Evening Report: Jan. 21, 2022

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Check our advice monitor on ProFarmer.com for updates to our marketing plan.

 

Your Pro Farmer newsletter is now available... In the Jan. 12 Supply & Demand Report, USDA updated its 2021-22 balance sheets. This week, we give you our updated old-crop balance sheets, along with an initial look at the 2022-23 marketing year. While focus for the U.S. the remainder of the 2021-22 marketing year will be on how much of the supply is used, South American production remains the focal point globally. Recent rains provided some temporary relief for areas of Argentina and southern Brazil, but more is needed... and crop forecasts continue to decline. Traders are also keeping a closer watch on the Russian situation with Ukraine, as an invasion could stir up markets. We cover this and much more in this week’s newsletter, which you can download here.

 

Hot temps to continue in South America... While some areas of South America received some recent rains, any crop improvement was likely limited as moisture will be lost to evaporation, according to World Weather Inc. Stressful conditions are likely to continue in Paraguay and far southern Brazil through Saturday, with those areas expected to see little to no rain of significance and hot temps.

But some relief might come Sunday and next week. “Rio Grande do Sul will likely see an increase in rain Sunday into Monday, says World Weather. “Paraguay and the remainder of far southern Brazil is predicted to get more rain Tuesday through next Friday. Paraguay will likely see additional rain Jan. 29-Feb. 4, while far southern Brazil will dry down again. Most of the remainder of Brazil will see a mix of rain and sunshine during the next two weeks. Central and southern Minas Gerais and southern Espirito Santo into eastern Sao Paulo will be driest overall and the drying will be beneficial in areas that are still excessively wet.”

In Argentina, frequent rains are predicted through next Thursday, but excessive heat will continue through Tuesday in northern areas, with Chaco and Corrientes missing much of the expected rain. “Central and southern Argentina will see mild temperatures during the next week and with significant rain expected, crop conditions should improve dramatically where crops are still viable,” says World Weather.  “Drier weather will return Jan. 28-Feb. 4.”

 

No breakthrough on Ukraine, but U.S., Russia talks to continue... U.S. and Russian talks in Geneva produced an agreement to keep communication open to defuse the possible military conflict at the Ukraine border. U.S. Secretary of State Antony Blinken warned Russian Foreign Minister Sergei Lavrov of a “swift, severe” response if Russia invades Ukraine.

Russia is waiting on U.S. written responses to its security demands to advance talks. Blinken plans to share U.S. concerns and ideas in writing next week. Blinken and Lavrov agreed to discuss issues after that. Russia’s RIA news agency reported the two sides could hold another meeting next month to discuss Moscow’s demands for security guarantees.

 

Cattle on Feed Report: Placements heavier than anticipated... USDA estimated there were 12.037 million head of cattle in large feedlots (1,000-plus head) as of Jan. 1, up 70,000 head (0.6%) from year-ago and 94,000 head more than the average pre-report estimate implied. The increase was primarily driven by a 6.5% jump in placements during December, which was above the highest pre-report estimate. December marketings increased 0.2%, which was fractionally less than anticipated.

Cattle on Feed Report

USDA
(% of year-ago)

Avg. Trade Estimate

(% of year-ago)

On Feed Jan. 1

100.6

99.8

Placements in Dec.

106.5

102.6

Marketings in Dec.

100.2

100.8

 

The bigger-than-expected jump in December placements appears to have been driven largely by drought in the Plains, as Colorado (+10,000), Kansas (+10,000), Nebraska (+25,000) and Texas (+65,000) accounted for 110,000 head of the 119,000-head increase. Feedlots placed more cattle than year-ago in the four lowest weight categories, with lightweights (under 600 lbs.) up 9.8%, 6-weights up 8.0%, 7-weights up 5.9% and 8-weights up 4.4% from year-ago levels. Feedlots placed 4.5% fewer 9-weight cattle and the same number of heavyweights (1,000-plus lbs.).

A breakdown of feedlots inventories showed steers down 40,000 head (0.5%) and heifers up 110,000 head (2.4%) from year-ago levels. The larger number of heifers in feedlots signals herd contraction continues, at least partially due to drought conditions in pastures.

With all three categories coming in on the bearish side of the average pre-report estimates, the report is price-negative. Given the higher-than-expected increase in movement of cattle into feedlots and the weights of the increased placements, the most pressure will be felt in deferred live cattle futures. But with the increased placements in the lighter categories, it may mitigate the bearishness somewhat since it will spread out marketings. Plus, Cattle on Feed Reports rarely have much lasting price impact on the market and we expect focus to quickly return to wholesale price action and the cash cattle market.

 

Covid vaccine mandates affecting pig and feed shipments between U.S., Canada... Canadian pigs headed to the U.S. to be fed and slaughtered are getting stuck in Canada, while feed is stranded in the U.S. as new vaccine rules exacerbate a labor shortage for truckers and railroad employees.

Bloomberg reported that many weaned pigs could not be shipped to Iowa, Minnesota and the Dakotas due to the lack of truck drivers. Many of the pigs are shipped out of Manitoba and the providence can’t feed and process a surge of hogs domestically, said Cam Dahl, general manager of Manitoba Pork. Last year, Manitoba shipped about 3 million weaned pigs to the U.S. to be finished.

At the same time, some truck shipments of soybean meal from the U.S. to Manitoba are also being limited. Due to the drought last year, Alberta cattle feeders are also importing large amounts of corn and dried distillers’ grains (DDGs) from the U.S., according to RealAgriculture. Corn has been shipped in via rail, but there have been shipping delays. DDGs are trucked up from Montana.

Canadian livestock producers say the vaccine mandates could worsen the shipping issues. On Jan. 15, Canada’s vaccine mandate took effect, meaning Americans crossing into Canada need to be fully vaccinated and Canadians must quarantine when they return to the country. On Jan. 22, U.S. vaccine mandate rules on Canadians entering the country will take effect.

 

Ukraine grain exports remain strong... Ukraine exported 36.1 MMT of grain as of Jan. 14, according to ag ministry data, up 27.7% from the same period last year. The total included 16.6 MMT of wheat, 13.7 MMT of corn and 5.4 MMT of barley. Since Dec. 17, the country has exported 6.9 MMT of grain, including 1.3 MMT of wheat, 5.3 MMT of corn, and 300,000 MT of barley.

Ukraine’s ag ministry expects the country to export 65.2 MMT of grain. That would be up nearly 46% from last year’s shipments, which included 23.1 MMT of corn, 16.6 MMT of wheat and 4.2 MMT of barley.
 


SovEcon: Russian and Ukraine wheat crop estimate unchanged... SovEcon, a Black Sea region ag consulting firm, kept its Russian and Ukraine winter wheat crop estimates unchanged from last month. The firm predicts an 81.3 MMT wheat crop for Russia, compared to 75.9 MMT harvested in 2021. For the Ukraine, a 29.1 MMT wheat crop is expected, compared to 32.1 MMT in 2021. The firm reports temps and precip have been generally favorable for the wheat crop.

 

U.S. leading economic indicator rises in December...  The Conference Board said its Leading Economic Index (LEI) rose 0.8% for December, compared to a 0.7% increase in November. The Conference Board estimated that gross domestic product growth would slow to a 2.2% annualized rate in the first quarter. It forecasts growth of 3.5% for the year. The government’s fourth-quarter GDP snapshot is scheduled to be published next week.

“The U.S. LEI ended 2021 on a rising trajectory, suggesting the economy will continue to expand well into the spring,” said Ataman Ozyildirim, senior director of economic research at the Conference Board. “For the first quarter, headwinds from the Omicron variant, labor shortages and inflationary pressures, as well as the Fed’s expected interest rate hikes, may moderate economic growth.”

 

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