First Thing Today | May 16, 2022

Good morning!

Wheat surges overnight... Wheat gapped higher, with HRW and HRS futures moving to new contract highs after India’s ban on wheat exports over the weekend. Corn and soybeans also posted strong gains. As of 6:30 a.m. CT, wheat futures are trading 44 to 52 cents higher, corn is 13 to 16 cents higher and soybeans are 15 to 16 cents higher. Front-month crude oil futures are around $1 lower and the U.S. dollar index is about 175 points lower this morning.

Indian bans wheat exports... India on Saturday banned most wheat exports to manage domestic food security and prices. The government said it would still allow exports backed by already issued letters of credit and to countries that request supplies “to meet their food security needs.” Senior government officials said the ban could be revised. Before the ban, India had aimed to ship a record 10 MMT of wheat in 2021-22. In April, India exported a record 1.4 MMT of wheat and deals were already signed to export around 1.5 MMT in May. In total, Indian traders had already contracted to export 4.5 MMT of wheat this year.

HRW crop tour this week... The annual Wheat Quality Council HRW tour runs Tuesday through Thursday, with field reports from Kansas and surrounding areas. The tour will be of particular interest this year after USDA estimated the HRW crop at just 590 million bu. last week, which would be the smallest since 1963-64, including a Kansas crop of 364 million bushels.

Planting delays to continue in northern crop areas... Rains are forecast to be less frequent across the Northern Plains and Upper Midwest the first half of this week, though drying will be limited and more rains are expected Thursday through Saturday, according to World Weather Inc. The forecaster calls for intermittent rains across the bulk of the Corn Belt. Areas of the Southern Plains may get some rains early this week but the area will remain dry overall. Meanwhile, frost and freezes are expected in southern Brazil grain areas late this week and into the weekend.

The week ahead in Washington... The House is set to vote on a Democratic bill that would bar “excessive” or “exploitative” fuel prices as gasoline over the last several days has reached new record highs. The Consumer Fuel Price Gouging Prevention Act will likely die in the Senate, as Republicans are not expected to support the legislation, which would ban price increases during national energy emergencies declared by the president. In the Senate, lawmakers will move the around $40 billion aid package for Ukraine, with a cloture vote on the motion to proceed to that bill planned for tonight. EPA’s budget will be under a Senate subcommittee focus on Wednesday. EPA Administrator Michael Regan will testify and will likely be asked for updates on biofuel policy. Regan will also appear Tuesday before the House Energy and Commerce — Subcommittee on Environment and Climate Change. USDA Sec. Tom Vilsack today will hold a media teleconference from Warsaw, Poland, at which he will underscore the importance of the continued collaborative relationship between the United States and its European allies as the world confronts the food security challenges caused by Russia’s unprovoked war on Ukraine. European Union and the U.S. are planning to launch a new platform to address the security of food supplies and agricultural commodities as the war in Ukraine curbs global access to staple crops and fertilizers from the region. The major focus for ag will be this afternoon’s crop progress data, which will indicate how much planting progress was made over the past week and how far behind efforts remain. USDA will also release its monthly Cattle on Feed Report on Friday.

Record NOPA April soy crush expected... Traders expect the National Oilseed Processors Association (NOPA) to report soybean crush totaled 172.4 million bu. in April, according to a Reuters survey. While that would be down from 181.8 million bu. crushed in March, it would be a 7.5% increase from last year and the highest April crush on record. Soyoil stocks as of April 30 are estimated at a five-month low of 1.839 billion pounds.

China’s economic activity plummets as Covid lockdowns hit growth... China’s industrial production unexpectedly fell 2.9% versus year-ago in April. That was the first decline in industrial production since March 2020, as widening COVID-19 lockdown measures snarled supply chains and paralyzed distribution. China’s retail sales declined by 11.1% from last year in April, the second straight month of falling retail trade and the steepest decline since March 2020.

China cuts mortgage rates for first-time buyers to support weak housing market... China’s central bank effectively cut the interest rate for new mortgages in an attempt to prop up the ailing housing market and boost the slowing economy. First-home buyers will be able to borrow money at an interest rate as low as 4.4%, down from 4.6% previously. The change is aimed at supporting housing demand and will “promote the stable and healthy development of the property market,” the People’s Bank of China said.

EU cuts growth forecast, raises inflation outlook... Russia’s invasion of Ukraine and the resulting surge in energy and commodity prices will slash euro zone economic growth this year and next, while boosting inflation to record levels. The European Commission cut its economic growth forecast for the 19 countries sharing the euro to 2.7% this year from 4.0% predicted only in February. Growth is expected to slow to 2.3% next year, down from 2.7% previously forecast. Inflation will be 6.1% this year, the Commission forecast and fall only to 2.7% next year. Before the war, the Commission expected inflation to rise 3.5% in this year and 1.7% in 2023.

Russia/Ukraine update... NATO’s Secretary-General Jens Stoltenberg said Sunday “Ukraine can win this war” following an informal meeting of the group. Evidence is growing that Russia’s offensive in the Donbas region farther east is faltering after initial modest gains. Russia has lost a third of the ground forces it committed to the offensive in Ukraine, according to British intelligence officials. Treasury Secretary Janet Yellen aims to increase economic pressure on Russia to end “its brutal and illegal war” during a trip to Europe this week. Russia cut electricity supplies to Finland from Saturday, as tensions mount about the Nordic country’s plan to join NATO. RAO Nordic, the Russian company that exports the electricity, claimed not to have been paid for previous deliveries. Finland says Russia supplies only 10% of the power for its grid. Germany plans to stop importing Russian oil by the end of the year even if the European Union fails to agree on an EU-wide ban in its next set of sanctions, government officials said. EU foreign ministers are meeting in Brussels today to discuss the next round of sanctions and EU diplomats have floated a delay in the phased-in oil ban after Hungary objected.

Canada’s dairy TRQs under fire again... Trade Minister Damien O’Connor said New Zealand submitted a request for consultations under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) regarding Canada’s dairy tariff rate quotas (TRQs). It is the first time such a dispute settlement has been sought by any country under the CPTPP. “Many of Canada's dairy TRQs remain unfilled, and this represents a tangible loss to New Zealand’s dairy exporters… The value to New Zealand of this lost market access is estimated to be approximately $68 million over the first two years, with this expected to increase year on year as the size of these quotas increase under CPTPP.” Canada has seven days to respond, after which the two countries can formally try to resolve the issue. New Zealand’s complaint follows a similar dispute over Canada’s quotas by the U.S. and Mexico, who took their case to a dispute settlement panel under the U.S.-Mexico-Canada trade agreement. That panel found Canada’s approach was inconsistent with its commitments, although Canada said the finding was “overwhelmingly in Canada's favor.” Some observers privately say the U.S. is not pressing Canada hard enough to resolve the dairy trade dispute.

Traders watching to see if cash cattle have topped... Cash cattle trade took place at steady to slightly weaker prices last week, though the market will need to wait until later today to get the average price. The cash market is expected to head lower as marketings increase. But traders already have sizable discounts to the cash market built into summer-month live cattle futures. That could allow for a corrective rebound in futures even if the cash market has topped.

Bottom or just a corrective bounce?... Lean hog futures posted strong gains on Friday. Price action this week will determine if it was just correction after the extended, sharp price drop or the start of what should be a seasonal rally. For traders to actively build on Friday’s gains, the cash market likely needs to lead the way. The CME lean hog index is hovering just above $100.00 – roughly the same level as summer-month hog futures.

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.

Today’s reports

• 10:00 a.m. Export Inspections — AMS
• 11:00 a.m. Soybean Crush — NOPA
• 11:00 a.m. Cotton and Wool Outlook: May 2022 — ERS
• 11:00 a.m. Oil Crops Outlook: May 2022 — ERS
• 2:00 p.m. Feed Outlook: May 2022 — ERS
• 2:00 p.m. Rice Outlook: May 2022 — ERS
• 2:00 p.m. Wheat Outlook: May 2022 — ERS
• 2:00 p.m. North American Flour Milling Products Summary — NASS
• 3:00 p.m. Crop Progress — NASS