First Thing Today | Aug. 5, 2021

Good morning!

Grains higher, soybeans under pressure… Corn futures are 1 to 3 cents higher after a quiet overnight session. Soybeans are down 4 to 6 cents, with the market continuing to consolidate in the lower half of Tuesday’s wide trading range. Winter wheat futures are 4 to 5 cents higher, with spring wheat up 5 to 6 cents. The U.S. dollar index is slightly lower. Crude oil futures are a bit higher after dropping to new two-week lows earlier in the overnight session.

Expectations for today’s Weekly Export Sales Report… The report is for the week ending July 29. 

Global food prices dip in July… Global food prices eased 1.2% from June to July, according to the Food and Agriculture Organization of the United Nations’ (FAO) food price index, which edged 1.5 points lower for the month to an average reading of 123.0 points. That’s still up 29.1 points (31%) from July 2020. This was the index’s second consecutive drop after it had climbed for 12 months. “The drop in July reflected declines in prices of cereals, dairy products and vegetable oils which more than offset increases in meat and sugar quotations for the second consecutive month,” FAO explains. The rise in global food prices may have peaked, but production uncertainties remain. Of note, FAO lowered its global wheat production forecast by 1 MMT to 784.7 MMT, which would still be a 1.2% year-over-year gain. It cited “dry conditions in the Near East” for the cut.

Shipping container rates soar… The spot price per container on the China-U.S. East coast route has climbed over 500% from a year ago to a record $20,804 this week, freight-tracking firm Freightos said. That compares to just under $11,000 on July 27. The cost from China to the U.S. west coast is a little below $20,000, the firm details. A spike in Covid-19 in other countries has slowed turnaround at some major foreign ports to around seven to eight days, plus typhoons off China’s southern coast in late July and this week snarled shipping. “These factors have turned global container shipping into a highly disrupted, under-supplied seller’s market, in which shipping companies can charge four to ten times the normal price to move cargoes," Philip Damas, Managing Director at maritime consultancy firm Drewry, told Reuters. This comes ahead of the peak U.S. shopping season. Damas expects the extreme rates to last until the Chinese New Year in early 2022.

A top Federal Reserve official said higher interest rates could come as soon as early 2023… Fed Vice Chairman Richard Clarida said he expects that, under his current projections for inflation and employment, “commencing policy normalization in 2023 would … be entirely consistent with our new flexible average inflation targeting framework.” Clarida's comments are notable because his views are likely shared by several other Fed officials and because of his role in shaping the central bank’s current policy guidance. Clarida's views also mesh with most Fed officials who signaled in updated forecasts that they expected there would need to be two rate increases by the end of 2023.

More than a third of American adults have not been vaccinated, according to the latest U.S. data... Firms using a lighter touch risk workplace outbreaks. Those mandating shots risk losing workers in a tight job market. Meanwhile, the Biden administration is weighing a plan to require all foreign visitors to be vaccinated. And China has imposed new travel restrictions across the nation as a delta-driven outbreak grew to over 500 cases in 15 provinces.

White House approved its first arms sale to Taiwan… The estimated $750-million deal will raise U.S./Sino tensions just as the Biden administration seeks to craft a new relationship with China. To de-escalate strains between the two world powers, Singapore Prime Minister Lee Hsien Loong has warned that the Taiwan issue could “quite easily” become dangerous due to a miscalculation.

Changes to physical infrastructure measure could jeopardize Republican support… The mostly moderate Republican senators who signed off on the bipartisan physical infrastructure measure may have a hard time keeping their support. Why? House counterparts want their own say on the legislation. For example, House Transportation and Infrastructure Chair Peter DeFazio (D-Ore.) has criticized the Senate package for leaving out provisions from the House-passed surface transportation and water bill that address climate change and fossil fuel pollution. But making those changes could jeopardize Republican support for the final product. The Senate is working to pass the deal ahead of its August recess.

EPA union asks Congress to top Biden budget re: workforce... EPA’s biggest union is asking Congress to deliver funding that would boost the agency’s workforce by nearly 40%, far outstripping the request in Biden’s budget blueprint. The American Federation of Government Employees wants the Environmental Protection Agency to grow to 20,000 staffers, which would be the highest level in the agency’s 51-year history. It currently employs some 14,300 workers.

Biden to sign executive order on clean cars and trucks… President Joe Biden today will sign an executive order which sets a goal for 50% of all new vehicles sold in 2030 to be zero-emissions vehicles, including battery electric, plug-in hybrid electric, or fuel cell electric vehicles. EPA and the Department of Transportation (DOT) today will unveil their updated emissions standards for light cars and trucks as the agency has reviewed the Trump-era Safer Affordable Fuel-Efficient (SAFE) Vehicles rule that covered model years 2021-2026. The White House said the new rules from EPA and DOT will save about 200 billion gallons of gasoline and reduce around 2 billion MT of carbon pollution, translating into savings for consumers of $900 over the life of a vehicle. The order focuses on the Build Back Better plan from the administration and the bipartisan infrastructure package that the Senate is currently working on. The goals laid out in the order are not binding.

Boxed beef prices still roaring higher, with movement holding strong… Higher corn prices weighed on feeder cattle futures midweek, but live cattle extended gains, with the front-month rising to its highest level since mid-June. Some additional cash cattle trade took place in Iowa and Nebraska at $125 yesterday, and trade got started at $121 in Kansas and Texas yesterday. These prices are in line with last week’s action and where August futures are trading. Product market strength continues, with Choice and Select jumping $3.50 and $3.66, respectively, at midweek and 146 loads changing hands.

Pork prices set back… The pork cutout value dropped $4.68 on Wednesday and the cutout is now nearly a buck lower for the week. All cuts except bellies fell. But the price dip did spur stronger movement of 340.73 loads. Cash hog bids climbed a national average of $2.26 on Wednesday, with prices now down $1.14 for the week. Today, the market will turn its attention to USDA’s weekly update on export sales activity.

Overnight demand news… Jordan’s state grain buyer tendered to buy 120,000 MT of milling wheat that can be sourced from optional origins. It also made no purchase in its tender to buy 120,000 MT of animal feed barley after limited participation. A South Korean flour mill tendered to buy 135,100 MT of milling wheat, including 50,000 MT from the U.S., 50,000 MT from Australia and 35,100 MT from Canada. Tunisia’s state grains agency issued an international tender to buy 100,000 MT of soft milling wheat and 100,000 MT of animal feed barley from optional origins. Turkey’s state grain board confirmed final purchases of 245,000 MT of wheat in an international tender, after making provisional purchases of 395,000 MT Monday. Algeria’s state grains agency bought around 300,000 MT of optional origins milling wheat in an international tender, with some traders saying the total was closer to 360,000 MT.

Today’s reports

• 7:30 a.m. Weekly Export Sales — FAS