona, Alaska, Hawaii and Illinois all had averages above $5. The cheapest average gas price is in Georgia at $4.221. Industry sources say demand isn’t falling as low as supply, signaling high prices aren’t curbing usage. Fuel prices will continue to push higher until demand slows.

Weekly Export Sales Report out this morning… For the week ended May 26, traders expect:

ERP questions and answers... USDA will continue to update the Emergency Relief Program (ERP) frequently asked questions website. Also, a USDA/FSA fact sheet on ERP can be found here. Meanwhile, here is an updated formula payment explanation from Combest, Sell & Associates:

• Estimated ERP Payment (Box 11 of FSA Form 520) = Target Revenue minus (-) calculated revenue
• Target revenue is the “Expected Value of the Crop” (APH x Price Guarantee) multiplied by the relevant “ERP factor.”
• Calculated revenue is the sum of “Actual Value” (realized production x price) plus any “Crop Insurance Proceeds” (MPCI, SCO, ECO, STAX, etc.) less or minus “Producer Premiums and Administration Fees.”
• The “Estimated ERP Payment” in Box 11 of the FSA Form 520 is the difference between this target revenue and calculated revenue.

French wheat crop ratings continue to deteriorate... The condition of France’s soft wheat crop declined for a fifth consecutive week amid persistent dryness. France’s ag ministry rates 67% of the crop as good/excellent, down two percentage points from last week. The crop rating plunged 22 points over the past month amid hot, dry conditions.

Another big jump in Russian wheat export tax... Russia’s wheat export tax for June 8-15 will be $129.20 per metric ton, based on an indicative price of $383.40 per metric ton. The tax is up $8.00 from the previous week and a surge of $18.70 from the end of May.

Slower jobs growth expected... Economists expect the Labor Department to report the U.S. economy added 325,000 non-farm payrolls in May, according to a Reuters poll, down from 428,000 in April. The unemployment rate is expected to slip to 3.5% from 3.6% in last month’s report.

‘All options’ to be considered in U.S. review of tariffs on China... The Biden administration is considering “all options” as it reviews potential changes to U.S. duties on Chinese imports, including tariff relief and new trade investigations in a shift of focus to strategic concerns with Beijing, Deputy U.S. Trade Representative Sarah Bianchi said on Thursday. Bianchi told Reuters the agency is seeking to address long-term challenges from China and “getting a tariff structure that really makes sense.” She said, “We’re looking at everything and what we’re focused on is making sure that we have again, a long-term realignment of the relationship with China, focusing on some of the concerns... such as non-market practices and economic coercion.”

Brainard: Rate pause ‘hard to see’... Federal Reserve Vice Chair Lael Brainard said expectations for half-percentage-point increases in interest rates this month and July were reasonable and saw no case for pausing the central bank’s tightening campaign afterward. “From where I sit today, market pricing for 50 basis points, potentially in June and July, from the data we have in hand today, seems like a reasonable path,” Brainard said Thursday in an interview with CNBC. “Right now, it’s very hard to see the case for a pause. We’ve still got a lot of work to do to get inflation down to our 2% target.”

Another big day of beef movement... Packers moved 131 loads of beef on Thursday, the third consecutive day of strong movement this week. Wholesale beef trade this week signals retailers are actively restocking after Memorial Day, suggesting holiday clearance was strong. For a market that has demand concerns, that’s important and has helped fuel strong gains in futures.

Cash hog index bounces back... The downturn in the CME lean hog index was just one day, as it is up 12 cents today (as of June 1). Premiums to the cash index limited buyer interest in summer-month hog futures on Thursday, but there are no indications the cash market won’t continue to firm seasonally as slaughter numbers tighten into summer.

Overnight demand news... Exporters reported no tenders or sales.

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

• 7:30 a.m. Weekly Export Sales — FAS
• 7:30 a.m. Employment Situation — BLS
• 2:00 p.m. Dairy Products — NASS
• 2:00 p.m. Peanut Prices — NASS
• 2:30 p.m. Commitments of Traders — CFTC