First Thing Today

Good morning!

Grains rebound overnight… Corn futures are up 2 to 5 cents thanks to followthrough buying after Wednesday’s high-range close. Soybeans are down 2 to 4 cents in quiet overnight trade. Wheat futures posted strong rebounds overnight, with spring and winter wheat futures up 9 to 12 cents. The greenback and crude oil futures are both under pressure.

Latest Argentine port strike comes to an early end… This week’s 48-hour strike by Argentine port workers came to an early end after the 11 unions involved reached an agreement with the government that included port workers being designated as essential workers and thus higher on the priority list for receiving Covid-19 vaccinations. As we reported yesterday, Brazil will start immunizing workers at its largest port of Santos this week, averting the possibility of a strike there.

Argentine farmers sell nearly 1 MMT of soybeans the past week; sales still lag last season… Argentine producers sold 975,500 MT of soybeans the week ended May 19, pushing net sales for 2020-21 to 19.4 MMT, according to ag ministry data. Using Crop Consultant Dr. Michael Cordonnier’s latest crop projection of 45 MMT, that signals around 43% of this year’s crop has been sold. Last year at this point, producers had sold 23.2 MMT (48%) of the oilseed and last season’s crop that USDA pegs at 48.8 MMT. The year-to-year comparison reminds that producers are holding onto soybeans as a hedge against inflation. Some producers have also threatened to stymy sales in response to Argentina’s 30-day ban on beef exports. Farmers in the country have been far more aggressive with corn sales, pushing them to 28.2 MMT, which is 3.2 MMT ahead of last year at this point.

Expectations for today’s Weekly Export Sales Report… The report is for the week ended May 20 and will include already known U.S. corn sales to China. 

China drives big rise in record U.S. ag export outlook as imports also seen hitting new high mark... USDA now expects U.S. agricultural exports in fiscal year (FY) 2021 to hit a record $164 billion, an increase of $7 billion from its prior outlook, with China’s demand for U.S. agricultural products driving the rise. The update featured higher export forecasts for U.S. corn, soybean, livestock, poultry and dairy, with FY 2021 corn exports seen at $17.2 billion, up $3.2 billion from the prior outlook, on “strong demand and reduced competition.” Specifically for China, USDA now forecasts the country to import a record $35.0 billion in U.S. agricultural products, up $3.5 billion from their February outlook, “due to record shipments of soybeans, corn, tree nuts, beef, wheat, and poultry products. China is forecast to remain the largest market for US agricultural exports in FY 2021, followed by Canada and Mexico.” As the U.S. economy improves, demand for imports agricultural goods is also expected to rise to a new record of $141.8 billion. The combination of exports and imports would leave a $22.2 billion ag trade surplus for the sector. Of note: the current figures do not yet reflect USDA adopting the WTO definition of “agricultural products.” That update in August is likely to push these figures even higher.

High-level meeting of U.S./China trade officials… USTR Katherine Tai had a candid exchange on trade issues Wednesday night with her Chinese counterpart, Vice Premier Liu He. Tai discussed the administration’s guiding principles on trade policy and her continuing review of the U.S./China trade relationship in a virtual meeting, the U.S. Trade Representative’s office said. Tai said she expected further discussion with Liu. China’s Commerce Ministry described the call as “candid, pragmatic and constructive.” Before the talks, Tai told Reuters the trade deal should be seen in the context of “the overall U.S.-China trade, and economic relationship, which is very, very challenging.” Ahead of the call, Chinese officials pushed the U.S. to roll back remaining tariffs on Chinese products as a necessary component of next steps in the relationship. Beijing also wants Washington to relax sanctions against Chinese companies, especially telecommunications giant Huawei Technologies Co. In letting Liu, President Xi Jinping’s right hand on the economy, speak with Tai, the Chinese leadership is signaling the continued importance of the economic relationship to Beijing.

Period of engagement with China has come to an end… President Joe Biden's top national security aide for Asia said U.S. policy toward China will now be viewed through the lens of intense competition as a result of Chinese leader Xi Jinping's embrace of "hard power," Bloomberg reports. "The period that was broadly described as engagement has come to an end," Kurt Campbell, the National Security Council coordinator for Indo-Pacific affairs, told a Stanford event yesterday. Campbell cited China's military clashes on the border with India, an “economic campaign” against Australia and the rise of "wolf warrior" diplomacy as "signals that China is determined to play a more assertive role."

Senate Republicans today will offer another infrastructure counterproposal, close to $1 trillion... Senator Shelley Moore Capito (R-W.Va.) plans to tout a $303.5 billion measure to reauthorize surface transportation programs as something both sides can agree on for core infrastructure as part of continuing negotiations — the funding is 34% more compared with the last long-term surface transportation law passed in 2015. She, along with fellow Republican Senators Pat Toomey (Pa.), John Barrasso (Wyo.) and Roy Blunt (Mo.), will hold a press conference today announcing another infrastructure counteroffer that will likely have a top-line figure of nearly $1 trillion, focused on traditional infrastructure and paid for with roughly $700 billion in repurposed and unspent funds largely drawn from the coronavirus relief law enacted in March and more than $300 billion in proposed gas tax revenues. As of March 31, there was $1.3 trillion in unobligated Covid relief balances. The proposal is expected to be the group’s last bid; senators say it includes almost every item Biden indicated would be needed for him to come on board. Republicans are pessimistic that their proposal will be accepted.

CN rail divestiture for merger approval… Canadian National Railway plans to sell a 70-mile stretch of Kansas City Southern track in Louisiana as part of a push to win regulatory approval for a crucial step in its proposed $30 billion takeover of the U.S. company. “We believe our early commitment to eliminating the minimal rail overlap and to laying out the case for a CN-KCS combination should allow the STB to approve our voting trust,” Canadian National CEO Jean-Jacques Ruest said in a statement. The ruling on the key hurdle is expected in June, he said.

U.S. trade policy interests should closely follow trade deal being negotiated between the U.K. and Australia… The Financial Times reports that British journalists were heavily briefed last week that the U.K. was going to make a definite break with the EU stance on agriculture it inherited and accede to Australian demands to reduce farm tariffs to zero, albeit over 15 years. What about the U.K.’s government promise to its farmers that sensitive sectors would be protected? Says an FT column, “Well, those farmers can join the crowded ‘shouldn’t have trusted Boris Johnson’ enclosure along with the British fishing industry, businesses in Northern Ireland, any company coping with technical barriers when exporting to the EU and a whole bunch of political and personal acquaintances. It’s not like they didn’t have literally decades of warning.”

With the Olympics approaching, Japan is extending its Covid-19 state of emergency… Japanese leaders are moving to extend a state of emergency in Tokyo and other cities due to persistently high new Covid-19 infections. On Wednesday, around 4,500 new infections were reported. The country says blocking foreign visitors from mixing with locals will allow the games to be held safely.

Court rejects Bayer plan to limit lawsuits… A U.S. judge yesterday rejected Bayer’s plans to try and limit the cost of future class action claims that its Roundup weedkillers causes cancer, deeming the plan “unreasonable.” The company’s proposal would have provided compensation in return for placing limits on lawsuits. Bayer says it will review plans to settle around 30,0000 legal claims. Bayer's top litigation lawyer William Dodero said Bayer would seek clearance from the U.S. supreme court on defeats suffered in jury trials and appellate courts even though the product has repeatedly been deemed safe by the U.S. Environmental Protection Agency. Bayer acquired Monsanto, the maker of Roundup, in 2018.

More steady cash cattle action… Cattle futures faced pressure at midweek, with traders more focused on rising feed costs than the start of steady to higher cash cattle trade Tuesday from $118 to $123. Additional trade ranged from $119 to $120 on Wednesday, with around a 1,000 head trading in Texas at $116. Trade was active the past two days and generally steady to higher compared with trade last week. June futures remain at nearly a $2 discount to the low end of this week’s action. Choice and select boxed beef values slipped 43 cents and 21 cents, the first pullback for both values in at least a week. Movement was solid at 119 loads.

Hog slaughter ramping up… Lean hog futures settled choppy to lower at midweek. The pork cutout value slipped 54 cents on Thursday and movement slipped again to 304.96 loads. Average hog weights in the Iowa/southern Minnesota/South Dakota market edged 0.2 lbs. lower to 283.5 lbs., which is 8 lbs. under year-ago when supplies were backed up due to coronavirus-related processing disruptions. This week’s kill is running an impressive 29,000 head in advance of last week. Cash hog bids slid $2.51. Attention on today’s weekly export sales update from USDA.

Overnight demand news… Tunisia tendered to buy around 92,000 MT of optional origin soft wheat. Saudi Arabia tendered to buy around 720,000 MT of wheat. Japan purchased 63,740 MT of food-quality wheat from the U.S., as well as 60,880 MT of the grain from Canada via a regular tender.

Today’s reports

• 7:30 a.m. Weekly Export Sales — FAS
• 2:00 p.m. Agricultural Exchange Rate Data Set — ERS
• 2:00 p.m. Egg Products — NASS