First Thing Today | June 22, 2021
Spring wheat soars, pulling winter wheat higher… Corn futures strengthened to start the overnight session, but the market has since reversed lower and futures are currently down 2 to 5 cents. Soybean futures fractionally higher in the front-month and down 1 to 9 cents in deferreds, with the market paring overnight losses. Futures continues to hold within last Thursday’s wide range of trade. Winter wheat futures are up 3 to 4 cents, while HRS futures have soared 26 to 30 cents on yesterday’s shockingly low spring wheat ratings. The U.S. dollar index is posting modest gains, with crude oil futures are softer after hitting its highest level since October 2018 yesterday.
Crop progress & Condition Report highlights… Following are highlights from USDA’s crop progress and condition update for the week ended June 20. Find more details here.
- Corn: 65% “good” to “excellent” (G/E)
- Soybeans: 97% planted, 91% emerged, 5% blooming, 60% G/E
- Spring wheat: 27% headed, 27% G/E
- Winter wheat: 96% headed, 17% harvested, 49% rated G/E
- Cotton: 96% planted, 21% squaring, 4% setting bolls, 52% G/E
Corn, soybean CCI ratings slip again, spring wheat rating plunges… When USDA's weekly condition ratings are plugged into the weighted Pro Farmer Crop Condition Index (CCI; 0 to 500-point scale, with 500 representing perfect), the corn crop dropped 5.6 points to 366.7 points, while the soybean crop declined 3.4 points to 354.6 points. The corn crop is now 8.6 points below its five-year average and soybeans are 9.1 points under the norm for this date. The spring wheat CCI rating plunged 27.8 points over the past week to 277.0 points. That’s now 91.1 points below the five-year average.
Cordonnier stays the course on U.S. crops, but leaning down… Crop Consultant Dr. Michael Cordonnier made no change to his U.S. corn yield estimate of 177.5 bu. per acre, though his bias is neutral to lower going forward. “A condition rating of 70% good to excellent is generally considered about the minimum needed to achieve trend line corn yields or better. The current rating is below that point, and it is also below the long-term average rating for this time of the year, so I continue to feel there is a downside risk to the corn yield,” he says. But the cooler, wetter forecast prompted him to hold off on lowering his forecast. Cordonnier also stuck with his soybean yield projection of 50.8 bu. per acre, though again, his bias is neutral to lower going forward as the western Belt remains too dry. “Soybeans can be in relatively bad shape during the month of June, but they could still do fine if there is good weather during July and August, so I left the soybean yield unchanged for the time being,” he says.
Cordonnier lowers Brazilian corn crop forecast, increases Argentine corn crop… Cordonnier lowered his corn crop estimate for Brazil by 2 MMT to 90 MMT, and his bias is neutral to slightly lower going forward. Harvest is just getting started, and early yield reports vary widely but have generally been below what had been expected. Cordonnier says he suspects that will remain the case for the entire harvest season. Small crops have farmers concerned about meeting their forward contracts on the grain. “Farmers are also worried that the extended corn harvest may leave them little time for tillage work or corrective soil measures before its time to plant their 2021-22 soybeans,” Cordonnier says. He kept his soybean crop estimates for Brazil and Argentina at 134 MMT and 45 MMT, respectively. But better than expected yields prompted him to boost his Argentine corn crop peg by 500,000 MT to 47 MMT.
China will auction more imported corn on Friday… China announced it will auction 18,207 MT of imported corn on June 25, according to Sinograin. Demand at a similar auction last week was strong. The auctions are one of China’s many efforts to cool food price inflation.
China’s imports of American goods slowed again in May… The slowdown puts the purchase targets agreed with the U.S. in the 2020 trade deal even further out of reach. China bought almost $10 billion worth of manufactured, agricultural and energy goods from the U.S. in May, the lowest monthly total since October 2020. That took total imports to almost $157 billion since January 2020, 41.4% of the targets the two nations agreed at that time. The slowdown was despite corn imports surging to a record in the month. China is also buying agricultural products for delivery from later in the year, and these will bump up the totals somewhat once they actually arrive in China.
Powell expected to downplay inflation… Fed Chairman Jerome Powell will tell lawmakers today that officials aren't worried about the steep inflation readings of the past two months. Price increases will ease in the months ahead, he will say, and the labor market will pick up. “The economy has shown sustained improvement,” Powell’s prepared testimony to the House Oversight and Reform Coronavirus Crisis Subcommittee said. “Job gains should pick up in coming months as vaccinations rise, easing some of the pandemic-related factors currently weighing them down,” his remarks said.
Infrastructure legislation update… President Joe Biden met separately yesterday with Senators Joe Manchin (D-W.Va.) and Kyrsten Sinema (D-Ariz.) to discuss issues including infrastructure, according to a White House official. A bipartisan group of senators trying come up with an infrastructure compromise say they are moving closer to agreement on a proposal but are still wrestling with how to pay for their plan in the face of White House opposition to indexing the gasoline tax to inflation.
Reuters: Lawmakers seek biofuel provisions in potential massive infrastructure package… Reuters is reporting some Democratic lawmakers are seeking to include provisions to bolster biofuels in any coming infrastructure package. Lawmakers making the push are Sen. Amy Klobuchar (D-Minn.) and Reps. Cheri Bustos (D-Ill.) and Cindy Axne (D-Iowa). They intend to introduce two bills soon that they hope will be melded into the potential $6-trillion infrastructure plan, including:
- Setting aside $2 billion to pay for new fuel pumps and other infrastructure needs to get higher levels of ethanol and biodiesel blended into fuels.
- Looking for a 5-cent-per-gallon tax credit for gas stations offering E15. The higher blend has been cleared by EPA and the agency has approved year-round sales.
- Getting more “flex fuel” vehicles on the road, with lawmakers looking at a $200-per-vehicle tax credit for automakers relative to marketing vehicles that can use up to 85% ethanol fuel.
Another slight rise in CFAP 2 payments… There have now been $13.73 billion in Coronavirus Food Assistance Program 2 (CFAP 2) payments approved as of June 20, up slightly from the prior week, according to FSA data. CFAP 1 payments are pegged at $10.58 billion.
What about announced payments to hog producers?... On March 24, USDA announced: “Additional payments for swine producers and contract growers under CFAP Additional Assistance remain on hold and are likely to require modifications to the regulation as part of the broader evaluation and future assistance; however, FSA will continue to accept applications from interested producers.”
Cold storage report to provide another read on post-pandemic meat demand… USDA will release its monthly update on end-of-month holdings of meat, dairy, poultry, fruit, etc. in private and semi-private refrigerated warehouses at 2:00 p.m. CT today. On average over the past five years, frozen beef stocks retreated 29.3 million lbs. during the month of May, while frozen pork stocks contracted 34.0 million lbs. over that 31-day timeframe. This afternoon’s report could be given more scrutiny than usual given uncertainty about the strength of pent-up demand as the U.S. economy opens back up. A strong showing is likely. We’ll have coverage of the report in “Evening Report.”
Mexico blocks shipments of pork from Tar Heel, North Carolina facility… Mexico has blocked all shipments from a Smithfield Foods pork plant in Tar Heel, North Carolina, the world’s largest pork facility. Mexico cited concerns about the quality of hog skins coming from the facility. The halt took effect June 16. Smithfield says the situation is temporary and it is working with authorities to resume shipments from the plant that accounts for around 7% of total U.S. slaughtering. Keira Lombardo, Smithfield's chief administrative officer, says Mexico’s concerns are with a specific lot of hog skins the plant sold to a third-party company based in the U.S. and says the issue “originates with the third-party company, not with Smithfield nor the facility.” Mexico was the second largest export market for U.S. pork by volume in 2020, behind China. The Rava Forwarding facility in Laredo, Texas, has also been delisted as eligible to ship products to Mexico. The facility is listed as cold storage for beef, poultry, pork, bison, sheep and wild game.
Boxed beef prices still sliding… USDA reports cattle traded at an average price of $122.84 last week, up $2.81 from the week prior and the first gain of note in weeks. June live cattle futures settled nearly $2 below the cash market, with traders uncertain as to what the cash market might hold this week. August feeder cattle futures, on the other hand, hold nearly a $14 premium to the feeder cattle index. Meanwhile, boxed beef values continue to slide, with both grades falling more than $2 on Monday; movement was light at 90 loads. The conclusion of buying for July Fourth set off a quick and sharp retreat in beef prices.
Path of least resistance is down for hog futures… Lean hog futures faced heavy pressure to start the week, with the August contract settling its $3.00 limit lower. Daily trading limits expand to $4.50 today, and the market has sustained major technical damage. The pork cutout value dropped 6 cents on Monday after strong morning gains. Movement improved after light tallies to close last week, with 335.36 loads changing hands. Cash hog bids climbed 95 cents on average nationally yesterday.
Overnight demand news… Japan’s ag ministry is seeking 159,665 MT of food-quality wheat from the U.S. and Canada in a regular tender. Three companies are participating in Jordan’s tender to buy wheat.
Today’s reports
- 8:00 a.m. Cost-of-Production Forecasts — ERS
- 10:00 a.m. Fruit and Tree Nut Data — ERS
- 10:00 a.m. Vegetables and Pulses Data — ERS
- 2:00 p.m. Chickens and Eggs — NASS
- 2:00 p.m. Cold Storage — NASS
