First Thing Today | Sept. 20, 2021

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Good morning!

Pressure on grain and soy futures to start the week… Corn futures are 6 to 9 cents lower to start the week, with soybeans down 10 to 14 cents. Winter and spring wheat futures are also posting losses in the 5 to 7 cents area. Crude oil futures face heavy pressure, while the U.S. dollar index has climbed to its highest level in nearly a month.

Brazil supplies bulk of China’s August soybean purchases… China imported 9.04 MMT of soybeans from Brazil in August, an 890,000 MT (10.9%) jump from year-ago levels. On the other hand, the U.S. exported just 17,575 MT of the oilseed to China last month, a dramatic drop from shipments of 166,370 MT in August 2020. Brazil’s soybean crop was planted late this season, and U.S. ports are still recovering after Hurricane Ida. The event’s impact on trade should be more apparent in the September trade update. China’s overall soybean imports of 9.49 MMT were marginally under year-ago levels.

Trade data confirms voracious Chinese appetite for grains… Customs data shows China imported 3.23 MMT of corn during August, a 221% surge from year-ago levels. That pushed China’s year-to-date (YTD) corn imports to 21.40 MMT, a 284% jump from last year at this time. The story is similar for other feed grains.  The country’s wheat imports in August were up slightly from year-ago at 710,00 MT, but its YTD imports of 6.96 MMT are up 40% from year-ago. Its barley imports totaled 690,000 MT in August, up 55% from August 2020, pushing China’s YTD purchases of barley to 7.11 MMT, up 115% from last year. Beijing imported 810,000 MT of sorghum last month, a 27% gain from year-ago, with shipments now at 6.71 MMT for the first eight months of the year, up 129% from year-ago. The trade data also showed China’s pork imports slowed 20.6% from year-ago levels to 280,000 MT in August, but the YTD tally of 2.93 MMT is still 1.0% ahead of year-ago.

China’s wheat imports reach highest level in more than two decades… China is the world’s largest consumer of wheat, accounting for 19% of global wheat consumption in marketing year 2020-21, more than four times the U.S. share. China also became a leading importer during 2020-21, with purchases estimated at 10.6 MMT—China’s highest import total since the 1990s. USDA forecasts China’s 2021-22 imports at 10 MMT. Wheat imports generally totaled 3 MMT to 5 MMT between marketing years 2011-12 and 2019-20. The surge in imports in 2020-21 can be attributed to China’s strong demand for wheat use in animal feed, replenishment of the Chinese government reserves with high-quality wheat, and efforts to meet import commitments in the U.S./China Phase 1 trade agreement. According to China’s customs data, the U.S. supplied 3 MMT wheat imports in 2020-21, or approximately a 28% share.

Russian wheat export prices climb for 10th consecutive week… Russian wheat with 12.5% protein loading from Black Sea ports for supply in early October, free on board, ended last week at $301 per MT, a $1 gain from the week prior, reports the ag consultancy IKAR. The consultancy SovEcon pegged the rise at $1.50 to $304.50 per MT. The wheat export tax for this week fell for the first time in a month, but at $50.90 per MT, it’s still up sharply for the month and the second-highest level for the floating duty that took effect June 2.

The week ahead… Both the House and Senate are in session and some key deadlines are near. The September “work period” runs until the Columbus Day break that begins on Oct. 1, according to the current schedule. The House is expected to vote on a stopgap spending measure this week that could include the debt ceiling. Republicans oppose a debt limit increase, but they could be lured into approving it if Democrats include emergency funding that will help many states recover from catastrophic summer flooding and hurricane damage as well as the devastation caused by wildfires. House Majority Leader Steny Hoyer (D-Md.) reaffirmed the House will vote on the Senate-passed bipartisan infrastructure bill on Sept. 27, though that date could change. Another highlight this week will be the Fed’s monetary policy decision on Wednesday. A House Agriculture Committee hearing on carbon markets will be held Thursday morning. On Friday, Kansas City Southern hosts a special shareholder meeting to vote on a proposed merger with Canadian Pacific Railway.

OMB adjusts RFS meeting schedules… The Office of Management and Budget (OMB) last week added a meeting for Oct. 4 with a state building trades group on the Renewable Fuel Standard (RFS) proposed levels sent forward from EPA. However, that meeting has now been removed from the schedule. The final session currently on tap regarding the proposed RFS levels is one with Citgo Petroleum set for Sept. 23. That could add credence to Washington speculation that the proposed levels from EPA under the RFS could be released by Sept. 27. That would still mark a rather quick turnaround since EPA’s plan was sent to OMB for review Aug. 26.

Possibility of a debt default rattles the market… A partisan fight over raising the government’s borrowing limit is in full view this week, with Democrats moving ahead with a vote in the face of GOP opposition, raising doubts about whether Congress will act before the federal government runs out of cash. The standoff has moved Wall Street analysts and business leaders to issue warnings about a rising risk of a technical default, in which the government might be unable to make all of its regular payments in full and on time. The threat of such a default could derail markets and hit U.S. economic growth.

China Evergrande’s looming collapse is an example of China’s overheated housing market… The company turned billions of dollars in borrowed money into the dream of homeownership for millions of Chinese citizens. But years of aggressive borrowing have collided with Beijing’s crackdown on debt, leaving the giant developer on the brink of collapse. Evergrande’s problems — and their ripple effects on the economy and social stability — are the biggest test of Beijing’s campaign to end debt-fueled speculation and stop home prices from surging while the government tries to lower inequality and keep housing affordable for the masses, the Wall Street Journal reports. A collapse of Evergrande would have a domino effect on other China and Hong Kong property developers and a systemic effect on the rest of the economy, according to Jenny Zeng, co-head of Asia fixed income at AllianceBernstein.

Natural-gas prices have surged, prompting worries about winter shortages… The situation has also led to forecasts for the most expensive fuel since frackers flooded the market more than a decade ago, the Wall Street Journal reports. U.S. natural-gas futures ended Friday at $5.105 per million British thermal units. They were about half that six months ago and have leapt 17% this month. It is supposed to be offseason for demand, and prices haven’t climbed so high since blizzards froze the Northeast in early 2014. Analysts say that it might not have to get that cold this winter for prices to reach heights unknown during the shale era, which transformed the U.S. from a gas importer to supplier to the world. A substantial and sustained increase in price would be felt from households to heavy industry. U.S. natural gas stockpiles are estimated to be down 16.5% from less a year ago, adding to concerns over a potential squeeze on supplies this winter. European natural gas stores are also short, and fertilizer producer CF Industries said last week it was halting production at a U.K. plant because of high natural gas prices.

FDA vaccine advisers recommend Covid-19 boosters in people 65 and older and those at high risk… The group of 20 scientific advisers recommended against approving extra doses for people ages 16 and older in the U.S. but might consider a narrower recommendation. The Biden administration had hoped to offer widespread boosters as early as next week, as experts continue to weigh data on waning immunity. “It’s unclear that everyone needs to be boosted, other than a subset of the population that clearly would be at high risk for serious disease,” said Dr. Michael Kurilla, a committee member and official at the National Institutes of Health. Also of note, Pfizer said today its Covid-19 vaccine works for children ages 5 to 11 and that it will seek U.S. authorization for this age group soon — a key step toward beginning vaccinations for youngsters.

U.S. military said it mistakenly killed 10 Afghan civilians, including seven children… The Pentagon previously said an Aug. 29 drone strike in Kabul last month was justified and that Islamic militants had been stopped. On Friday, officials said an analysis had concluded the airstrike failed to hit its target: a car thought to be carrying explosives for an attack planned at the city’s airport. Republican critics argued that the deaths are a symptom of President Joe Biden’s turbulent withdrawal of troops from the country, which led to the rapid fall of the Afghan government and the swift rise of the Taliban. Afghanistan’s economic meltdown has left ordinary citizens scrambling to survive. How to deal with this crisis poses a pressing dilemma for the international community. Also of note, female government workers in Kabul shouldn’t work unless no men are available to do their jobs, the city’s new Taliban mayor said.

Boxed beef values extend their retreat to three weeks… Boxed beef prices extended their decline on Friday, with choice dropping $3.53 and Select falling 52 cents. Movement was strong, however, at 155 loads. Choice beef has now fallen for 15 straight days. Futures are unlikely to find sustained buying until the product market hits a low. The situation has also given packers little reason to bid up for animals. Last week’s cash action was generally steady with the lower end of cash trade the week prior. USDA will release its monthly Cattle on Feed Report Friday afternoon.

Pork cutout value turned back down Friday… After three straight days of gains last week, the pork cutout value dipped 56 cents on Friday, with strong gains in hams failing to offset losses for most other cuts. Cash hog bids continue to slide, with prices slipping a national average of 16 cents on Friday. Traders continue to watch for a seasonal turnaround for both markets. As the week progresses, traders are likely to work on evening positions ahead of USDA’s Quarterly Hogs & Pigs Report that will be released Friday. The market expects USDA to trim the size of the U.S. hog herd.

Overnight demand news… Pakistan tendered to buy 500,000 MT of wheat. Algeria’s state grains agency issued an international tender to buy 50,000 MT of durum wheat. Jordan tendered to buy 120,000 MT of animal feed barley. Egypt’s state grains buyer said it is seeking to buy 30,000 MT of soyoil and 10,000 MT of sunflower oil.

Today’s reports

 

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