First Thing Today | September 12, 2022

Good morning!

Quiet trade ahead of USDA reports... Quiet, two-sided trade was seen overnight as traders awaited USDA’s reports later this morning. As of 6:30 a.m. CT, corn futures are trading 1 to 2 cents lower, soybeans are 1 to 2 cents higher and wheat futures are narrowly mixed. Front-month crude oil futures are around 50 cents higher and the U.S. dollar index is about 750 points lower.

USDA Crop Production, S&D Reports later this morning... Analysts fully expect USDA to cut its corn crop estimate in the Sept. 12 Crop Production Report, with the average forecast in a Reuters survey down 271 million bu. for production and 2.9 bu. per acre for yield from last month. Analysts are split on soybeans, though the average estimate is down 35 million bu. on crop size and 0.4 bu. per acre for yield. Analysts expect USDA to mildly increase old-crop ending stocks for corn and soybeans. For 2022-23 U.S. ending stocks, the average trade estimate is down 171 million bu. for corn, up 2 million bu. for soybeans and up 8 million bu. for wheat from last month’s projections.

Ag sector braces for possible railroad worker strike... As soon as Friday, up to 115,000 freight rail workers could walk out if they cannot reach a new contract with railroads, potentially shutting down the national rail network that transports 20% of all grain shipments. If a strike would occur, ag sector officials concur it would be catastrophic for U.S. food and agriculture, as the system will not regroup to full capacity overnight, even if any strike is short. Sources say over the weekend, things were not moving in the right direction for a compromise as discord surfaced between the railroads and the two biggest unions. Railroads have filed notices that they are going to begin limiting shipments of many chemicals effective Monday in anticipation of a possible strike. Click here to view our special report on this topic.

Drier bias for most areas this week... Rains fell across areas of the Midwest over the weekend, bringing beneficial precip to late-filling soybeans. Rains this week will favor northern areas of the Midwest, while central and southern locations will trend drier. General dryness is also expected across the Southern Plains, Delta and Southeast. The drier conditions will be welcome in the Delta and Southeast after recent, heavy rains.

France, Romania agree to deal to boost Ukrainian grain exports... France’s transport minister said on Sunday he would sign an agreement with Romania to help increase Ukrainian grain exports to developing countries including to the Mediterranean. “Tomorrow (Monday), I will sign an accord with Romania that will allow Ukraine to get even more grains out... towards Europe and developing countries, notably in the Mediterranean (countries) which need it for food,” Clement Beaune told France Inter radio, adding the deal covered exports by land, sea and river. According to a draft agreement of the French-Romanian deal, seen by Reuters, Paris would cooperate in developing a project aimed at increasing efficiency at the port of Galati, equipping border points in northern Romania, maximizing the use of grain containers stationed in the port of Constanța as well as increasing the capacity there and in the Sulina canal. It would also help to build a medium-term strategy on the axes of the corridor between Romania and Ukraine and provide pilings to optimize ship traffic. France will also provide funding for the initial technical expertise and work with Bucharest to identify financing.

Ukrainian farmers may cut winter grain acreage by at least 30%... Ukrainian farmers are likely to cut the winter grain planted area by at least 30% because of a jump in prices for seeds and fuel combined with a low selling prices of their grain, the Ukrainian Agrarian Council (UAC) said on Monday. “The main reasons that encourage agricultural producers to reduce sown areas are the high cost of fertilizers, problems with the sale of grain, as well as too low purchase prices for agricultural products,” UAC said.

The week ahead in Washington... Congress is fully back to work with both the Senate and House in session. The biggest congressional priority is a stopgap spending measure to keep the gov’t running beyond Oct. 1, the beginning of fiscal year (FY) 2023. The House could work on a Continuing Resolution (CR) this week, but history shows this usually goes down to the wire. And there are issues that will/could delay it, including differences among Democrats on including Senate-promised language on permitting that was part of the deal with centrist (at times) Sen. Joe Manchin (D-W.Va.) to sign off on the Inflation Reduction Act (reconciliation) measure. Ag disaster aid for 2022 crops and livestock could be part of the CR but will most likely be kicked to the post-election, lame-duck session of Congress via an omnibus spending bill. The economic focus this week is Tuesday’s U.S. consumer inflation data and Wednesday’s producer prices for August.

Heat wave in the western U.S. coursing through farming supply chains and into supermarkets... The high temperatures hitting California are damaging crops and shrinking shipments, the Wall Street Journal reports, leaving distributors searching for leafy greens and fruits from sources ranging from Canada to Florida. Supermarkets say they are giving less shelf space to products with weather-induced discolorations, bruises or burns. Stores are cutting prices on poor-quality items to avoid getting stuck with them. Produce is highly vulnerable to weather, and this year’s hot temperatures are creating more quality and supply problems. Early heat in Washington reduced the cherry supply this summer, grapes in some regions are growing mold and watermelon season ended earlier on the East Coast. Power conservation efforts in California are reaching shipping operations, with the state suspending a requirement that vessels use cleaner on-shore power while at port berths.

Strong dollar has benefits, risks... The strong dollar has made imports cheaper for U.S. consumers but it also poses risks to the global economy, the Wall Street Journal reports. First, a strong dollar makes emerging market currencies less valuable, pushing up inflation in those countries. Higher inflation forces central banks to raise interest rates faster than they otherwise would, risking recessions around the world. The strong dollar also cuts into profits of U.S. corporations that have significant business abroad. And it could lead governments to intervene directly in currency markets or encourage investors to hoard dollars, which could disrupt financial markets.

Yellen: Gas prices could spike this winter... Treasury Secretary Yellen on CNN’s State of The Union said, “Americans could experience a spike in gas prices in the winter when the European Union significantly cuts back on buying Russian oil, adding that a proposed Western price cap on Russia’s oil exports is being designed to keep prices in check. It’s a risk, and it’s a risk that we’re working on the price cap to try to address.” In an online report, CNN quotes Yellen as saying, “This winter, the European Union will cease, for the most part, buying Russian oil. And, in addition, they will ban the provision of services that enable Russia to ship oil by tanker. And it is possible that that could cause a spike in oil prices.” CNN says Yellen’s comments “could help fuel fears that gas prices will spike again after they began sinking last month, providing relief to inflation-weary consumers and an economy mired in a slowdown.”

IMF discussing proposal for emergency lending to countries facing severe food-price shocks... Reuters says the proposal would allow the International Monetary Fund (IMF) to provide rapid assistance to Ukraine as well as to places affected indirectly by its invasion. Some African countries have been worried about food shortages, though recently the prices of internationally traded staples have actually fallen.

Followthrough buying expected in cattle futures... Live cattle futures finished higher and near their weekly highs on Friday, despite weakness in the cash cattle market again last week. Traders sense the cash market is near a short-term low and will then likely go on an extended price rally as market-ready supplies tighten. A push above the mid-August high in nearby live cattle futures could trigger a challenge of the contract high.

Cash hog index under $100... The CME lean hog index is down 69 cents to $99.57 (as of Sept. 8), the first time it has been below $100.00 since mid-May and the lowest level since April 12. October lean hog futures ended Friday $6.395 below the cash index. While the spread between the cash index and the lead contract has greatly narrowed, it signals traders sense the cash market will continue to weaken over the next 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.

Today’s reports

• 10:00 a.m. Export Inspections — AMS
• 11:00 a.m. WASDE — ERS
• 11:00 a.m. Cotton Ginnings — NASS
• 11:00 a.m. Crop Production — NASS
• 11:15 a.m. Cotton: World Markets and Trade — FAS
• 11:15 a.m. Grain: World Markets and Trade — FAS
• 11:15 a.m. Oilseeds: World Markets and Trade — FAS
• 11:15 a.m. World Agricultural Production — FAS
• 3:00 p.m. Crop Progress — NASS