Ukraine: Black Sea Grain Deal at Risk of Shutting Down, End Arounds Sought

Farm bill listening session in New York focuses on dairy policy | Lula & Xi work deals

Ukraine’s restoration ministry said the Black Sea grain initiative was in danger of being shut down after Russia again blocked inspections of ships under the deal. “For the second time in nine months of operation of the Grain Initiative, an inspection plan has not been drawn up, and not a single vessel has been inspected. This threatens the functioning of the Grain Initiative,” the restoration ministry said. Russia said an extension of the deal “are still not that rosy,” as it reiterated the need to improve conditions for exports of its grains and fertilizers. More in Russia/Ukraine section.

Ukraine will aim to secure the re-opening of grain transit via Poland as “a first step” at talks in Warsaw today, the country’s ag minister said, after Poland, Hungary and Slovakia announced bans on some imports from Ukraine.

Brazilian President Luiz Inácio Lula da Silva’s China visit that began on April 12 signaled the two countries want to ‘balance world geopolitics’ and limit the importance of the U.S. dollar. More in China section.

The debate over whether the “bank crisis” is over continues. More banks will report this week and the Fed’s Beige Book on Wednesday could also be revealing on this topic. We have more in Markets section.

Treasury Secretary Janet Yellen on Saturday said “banks are likely to become somewhat more cautious in this environment,” but reiterated her outlook for moderate growth, not a recession. Yellen has not had the best track record for the past two years… or longer.

Dairy policy and the new farm bill were the topics at a Friday listening session in New York. Check Policy section for details. Hint: Producers want more of what they have but gave no cost estimates.

A new type of country-of-origin labeling? The familiar barcode will soon be replaced with a more robust and muscular successor that offers far more information about the product inside, Axios reports. More in Food section.

Two commodity bull markets are getting media coverage this morning: tin and sugar. More below.

Meanwhile, gold is not taking a back seat to tin and sugar. And one of the factors behind the latest gold rush is central bank buying. More in Market section.

Recession signs are flashing in the diesel market. That is something U.S. farmers have been hoping for.

Group of 7 countries agree to speed up the end of fossil-fuel use. More in Energy & Climate Change section.

The Wall Street Journal reports that an online account overseen by a former U.S. Navy technician helped spread allegedly leaked documents. A purported Russian blogger going by “Donbass Devushka” (Donbas Girl) is the face of a network of pro-Kremlin social-media, podcasting, merchandise and fundraising accounts. But the person overseeing them is former noncommissioned officer Sarah Bils.

Merck said it would pay $10.8 billion for Prometheus, which had a market cap of $5.4 billion as of Friday’s close and whose shares are up 4% this year. More in Health section.

Former President Trump holds a hefty lead among South Carolina Republicans. More in Politics & Elections section.

Elon Musk’s company is set to launch a prototype of its Starship craft, the most powerful rocket ever, as soon as this morning.

Equities today: In Asia, Japan +0.1%. Hong Kong +1.7%. China +1.4%. India -0.9%. In Europe, at midday, London +0.4%. Paris flat. Frankfurt flat.

     Goldman Sachs will report its first-quarter earnings on Tuesday. Investors will look for signs of improvement relative to the last quarter of 2022, including whether it has been able to pare its surging pay costs. Bank of America also reports; Morgan Stanley follows suit on Wednesday.

     Tesla reports earnings on Wednesday and they will be scrutinized for any indications about how recent price cuts for its electric cars have affected profits. The carmaker delivered over 422,000 vehicles to customers in the first quarter, up by a third year on year.

     Shares of metals mining companies have had a boost. Newmont Corp. is up 5% since the start of the year, while shares of Barrick Gold are up 14.5%, and Kinross Gold is up 30.5%. Newmont recently raised its bid for Australia’s Newcrest Mining to $19.5 billion.

     U.S. equities Friday: The Dow ended down 143.22 points, 0.42%, at 33,886.47. The Nasdaq shed 42.81 points, 0.35%, at 12,123.47. The S&P 500 fell 8.58 points, 0.21%, at 4,137.64.

     For the week, the Dow rose 1.2%, the Nasdaq was up 0.3% and the S&P 500 gained 0.8%. This marked the Dow's fourth straight weekly rise.

Agriculture markets Friday:

• Corn: May corn futures closed 14 cents higher at $6.66 1/4, 22 3/4 cents higher on the week.
• Soy complex: May soybeans fell 1/2 cent to $15.00 1/2, but gained 7 3/4 cents on the week, while May soymeal turned $3.90 lower to $459.70. May soyoil closed 6 points lower at 53.66 cents.
• Wheat: May SRW wheat futures rose 15 1/2 cents to $6.82 1/2, near the session high, gaining 7 cents on the week. May HRW wheat futures surged 33 1/2 cents to $8.78 3/4, and for the week rose 14 1/4 cents. Spring wheat futures rose 26 3/4 cents to $8.76 1/4.
• Cotton: May cotton fell 49 points to 82.86 cents, ending the week below the 100-day moving average and losing 34 points on the week.
• Cattle: Expiring April live cattle futures sagged 75 cents to end the week at $174.75, while most-active June futures dropped 77.5 cents to $163.725 at Friday’s close. That marked a weekly rise of 62.5 cents. The nearby April feeder contract rallied 72.5 cents to $203.40, whereas most-active May futures gained just 10 cents to $207.90, which represented a weekly gain of $2.50.
• Hogs: June lean hog futures rose $1.225 to $86.875 but for the week lost $1.30.
   

Ag markets today: Soybean futures are trading solidly higher, while corn and wheat futures are mixed to open the week. As of 7:30 a.m. CT, corn futures were trading fractionally lower to 2 cents higher, soybeans were 4 to 6 cents higher, SRW wheat futures were 1 to 2 cents higher, HRW wheat was 3 to 7 cents lower and HRS wheat was 2 to 3 cents lower. Front-month crude oil futures were modestly weaker, while the U.S. dollar index was around 150 points higher.  

Market quotes of note:

• Higher for longer. Jamie Dimon, chief executive of JPMorgan Chase, on Friday said there could be consequences for investors and companies which do not prepare for the risk of an extended period of tighter monetary policy. “People need to be prepared for the potential of higher rates for longer,” he said.
   

• Commodities supercycle. John LaForge, head of real asset strategy at Wells Fargo Investment Institute, tells Barron’s (link) go through long supercycles, where prices tend to move together. No need to choose favorites among, say, tin, butter, and palladium. Just buy or sell everything at once. There have been six bull supercycles for commodities going back to 1791, lasting from nine to 24 years apiece, and we are in a seventh that began in March 2020, says LaForge. “Eventually, what happens is the price goes high enough, everyone and their mother is out looking for this stuff, they find it, and prices collapse for 10 years,” he says. “Then, we wake up after that 10-year period and realize, oh, we don’t have enough of this stuff, and we go through the whole cycle again.”
   
• Is the bank turmoil over? The CBOE Volatility Index (VIX), the so-called fear gauge, closed last week at its lowest level since early January 2022. The MOVE Index, which tracks Treasury market volatility, has also fallen below where it was before Silicon Valley Bank collapsed last month, Deutsche Bank analysts noted. Still, other analysts are not that quick to conclude no other major surprises are ahead. This week will bring more bank earnings reports and on Wednesday the Fed releases its latest Beige Book survey of economic conditions and that will be another indicator of the impact.
   
• “We do not expect rate cuts in 2023 unless there is further financial stress caused by the challenges around small and midsize banks,” said Joe Brusuelas, chief economist at RSM US.
   
• Treasury Secretary Janet Yellen on Saturday said “banks are likely to become somewhat more cautious in this environment,” but reiterated her outlook for moderate growth, not a recession. “I’m not seeing anything at this time that is dramatic enough or significant enough, in my view, to significantly change the outlook,” she said on CNN. “We already saw some tightening of lending standards in the banking system prior to that episode (collapses of Silicon Valley Bank and Signature Bank last month), and there may be some more to come.”
   

On tap today:

     • Federal Reserve Bank of New York's Empire State manufacturing survey is expected to rise to minus 15 in April from minus 24.6 one month earlier. (8:30 a.m. ET)
     • National Association of Home Builders housing market index is expected to tick up to 45 in April from 44 one month earlier. (10 a.m. ET)
     • European Central Bank President Christine Lagarde speaks at a Council on Foreign Relations event at 11 a.m. ET.
     • USDA Weekly Grain Export Inspections report, 11 a.m. ET.
     • Richmond Fed President Thomas Barkin speaks on the economy and monetary policy at 12:45 p.m. ET.
     • USDA Crop Progress report, 4 pm. ET.
     • China releases first-quarter gross domestic product, and March retail sales, investment and industrial output data at 10 p.m. ET.

The most forecast U.S. recession that has not yet occurred. The economy is proving more resilient and inflation more stubborn than economists expected a few months ago. As a result the Federal Reserve will keep interest rates high for longer, according to the Wall Street Journal’s latest survey of economists (link).

The European Central Bank is set for three more quarter-point increases in interest rates in May, June and July, economists polled by Bloomberg say.

Sugar prices have shot to their highest level in more than a decade, the Wall Street Journal reports (link), boosted by disappointing harvests in some of the world’s largest producers and strong demand in China. Winners from the rally include Brazilian farmers, who are on track for a solid crop, while food companies and retailers are weighing how much consumers will tolerate rising prices. The upswing comes as many other commodities have held broadly steady or fallen this year. Prices for wheat, corn, nickel and natural gas are all lower, while Brent crude oil is close to flat. But some agricultural futures, like cocoa and orange juice, are defying the raw-materials pullback. That’s propping up inflation at supermarkets even as prices slide in areas such as energy and freight transport.

Market perspectives:

     • Outside markets: The U.S. dollar index was slightly higher, with only the euro weaker but yen stronger against the greenback. The yield on the 10-year U.S. Treasury note rose, trading around 3.55% with a positive tone in global government bond yields. Crude oil is lower, with U.S. crude around $82.00 per barrel and Brent around $85.85 per barrel. Gold and silver are seeing gains, with gold around $2,023 per troy ounce and silver around $25.58 per troy ounce.

     • Global central banks had the fastest pace of buying to start a year in a decade, acquiring a net 157 tons of gold in January and February, according to World Gold Council data. The People’s Bank of China bought 15 tons in January and 25 tons in February — some sources say China likes to backstop various countries with its gold reserves. Of note: About four in five futures traders expect a quarter-point interest-rate hike in May, according to the CME’s FedWatch tool.

     • U.K. Prime Minister Rishi Sunak may receive a boost this week as inflation slips back into single digits. Meanwhile the pound is this year’s comeback story.

    

     • Tin futures surged more than 11% Monday following reports that a key mining region in Myanmar has moved to curtail production. An economic planning committee in a northern area of the country controlled by the United Wa State Army — Myanmar’s largest ethnic armed organization — ordered a general halt to mining, according to an International Tin Association note (link). Bloomberg says it is not yet clear what the apparent crackdown means for the industry, but the region has become a major source of tin ore in recent years — especially for refineries in China — and any disruptions will ripple across the global market.

     • Recession signs are flashing in the diesel market. In China, the number of trucks on highways is noticeably down, while in Europe, diesel’s premium to crude futures recently plunged to the lowest in over a year. In the U.S., demand is on track to contract 2% in 2023. Link for more via Bloomberg.

     • NWS weather outlook: Heavy snow over the Upper Great Lakes begins to wind down... ...Temperatures will be 10 to 20 degrees below average over parts of the Upper/Middle Mississippi Valley, Upper Great Lakes, and Ohio Valley... ...There is a Marginal Risk of excessive rainfall over parts of the Northeast. 

Items in Pro Farmer's First Thing Today include:

     • Varied grain price tone to start the week
     • Ukraine says Black Sea grain deal at risk of being shut down
     • Record March NOPA crush expected
     • Indonesia seeks improved governance of palm oil sector
     • Cash cattle attitudes remain bullish
     • Cash hog index continues to drop

— Documents show challenge of convincing key U.S. allies to arm Ukraine.  The Los Angeles Times reports (link) that since the start of the Russian invasion, President Biden “has cited the strength of the widespread international commitment to the mission of defending an independent democracy against a brutal aggressor.” However, the leaked documents “provide details of how some close non-European allies have been reluctant to provide arms to Ukraine.” In particular, “three U.S. allies who are among the largest recipients of U.S. financial or other aid and assistance — Israel, Egypt and South Korea — had to be aggressively lobbied by U.S. officials to join efforts to help Ukraine, with spotty results.”

— Poland and Hungary have banned imports of grain from Ukraine, and grain transit through their countries, despite a warning from the EU that the unilateral actions would go against the bloc's trade policies. The move seeks to protect their farmers, which have staged protests in recent months due to a grain glut and crashing prices.

     Background: After Russia invaded Ukraine, the EU scrapped tariffs and quotas on Ukrainian grain imports, seeking to help the country that wasn't able to export its product due to logistical problems caused by the war and blocked Black Sea ports.

     Meanwhile, Slovakia temporarily halted grain imports and other selected products from Ukraine, a government spokesman said on Monday, joining Poland and Hungary in such action.

     Upshot: Poland's ban is set to last until the end of June, but with another Ukraine grain export deal murky, grain markets could see some renewed volatility.

     Ukraine seeks re-opening of grain transit via Poland. Ukraine will aim to secure the re-opening of grain transit via Poland as “a first step” at talks in Warsaw today, the country’s ag minister said, after Poland and Hungary announced bans on some imports from Ukraine last week. Poland’s ban on grains, in effect since Saturday evening, also applied to transit through the country. Officials have said it is meant to keep grain transport from entering the Polish market. “The first step, in our opinion, should be the opening of transit, because it is quite important and it is the thing that should be done unconditionally and after that we will talk about other things,” Ukrainian Agriculture Minister Mykola Solsky said. Polish Deputy Foreign Minister Pawel Jablonski said, “The ultimate goal is not that the import ban will be in force indefinitely, but to ensure that grain from Ukraine, which is to be exported, goes (where it is headed).”

 

— Dairy and the new farm bill focus of listening session in New York. Dairy producers do not just increase milk production, but they also want increases in their farm bill support programs. During a House Ag listening session in New York held Friday, April 14, participants urged:

• Expanded coverage options in the Dairy Margin Coverage (DMC) program
• Updated supplemental feed cost payments and make them permanent rather than let them expire as planned this year.
• DMC coverage levels should be expanded to $12 per cwt. to help address the impacts of inflation. Suggestions: Expand coverage up to 10 million pounds of production, up from the current 5 million pounds.

     As usual, stakeholders did not offer any cost estimates of their farm programs suggestions.

— Brazil/China sign more than 20 bilateral agreements in Lula visit to Beijing. Brazilian President Luiz Inácio Lula da Silva’s China visit that began on April 12 signaled the two countries want to ‘balance world geopolitics’ and limit the importance of the U.S. dollar. Lula was lauded by Chinese president Xi Jinping as his “good old friend” and the two countries signal accords with $10 billion in areas ranging from infrastructure investment to the construction of satellites and trade facilitation. China is Brazil’s largest trade partner, and both nations operate as cornerstone members of the trade bloc known as BRICS. This alliance also includes Russia, India, and South Africa. Members of the trade bloc openly share a desire to displace the U.S. dollar in trade and as a global reserve currency.

     During a speech, Lula called on the BRICS group to come up with an alternative currency to the dollar for use in trade between them. “Every night I ask myself why all countries have to base their trade on the dollar,” said Lula. Nations affected by the economic fallout of the Russia-Ukraine conflict have been searching for an alternative to dwindling greenback reserves. This is especially true in Latin American countries like Brazil and Argentina. The result has been a general readiness to abandon the dollar and build infrastructure for a new global reserve currency. This is chief among the list of goals for BRICS.

     Regarding Ukraine, the two countries in a joint statement emphasized that the only way out of the Ukraine conflict was through negotiation. He also called on the U.S. to stop “incentivizing” the war. “Another country that’s important is the U.S. That is, the US needs to stop incentivizing the war and start to talk about peace,” Lula said. He added that Europe also needed to talk about peace so that Russia and Ukraine would gradually begin to see that the whole world wanted an end to the war.

     Overtures to U.S., too. At a press conference in the Brazilian embassy on Friday night, finance minister Fernando Haddad defended the country’s overtures to China, saying they were not intended to alienate the U.S. “The country [Brazil] is too big to be choosing partners,” Haddad said. “Brazil has the size to do partnerships with these big blocs and with other countries in bilateral accords. It doesn’t make any sense that you are forced to make a choice that if you get close to one, you have to distance yourself from the other.”

— China boosts liquidity, keeps interest rates unchanged. The People’s Bank of China (PBOC) liquidity support for the economy as it rolled over maturing medium-term policy loans with higher cash offerings for the fifth month on Monday, while keeping the interest rate unchanged. PBOC injected a total of 170 billion yuan ($24.75 billion) via a one-year medium-term lending facility (MLF) to some financial institutions while rolling over MLF policy loans for the fifth consecutive month. With 150 billion yuan of MLF loans set to expire this month, the operation resulted in a net 20-billion-yuan fresh fund injection into the banking system, the smallest since November. The central bank also pumped 20 billion yuan through a seven-day reverse repurchase operation while keeping borrowing costs unchanged at 2%.

— Group of 7 countries agree to speed up the end of fossil-fuel use. Climate and energy ministers concluded two days of negotiations in Japan yesterday, pledging to “accelerate the phaseout of unabated fossil fuels” to meet net-zero targets. But they didn’t act on a push by Canada to set a deadline for shutting down coal-fired power plants.

— Europe’s largest nuclear reactor has begun regular power output 14 years later than planned, boosting the region’s energy independence. The 1,600-megawatt plant in Finland is the first new atomic reactor in the Nordic countries since the mid-1980s.

— Procter & Gamble said it is becoming more difficult to pass on inflationary increases in their costs to weary consumers. P&G raised its prices by 10% in the last quarter of 2022. Its earnings report on Friday will hint if it has eased off the price-rises.

     Reading list: The latest Economist includes an article (link) that says inflation has yet to dent big food’s earnings.

— A new type of country-of-origin labeling? The familiar barcode will soon be replaced with a more robust and muscular successor that offers far more information about the product inside, Axios reports. The new "2D" barcodes will unlock reams of online extras (for consumers) and revolutionize inventory management (for retailers). Scanning them may tell us the field where something was grown, the factory where a garment was sewn, the sustainability practices of the company that made it — or the washing instructions.

     Examples: Puma is the first company to announce that it's using 2D barcodes in its U.S. stores and products. Internationally, 2D barcodes are being used in Australia and New Zealand for freshness information about deli and meat products. In Japan, a retailer is using them to do "on-demand discounting" of foods with fewer than three days of remaining shelf life.

— Moderna Inc.’s cancer vaccine helped prevent relapse for melanoma patients, results from a midstage trial showed, demonstrating progress in the pursuit of shots to ward off cancer by jump-starting the immune system, the Wall Street Journal reports (link). About 79% of high-risk melanoma patients who got Moderna’s personalized vaccine and Merck & Co.’s immunotherapy Keytruda were alive and cancer-free at 18 months, compared with about 62% of patients who received immunotherapy alone, researchers said Sunday. The 157-person trial offers some of the strongest evidence yet that such vaccines could benefit cancer patients. “I am fairly encouraged that this will open up a whole new set of trials,” said Jeffrey Weber, the senior investigator on the trial and deputy director of the Perlmutter Cancer Center at NYU Langone Health.

— Scientists are engineering bacteria to fight cancer. Human trials are coming, reports the MIT Tech Review (link).

— Merck said on Sunday it will buy California-based biotechnology firm Prometheus Biosciences for about $10.8 billion, which at $200 per share represents a 75% premium to the $114.01 closing price for Prometheus shares on Friday. Merck's move sees it pick up a promising experimental treatment for ulcerative colitis and Crohn's disease and builds its presence in immunology. Merck CEO Robert Davis has said the pharmaceutical giant would be active in deal-making this year. Prometheus is “an important building block” as it builds an innovation engine that will drive growth into the next decade, he said Sunday.

— Former President Trump holds a hefty lead among South Carolina Republicans. The Winthrop University poll, conducted March 25-April 1, found Trump leading with 41% of the vote, Florida Gov. Ron DeSantis at 20%, and former U.N. Ambassador Nikki Haley, the state's former governor, close behind at 18%. Sen. Tim Scott (R-S.C), who announced a presidential exploratory committee last week, polled at 7%. The survey was done before his announcement.

— Both House and Senate return this week after an extended Easter break. Link for The Week Ahead filed Sunday.
 

— SpaceX prepares to test a most-powerful-rocket-eves. Elon Musk’s company is set to launch a prototype of its Starship craft, the most powerful rocket ever, as soon as this morning. A lot is riding on the test: The 394-foot-tall rocket is expected to send NASA astronauts to the moon this decade, and eventually to Mars.

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