First Thing Today | June 6, 2022
Wheat leads strong price rally overnight... Grain and soy futures rallied sharply overnight amid renewed global supply concerns, led by the wheat market. As of 6:30 a.m. CT, wheat futures are trading mostly 35 to 40 cents higher, corn is 8 to 10 cents higher and soybeans are 11 to 14 cents higher. Front-month U.S. crude oil futures are around 40 cents higher and the U.S. dollar index is around 135 points lower this morning.
Russia attacks major Ukraine grain export terminal... Over the weekend, Russia destroyed a major Ukrainian grain export terminal in Mykolaiv (southern Ukraine). Russia’s attack on Ukraine’s grain infrastructure after last week saying it was open to allowing grain exports via “humanitarian corridors” from Ukrainian ports has heightened global supply concerns.
Ukraine is struggling to export its grain... Before Russia’s invasion, around 98% of Ukraine’s grain exports would flow from ports on the Black Sea. But those ports have been shut by a Russian naval blockade, and warehouses, rail yards and other key export infrastructure have been targeted and damaged by Russian attacks. Despite the war, Ukraine’s farms are expected to produce around 30 MMT of wheat, corn and other food commodities this year, the Wall Street Journal reports. Traders and farmers, with the support of the Ukrainian government and neighboring nations, are seeking alternative routes to export those grains to stave off global food shortages and relieve soaring prices. But the new routes are longer, often backlogged and more expensive. The challenge is complicated by stretched infrastructure and continued Russian attacks on bridges and railways.
U.S. warns Russia trying to sell stolen grain from Ukraine... The U.S. has warned the Kremlin is trying to profit by selling stolen wheat from Ukraine to drought-stricken countries in Africa. The New York Times reports in mid-May, the U.S. sent an alert to 14 countries, mostly in Africa, that Russian cargo vessels were leaving ports near Ukraine laden with what a State Department cable described as “stolen Ukrainian grain.” The cable identified by name three Russian cargo vessels it said were suspected of transporting it. The American alert about the grain has only sharpened the dilemma for African countries, many already feeling trapped between East and West, as they potentially face a hard choice between benefiting from possible war crimes and displeasing a powerful Western ally, and on the other, refusing cheap food at a time when wheat prices are soaring and people are starving.
Generally favorable weather for major U.S. crop areas... Drier weather is expected this week across the northeastern U.S. Plains, according to World Weather Inc., which will improve planting conditions in an area where spring fieldwork is severely behind. Meanwhile, the Corn Belt, Delta and Southeast are expected to see a favorable mix of rains and sunshine over the next two weeks, which will support crop development. After receiving rains last, West Texas cotton areas are expected to be dry, though the Texas Panhandle will be in line for some rains.
Rice traders ramping up purchases from India... In the last two weeks, traders have signed contracts to export 1 MMT of rice for shipment from June through September and are opening letters of credit (LCs) quickly after signing deals to ensure the contracted quantity will be exported. The aggressive stance by traders comes after India recently banned wheat exports. “International traders pre-booked for the next three to four months and everybody opened LCs to ensure business continuity,” Himanshu Agarwal, executive director at Satyam Balajee, India’s biggest rice exporter told Reuters. “Normally people open LCs while they nominate a vessel. This time they opened LCs for all rice contracts that were pending, so in case there is a ban on exports, at least the contracted quantity is shipped out,” Agarwal said.
Brazil testing GMO wheat variety... Brazil is testing a variety of drought resistant, genetically modified wheat. An official at state crop research agency Embrapa told Reuters on Friday it has partnered with Argentine company Bioceres, which has developed a genetically modified wheat that can thrive in dry weather. Embrapa received regulatory approval from Brazil's biosecurity agency CTNBio in March, when it began planting wheat on test fields near Brasilia in the Center West Cerrado region where farmers traditionally plant soybeans and corn, Jorge Lemainski, head of Embrapa’s research for wheat, told Reuters. He said the agency will report on how the GMO wheat being tested grows in the Cerrado savanna region in August.
Raimondo: It ‘may make sense’ to lift some Chinese tariffs... “Steel and aluminum — we’ve decided to keep some of those tariffs because we need to protect American workers and we need to protect our steel industry; it’s a matter of national security,” Commerce Chief Gina Raimondo said in an interview Sunday on CNN’s State of the Union. “There are other products — household goods, bicycles — it may make sense,” she said, when asked if the administration would consider ending duties on billions of dollars of imports from China.
U.S. may allow more Iranian crude to flow to global markets... The move could happen even without a revived nuclear deal, as President Joe Biden aims to ease the energy crunch, Mike Muller, head of Asia at Vitol Group, said Sunday on a podcast produced by Dubai-based Gulf Intelligence. He may also let Eni and Repsol ship Venezuelan supply to Europe to help replace Russian oil, Reuters reported.
The week ahead in Washington... Congress returns this week with a focus on rising food and gas prices. Bipartisan energy talks in the Senate helmed by Sen. Joe Manchin (D-W.Va.) apparently are over, potentially setting the course for a Democrat-only deal via another budget reconciliation measure, as Republican senators are convinced Manchin is nearing a deal with Majority Leader Chuck Schumer (D-N.Y.). Any deal will still need the support of every Senate Democrat, House Speaker Nancy Pelosi (D-Calif.) and President Joe Biden. The economic focus will be the latest read on consumer prices on Friday. Economists anticipate headline inflation will be up 8.2% from last year in May versus 8.3% in April and expect core CPI after minus food and energy costs will ease to 5.9% from 6.2% in April. The focus for ag will be Friday’s Crop Production and Supply and Demand Reports, including updated old- and new-crop balance sheets, along with USDA’s second winter wheat crop estimate.
Heavy-duty truck orders are retreating amid parts shortages and production delays... FTR Transportation Intelligence says preliminary net orders for Class 8 trucks dropped to 13,300 in May, down 13% from April and the lowest level for orders since November 2021. ACT Research says its measure shows North American fleets ordered 14,000 big rigs last month, extending a run of low order levels. Analysts say the depressed orders aren’t for lack of demand but the result of parts shortages and supply-chain disruptions that are hampering assembly lines. Manufacturers “are not confident they can increase production in the second half of the year,” says FTR’s Don Ake, “therefore, they are not able to take more orders.”
Yellen denies urging smaller Biden relief plan in early 2021... Treasury Secretary Janet Yellen denied advocating for a smaller American Rescue Plan (ARP) than the $1.9 trillion package proposed by the Biden administration and passed by Congress in early 2021, after an advance copy of a book about the Treasury secretary showed she initially urged scaling it back by a third. Her statement was issued on Saturday following a Friday report by Bloomberg News on excerpts from the book. “When President Biden assumed office, the nation was facing acute economic challenges. It was a time of great economic uncertainty, with legitimate risks of a downturn that could match the Great Depression,” Yellen said in the statement. “I never urged adoption of a smaller American Rescue Plan package, and I believe that ARP played a central role in driving strong growth throughout 2021 and afterwards.”
DOJ’s chicken price fixing attempt continues... The Department of Justice is launching its third attempt at convincing a jury some chicken manufacturing executives violated federal antitrust law by colluding to fix prices. The trial against current and former executives of Tyson Foods, Pilgrim’s Pride, and other companies, which starts today in the U.S. District Court for the District of Colorado, underscores the DOJ antitrust regulators’ insistence on seeing their claims through to the end — despite skepticism from industry proponents and even the court’s judge.
Beef movement will be watched again this week... Beef movement was strong the first three days last week, suggesting strong retailer restocking after Memorial Day. But beef movement slowed to just 88 loads on Friday. Beef movement this week will indicate whether retailers are done with their restocking or actively buying for Father’s Day and Fourth of July features.
Big jump in cash hog index... The CME lean hog index is up $1.02 today to $106.05 (as of June 2). While summer-month lean hog futures ended Friday $2 to $4 above that level, that’s the type of daily gain that should produce stronger buyer interest. Seasonally, the cash index should continue to strengthen into summer, especially if hog slaughter rates back down to levels implied by the March Hogs & Pigs Report after more gilts went to market over the past month.
Weekend 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.