First Thing Today | February 1, 2022
Wheat rebounds overnight... Wheat futures failed to find followthrough selling overnight after a bearish outside day down on Monday, which triggered light corrective buying. Corn and soybeans posted light, two-sided trade. As of 6:30 a.m. CT, winter wheat futures are trading mostly 2 to 4 cents higher, spring wheat is 4 to 7 cents higher, corn is fractionally to a penny lower and soybeans are mostly 3 to 5 cents lower. Front-month crude oil futures are modestly weaker, while the U.S. dollar index is around 250 points lower this morning.
Update on Russian conflict... U.S. Secretary of State Antony Blinken will speak by phone with Russian Foreign Minister Sergei Lavrov following U.S. proposals on de-escalating the situation with Ukraine. Russia still denies it plans an invasion, while western allies are finalizing a package of sanctions that could be imposed in case diplomatic efforts fail.
WSJ: Mounting conflict in the breadbasket of Europe is driving volatility in wheat markets... Russia and Ukraine account for 29% of global wheat exports, and wheat futures are rising on the threat of war and the potential for Western sanctions on Russian exports, the Wall Street Journal (WSJ) notes. Ports in both nations are key gateways for grain exports to buyers in North Africa and the Middle East, and damage to port infrastructure or disruption to shipments could snarl supplies for countries that depend on imports to keep their populations fed. Ukraine’s key wheat-growing regions also lie close to Russian-held territory. The risks are pushing Chicago wheat futures up to nearly $8 a bushel. Other major wheat growers like the U.S., France or Australia could use any disruption to expand their share of the export market. As we reported in “Evening Report” on Monday, however, Russia-based consultancy SovEcon expects the potential conflict between Russia and Ukraine to pose little risk to Black Sea wheat exports. “Even in Spring-2014 after Russia began to control Crimea there was no disruption of grain exports from the Black Sea,” said Andrey Sizov, head of SovEcon.
Record soy crush, increase in corn-for-ethanol use expected... Traders expect USDA to report soybean crush reached an all-time record 197.5 million bu. in December, based on a Bloomberg survey. That would be up 7 million bu. from November and 4.4 million bu. more than last year. Soyoil stocks are expected to climb to 2.51 billion pounds. Traders anticipate USDA will report corn-for-ethanol use totaled 478.6 million bu., which would be up 9.9 million bu. from November and 46.9 million bu. higher than December 2020.
USTR Tai: ‘Difficult stage’ of trade relationship with China... U.S. Trade Representative (USTR) Katherine Tai told a virtual meeting of the National Asian Pacific American Bar Association, “We are in a very difficult stage of this trade relationship.” She said the conversations thus far are “not easy” but her team at USTR will “engage robustly” relative to the Phase 1 agreement. The relationship with China is “one of the defining issues” for the Biden administration. Tai said she has started the “step-one” discussions with China on the Phase 1 deal, but those have not yet yielded any results, adding that her discussions with Chinese Vice Premier Liu He are “quite difficult.” However, she pledged the U.S. was “unflinchingly honest” in raising concerns with China on its Phase 1 purchase commitments in particular. The talks apparently will take longer than many have expected. Tai’s comments focused on the purchase commitments, but U.S. agriculture interests are even more focused on getting China to fulfill its commitments on areas like biotechnology approvals and other trade matters that have tempered trade with China. And this pushes further back any possibility of a Phase 2 set of negotiations.
WTO chief warns supply chain woes may last into 2023... Supply chain issues that have snarled global trade flows may last longer than originally thought, according to WTO Director General Ngozi Okonjo-Iweala, who remarked in France Monday they could last into 2023, according to a report in the Financial Times (FT). “We thought the supply chain disruptions would be temporary,” Okonjo-Iweala told a meeting organized by the Jeune Afrique Media Group. “We still think that, but they are taking longer to resolve than we expected — maybe by the end of this year or maybe into next year.” As with inflation that was viewed by the U.S. Fed as being “transitory,” Okonjo-Iweala used that same term to describe supply chain pressures in an October 2021 interview with the FT. Demand-side pressure that pushed up freight rates and caused delays are expected to ease this year with more supply coming on line, the WTO official said. “Demand for goods should come down, especially with the inflationary pressures and the winding down of support from pandemic-related fiscal measures,” she said. “Shipping companies are making unprecedented profits and some are investing in capacity.” However, she said “structural problems” could also persist, and specifically mentioned problems at U.S. West Coast ports could be due to structural and bureaucratic changes. The WTO will convene a meeting of business executives, ministers and trade experts to examine the persistent supply chain blockages.
India proposes to cut taxes on a host of imports... India’s budget for fiscal year 2022-23 features a series of cuts to import duties in an attempt to curb rising inflation. The proposal would cut the duty on wheat imports to 40% from 100% as of May 1. It would also lower the import tax for corn and millet to 50% as of May 1. The budget also proposes to lower import duties on a host of fuels and fertilizers.
Virtually unchanged CFAP 1, CFAP 2 payouts... Payments under the Coronavirus Food Assistance Program 1 (CFAP 1) and CFAP 2 programs were virtually unchanged as of Jan. 30, with total CFAP 2 payments at $19.07 billion, including original CFAP 2 payouts of $14.24 billion and top-up payments of $4.83 billion ($4.82 billion prior). CFAP 1 payments were unchanged at $11.76 billion, including $10.57 billion in original CFAP 1 payouts and $1.19 billion in top-up payments.
OMB finishes review of CNP temporary standards for milk, whole grains and sodium... The Office of Management and Budget (OMB) has completed its review of USDA’s final rule for temporary standards on milk, whole grains and sodium in Child Nutrition Programs (CNP). The standards will cover the National School Lunch Program and School Breakfast Program as well as the Child and Adult Care Food Program (CACFP) and the Special Milk Program (SMP) for operators returning to operations after the Covid-19 pandemic. The final rule will implement a meal pattern standard for School Years (SY) 2022-2023 and 2023-2024. U.S. dairy interests have followed the development of the rule closely, with representatives of several organizations meeting with OMB on the matter in December.
Cattle futures should be supported by inventory data... All categories in USDA’s Cattle Inventory Report were below the pre-report estimates. The beef cow inventory dropped 719,000 head (2.3%) from last year, while the number of beef heifers expected to calve fell 2.8% and beef replacement heifers declined 3.3%. That should support an extension of recent gains in cattle futures. Once the report data is factored into prices, focus will shift to expectations for this week’s cash cattle trade.
Slaughter levels back to normal... USDA estimated cattle slaughter at 120,000 head and the daily hog kill at 475,000 head on Monday. That would suggest the short-term slowdown in slaughter due to Covid impacts has mostly run its course.
Overnight demand news... Japan is seeking 53,957 MT of Canadian and Australian wheat in its weekly tender. Tunisia tendered to buy 100,000 MT of wheat, 75,000 MT of durum and 75,000 MT of feed barley – all optional origin.
Today’s reports
- 2:00 p.m. Cotton System Consumption and Stocks — NASS
- 2:00 p.m. Fats & Oils: Oilseed Crushings, Production, Consumption and Stocks — NASS
- 2:00 p.m. Flour Milling — NASS
- 2:00 p.m. Grain Crushings and Co-Products Production — NASS
