First Thing Today | January 31, 2022

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Good morning!

Soybeans continue to surge... Soybean futures posted another round of contract highs overnight, with the front-month contract reaching the highest level since June 2021 on the continuation chart. Corn and wheat followed soybeans higher. As of 6:30 a.m. CT, soybeans are 10 to 13 cents higher, corn is 2 to 6 cents higher, winter wheat is mostly 1 to 3 cents higher and spring wheat is 6 to 12 cents higher. Front-month crude oil futures are modestly firmer and the U.S. dollar index is near unchanged this morning.

AgRural slashes Brazilian soybean crop... Brazil-based consultancy AgRural slashed another 4.9 MMT off its Brazilian soybean crop estimate, lowering it to 128.5 MMT, due to drought in the southern states and Mato Grosso do Sul, along with negative impacts from too much rain in Mato Grosso. AgRural’s forecasts the smallest Brazilian soybean yield since 2015-16. As of last Thursday, the firm estimated soybean harvest was 10% complete and safrinha corn planting as 14% done.

Russia/Ukraine update... The U.N. Security Council will meet today, and U.S. officials are vowing to press their Russian counterparts. Major U.S./allies’ sanctions on Russia could have huge impacts. According to the New York Times: Sanctions imposed on Russia “could cause severe inflation, a stock market crash and other forms of financial panic that would inflict pain on its people — from billionaires to government officials to middle-class families… [T]he strategy comes with political and economic risks. No nation has ever tried to enact broad sanctions against such large financial institutions and on an economy the size of Russia’s. And the ‘swift and severe’ response that U.S. officials have promised could roil major economies, particularly those in Europe, and even threaten the stability of the global financial system.”

Canadian Premier vows to end proof of vaccine policy as truckers protest in Ottawa... A Canadian premier said Saturday the proof of vaccine requirement makes no sense, and he will end it in the “not-too-distant future” in his province. Saskatchewan Premier Scott Moe said in a statement that being vaccinated doesn’t prevent one from getting the virus and the vaccine mandate “makes no sense… I want to be clear on how I feel about vaccines. I am fully vaccinated with my booster shot. This did not prevent me from recently contracting Covid-19, but I believe it did keep me from becoming sick,” he said in a statement. “That said, because vaccination is not reducing transmission, the current federal border policy for truckers makes no sense. An unvaccinated trucker does not pose any greater risk of transmission than a vaccinated trucker,” he continued. He will “continue to encourage everyone to get vaccinated” though, believing it will prevent people from becoming seriously ill. Meanwhile, tens of thousands of protesters gathered outside Canada’s parliament buildings, clogging up main arteries in the capital, as they demanded the government rescind all economic restrictions and vaccine mandates.

The week ahead in Washington... Congress returns with a focus on trying to advance President Joe Biden’s Build Back Better social spending measure. The House Progressive Caucus is calling on party lawmakers to pass BBB by March 1 “so the president can use the power of the State of the Union platform to share with the nation the relief that people will soon receive,” said Caucus Chairwoman Pramila Jayapal, a Washington Democrat, in a statement. The first new farm bill hearing comes Feb. 2 via the House Ag Committee. Conservation programs will be a focus. On the economic front, Friday’s employment report will be the focal point, with economists expecting a gain of 150,000 non-farm payrolls in January.

Pathways around shipping bottlenecks in the U.S. appear to be closing... According to the Wall Street Journal, port congestion that has locked up goods moving through Southern California is spreading to other gateways, and that is adding headaches and raising costs for American importers. Container ships are backed up off South Carolina’s Port of Charleston and the Port of Oakland, and ships entering the Port of New York and New Jersey are waiting longer for berth space. The new delays are in part the result of rising volumes as shippers seek alternatives to the ports of Los Angeles and Long Beach. Increased worker absences related to Covid-19 have also complicated cargo handling and trucking operations. Sea-intelligence reports global schedule reliability for container lines deteriorated again in December, and now carriers and their customers are hoping a lull during the upcoming Lunar New Year provides some relief.

China, other Asian countries celebrate Lunar New Year... China’s markets will be closed all week as the country celebrates the Lunar New Year. South Korea’s markets are closed the first three days this week, with Hong Kong, Malaysia, Indonesia, Singapore and Vietnam also closed at points this week.

China’s factory activity growth slows in January... China’s official manufacturing purchases managers index (PMI) dropped to 50.1 in January but remained above the 50.0 level that separates expansion from contraction. The Caixin/Markit manufacturing PMI fell to 49.1 in January, the lowest reading since February 2020 and signaling contraction in smaller and privately owned factories.

FCC bans Chinese company that is official telecom provider for Beijing Olympics... The Federal Communications Commission banned China Unicom Americas from the U.S. market, labeling the Chinese military-linked company as a national security threat even as it is set to be the telecommunications provider at the Winter Olympics.

Transition to a net-zero economy will be metal-intensive... New technologies will require base metals such as copper for electrification and nickel for battery EVs. Green technologies will also need hefty amounts of rarer metals, such as lithium and cobalt for batteries, tellurium for solar panels, and neodymium for the permanent magnets used both in wind power generation and EVs. The required pace of transition means that, for some of these commodities, we will soon need ten times or more than is available today, according to a McKinsey & Company report.

U.S. LNG to Europe... U.S. LNG exporters, which are already running near capacity, have told officials they are sending as many shipments as they can to Europe without violating other customers’ long-term supply agreements. In fact, Europe is taking 70% of America’s LNG cargoes, according to S&P Global Platts. There are also some near-term bottlenecks that have to be ironed out, including a limited number of U.S. export terminals that can turn gas into a liquid so it can be shipped over long distances.

Cattle Inventory Report to show more herd contraction... USDA’s Cattle Inventory Report at 2 p.m. CT is expected to show the U.S. cattle herd as of Jan. 1 contracted 1.2% from year-ago, based on an Urner Barry survey. The beef cow inventory and the number of beef replacement heifers are both expected to be down 1.8%, which would signal the beef herd will continue to contract in the years ahead. The 2021 calf crop is expected to be down 0.9% from the previous year.  

Cattle market bulls have momentum... Live cattle futures finished near weekly highs and higher last week after starting with a gap-lower performance. As a result, bulls carry momentum into this week. Whether bulls can build off last week’s performance will be dependent on trade in the wholesale beef market and eventual cash cattle trade. But outside markets will also a play a key role.

Early week price action key for hog futures... The hog market saw increased volatility as futures paused last week. That suggests the market is either in the process of putting in a short-term top or ready to push the next leg higher. Cash fundamentals continue to strengthen, but nearby futures hold big premiums to the cash index. Outside markets could be the deciding factor in whether futures make a fresh push to the upside or pull back in corrective trade.

Weekend demand news... Exporters reported no tenders or sales. 

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