First Thing Today | October 18, 2021

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Good morning!

Beans weaker, corn and wheat near unchanged… As of 6:30 a.m. CT, soybean futures are trading mostly 1 to 2 cents lower on a pullback from the corrective gains late last week. Corn futures are fractionally higher in most contracts, while winter wheat futures are fractionally to a penny higher. Spring what futures are steady to a penny lower. The U.S. dollar index is around 125 points higher and front-month crude oil futures are around $1.30 higher this morning.

China’s Q3 GDP weaker than expected… China’s economy grew 4.9% in the third quarter, which was below expectations of 5.2% and the weakest performance in a year. China’s economic growth is the slowest pace since 1990, excluding the pandemic. Chinese officials asserted that the embattled real estate developer Evergrande wasn’t a factor and its troubles could be contained. The country’s industrial output rose 3.1% in September, which was the weakest since March 2020.  

China’s wheat imports plunge in September… China imported 640,000 MT of wheat in September, down 40.4% from year-ago, as elevated international prices and falling domestic corn prices curbed demand. But for the first nine months of the year, China’s wheat imports rose 25.3% from the same period last year. China’s imports of barley and sorghum increased 12.1% and 14.4%, respectively, in September. Through September, barley arrivals jumped 85.5% and sorghum imports surged 110.2% versus year-ago levels.

High inflation will linger for the U.S. economy well into 2022… Constrained supply chains keep upward pressure on prices and curb output, according to economists surveyed this month by the Wall Street Journal (WSJ). The economists’ inflation projections are up dramatically from July, while short-term growth outlooks are lower. Economists on average see inflation at 5.25% in December, just slightly less than the rate that has prevailed since June. Assuming similar levels in October and November, that would mark the longest inflation has been above 5% since early 1991. Economists slashed their GDP growth forecast this year, to an average annualized rate of 3.1% in the third quarter from 7% in the July, according to the WSJ survey. They also lowered projected fourth-quarter growth to 4.8% from 5.4%. Around half of respondents cited supply-chain bottlenecks as the biggest threat to growth in the next 12 to 18 months, while nearly one-fifth pointed to labor shortages.

The week ahead in Washington… Democratic member discord continues regarding the Build Back Better/budget reconciliation package. The latest kerfuffle is the public dispute between Sens. Bernie Sanders (I-Vt.) and Joe Manchin (D-W.Va.) over the size and scope of a multitrillion-dollar spending package. The differences escalated Friday after Sanders published an opinion article in Manchin’s home state newspaper urging him to support the landmark Democratic proposal. The White House has signaled its intent to compromise on the economic package. “I’m convinced we’re going to get it done. We’re not going to get $3.5 trillion. We’ll get less than that, but we’re going to get it,” President Joe Biden said last Friday. On the economic front, the Fed will release its Beige Book highlighting economic conditions in the central bank’s 12 districts on Wednesday. Key data for agriculture this week include Friday’s Cattle on Feed and Cold Storage Reports.

Likely tax changes in budget reconciliation package… The most recent version of the budget reconciliation package calls for raising taxes on corporations’ domestic and foreign income, on closely held businesses, capital gains, high-income individuals and estates. It also would nearly double the size of the Internal Revenue Service. Of note, ag tax specialist Paul Neiffer says he still thinks that while there will be no transfer tax, there will be changes to stepped-up basis. He also predicts a big reduction in the estate tax exemption. He doesn’t think Congress will alter 1031 land exchanges.

Container ship backlog builds… Globally, there are now 584 container ships stuck outside ports, nearly double the number at the start of the year, according to real-time data from Kuehne+Nagel, one of the world’s largest freight forwarders. The backlog off southern China is currently the world’s worst. A typhoon closed the ports for two days recently — but although weather often disrupts shipping, this just added to the problems from previous jams since the pandemic began. Meanwhile, the average global price of shipping a 40 foot container is now close to $10,000, three times higher than at the start of 2021 and almost 10 times pre-pandemic levels, according to Freightos.

China’s Q3 pork production highest in three years… China produced 12 MMT of pork in the third quarter, which was up 43% from last year and the highest output for that quarter in three years. But pork production unexpectedly declined from the second quarter. Through September, China’s pork production stood at 39.2 MMT, up 38% from the same period last year, as slaughter in the first nine months of the year rose 35.9%. China’s pig herd at 437.6 million head was down 0.3% from the previous quarter but up 18.2% from last year. Its sow herd expanded 16.7% from last year to 44.6 million head at the end of September. Given the rise in domestic production and a switch to other proteins, China imported only 210,000 MT of pork in September, down 44.8% from last year. For the first nine months of 2021, China’s pork imports fell 4.3% compared with last year to 3.1 MMT.

Watching for a low in wholesale beef market… Boxed beef prices and movement hinted late last week that a low may be close in the wholesale market. While cattle futures posted an upside breakout from the month-long consolidation range on Friday, the wholesale market may have to send stronger signals of a low to entice active followthrough buyer interest this week.

Cash hog prices continue to decline… The CME lean hog index will be quoted down another $1.23 at $87.59 today. That’s still $9.315 above where December lean hog futures finished on Friday. While cash prices are likely to continue to fall seasonally, traders have more than double the normal seasonal price decline built into December futures.  

Weekend demand news… Ethiopia tendered to buy around 400,000 MT of milling wheat in an international tender.

Today’s reports

 

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