First Thing Today: Wheat price surge continues
Wheat pulls corn higher, soybeans decline overnight... Wheat futures extended their price surge overnight, with spillover supporting corn this morning. Soybeans failed to benefit from spillover support. As of 6:30 a.m. CT, spring wheat futures are trading 8 to 15 cents higher, winter wheat futures are 5 to 9 cents higher, corn futures are around a penny higher and soybeans are 5 to 6 cents lower. Front-month crude oil futures are around 40 cents higher and the U.S. dollar index is holding near unchanged.
The week ahead in Washington... It remains uncertain when House members will vote on infrastructure-related measures after two failed attempts to get the chamber to vote. Congressional Progressive Caucus leader Rep. Pramila Jayapal (D-Wash.) said she thought House Democrats could move forward with a vote on both pieces of legislation this coming week. Others say that appears too optimistic as legislative language is still being written and there appears to be some potential changes. There appears to have been some progress getting language in a final reconciliation bill that deals with prescription drug pricing, Medicare and some other initiatives that were not included in the text posted to House Rules last Thursday, thus the delay in the hoped-for Tuesday voting. When votes will occur is a moving target, the only certainty on this issue. On the economic front, the two-day Federal Open Market Committee meeting concludes on Wednesday, at which time the Fed is expected to announce plans to taper the central bank's $120 billion in monthly asset purchases. On Friday, October employment data will be released, with economists expecting an increase of 435,000 non-farm payrolls.
COP26 underway in Glasgow... Governments from around the world are meeting in Scotland to push global climate talks forward. The White House released a new report for achieving “net-zero” greenhouse gas emissions by 2050 under which the U.S. would try to eliminate or offset all of its climate pollution. The plan entails switching to clean energy sources for electricity generation; making many parts of the economy run on electricity, including cars, buildings and industrial processes; increasing energy efficiency and scaling up the use of technology that pulls carbon dioxide from the atmosphere. The report projects that by 2050, electricity could provide between 15% and 42% of primary energy. The new report doubles down on President Joe Biden’s pledge to eliminate power-sector emissions by 2035.
Mixed views on China’s manufacturing sector from October PMI data... China’s official purchasing managers index (PMI), which gauges larger and mostly state-owned factories, unexpected fell to 49.2 in October. That was the second straight month of contraction in factory activity, with output, new orders and export sales all declining, amid outbreaks of the Delta variant of Covid, higher material costs and the country’s power crunch. But the Caixin/Markit PMI, which tracks smaller and mostly privately owned factories, unexpectedly firmed to a four-month high of 50.6 last month amid a further recovery in domestic demand with the subindex for total new orders hitting their highest since June.
China taps fuel reserves to alleviate shortages... Beijing announced over the weekend it would tap state fuel reserves, while national refiners ramp up output sharply to avert a diesel shortage. The state reserves bureau said the release of state gasoline and diesel reserves was an effort to boost market supply and stabilize prices but did not disclose the volume released.
Inflation watch: It’s not just food prices on the rise, as wages accelerate... Wages in the third quarter were up 4.2% from a year earlier, the fastest increase since 1990 as labor shortages in a widening range of industries prompted employers to raise pay. Meanwhile, inflation has topped 5% for the past four months, the hottest in decades.
Grain, soy crush reports out this afternoon... USDA is expected to report the September soybean crush totaled 163.6 million bu., according to a Bloomberg survey. That would be down from 168.2 million bu. in August and 171.1 million bu. in September 2020. Traders expect soyoil stocks to be reported at 2.184 billion pounds. Corn-for-ethanol use is expected to come in at 408.9 million bu., down from 417.3 million bu. in August but up from 402.4 million bu. in September 2020.
U.S. relaxes tariffs on European steel; EU will likely drop retaliatory tariffs... The U.S. and the European Union reached a deal to ease U.S. tariffs on steel and aluminum imports that date to former President Donald Trump. U.S. Commerce Secretary Gina Raimondo said Saturday the arrangement would maintain the tariffs but would allow up to 4.4 MMT of European steel to enter the U.S. tariff-free, in line with levels before President Donald Trump imposed tariffs under little-used national security legislation. Imports are half that level at present. Raimondo said the EU would drop retaliatory tariffs in return and expressed confidence that the deal would ease supply-chain pressure and high prices.
Deere reaches tentative rate hike agreement with striking workers... Deere & Co. said Saturday it reached a tentative agreement with striking union workers, more than two weeks after they walked off the job. Leaders for the United Auto Workers union briefed their members on the terms that cover more than 10,000 workers at 14 plants. The company said the deal would run for six years, same as previous contracts with the union. The deal is subject to approval by union members.
Forced labor in textile industry discussed between USTR, senior U.S. textile executives... U.S. Trade Representative (USTR) officials met Friday with members of the National Council of Textile Organizations, with a focus on boosting textile/cotton trade with several Central American countries. As we expected, the issue of forced labor in the textile industry was discussed, with Deputy USTR Sarah Bianchi noting, “Recent concerns about the unreliability of geographically-extended supply chains and the pervasiveness of forced labor make this a particularly opportune time for expanding production in the Western Hemisphere.”
Bulls must step up in cattle... Cattle futures ended near their weekly lows on Friday, despite strength in the cash cattle and boxed beef markets, but still posted weekly gains. If support at the previous Friday’s low is violated, it would likely signal the market has put in a short-term top and entice additional selling. But if bulls defend recent support, futures could make another push higher.
Cash hog index falls, pork cutout firms... The CME lean hog index is down another 81 cents today and below $80.00 for the first time since Feb. 24. But the pork cutout value firmed $2.52 on Friday, it’s second straight day of gains, giving some hope the product market may have found a short-term bottom. December hogs also showed potential bottoming action late last week, though the upside is likely limited to corrective buying until the cash index stops falling.
Weekend demand news... Saudi Arabia purchased 1.268 MMT of milling wheat. Egypt is seeking at least 55,000 MT of wheat from multiple origins, with results expected later today.
Today’s reports
- 10:00 a.m. Weekly Export Inspections — AMS
- 2:00 p.m. Cotton System — NASS
- 2:00 p.m. Fats & Oils — NASS
- 2:00 p.m. Flour Milling — NASS
- 2:00 p.m. Grain Crushings — NASS
- 3:00 p.m. Crop Progress — NASS
