Evening Report: Feb. 25, 2022

Click here to view weekly export sales/commitments charts and here for report details.

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

Your Pro Farmer newsletter is now available... Russia invaded Ukraine, which spurred comparisons to World War II and sent markets into a frenzy amid concerns about supply disruptions out of the Black Sea region. Wheat, corn and soyoil are the ag markets that will be impacted most as Russia and Ukraine are major exporters of feedgrains and sunseed oil. Russia is also a major exporter of energy and some metals. The Russian invasion overshadowed USDA's Ag Outlook Forum, which featured the first look at the agency's 2022-23 balance sheets. On the weather/crop front, the U.S. winter wheat crop continues to deteriorate, while Argentine crop estimates were cut. We cover all this and much more in this week's newsletter, which you can access here.

Corn producers: Increase old- and new-crop sales… After rallying to new contract highs and the highest prices for a front-month contract since July on Thursday, corn futures retreated. While there may be more upside if the Russia/Ukraine crisis persists, the pricing opportunity is too good to pass up. We advise corn hedgers and cash-only marketers to sell another 10% of 2021-crop to get to 90% sold. All corn producers should also sell another 10% of expected 2022-crop for harvest delivery to get to 40% forward-priced.

Soybean producers: Increase new-crop sales… November soybean futures have pulled back sharply after failing to find sustained buying on the spike above $15 on Thursday. As a result, we advise hedgers and cash-only marketers to sell another 10% of expected 2022-crop for harvest delivery to get to 40% forward-priced. You should be down to what you consider gambling stocks on 2021-crop production.

Wheat producers: Increase old- and new-crop sales… Front-month winter wheat contracts have erased nearly all of Thursday’s limit-up performance. While there may be more upside if the Russia/Ukraine crisis persists, the price action suggests some sales need to be made. We advise hedgers and cash-only marketers to sell another 10% of 2021-crop to get to 90% sold. Hedgers should also lift the 20% hedge in March SRW futures, which go into delivery on Monday. Add a 10% 2021-crop hedge in July SRW futures. Our fill on that position was $8.75 1/4. All wheat producers should also sell another 10% of expected 2022-crop for harvest delivery to get to 40% forward-priced.

Possible talks surface as the Russian invasion continues... As the Russian invasion of Ukraine continues, there is some news that there might be a possible discussion between the two countries, according to various news reports. Russian President Vladimir Putin said he is open to conversations with Ukrainian President Volodymyr Zelenskyy. However, Putin wanted the talks in Minsk, Belarus; Ukraine wanted any meeting to take place in Warsaw, Poland. There were reports that Putin wanted Ukraine to surrender. Ukraine stopped responding to the discussions about any negotiations to end the fighting. China’s President Xi Jinping phoned Putin on Friday and urged him to negotiate to “address problems.”

More Russian sanctions, support for Ukraine... On Friday, the U.S., EU and UK sanctioned Putin. The EU and UK also sanctioned Russian foreign minister Sergei Lavrov. Members of the EU also agreed to thwart 70% of the country’s banking system operations. Other sanctions such as banning Russians from traveling to the EU, cutting Russia off from the SWIFT international bank transfer system and an oil embargo are still possibilities.

British Prime Minister Boris Johnson urged the EU to cut Russia off from SWIFT. The European Central Bank was analyzing the consequences of a possible move. Some EU member countries, especially Germany and Italy, have expressed concerns about cutting Russia off from the interbanking network.

A U.S. State Department official said Friday the Biden administration wouldn’t sanction Russian crude oil because that would harm U.S. consumers and not Putin.

NATO Secretary-General Jens Stoltenberg said the alliance was sending some of its 40,000-strong force to Eastern NATO members and would continue to send weapons, including air defenses to Ukraine. But he also said “it’s hard to predict our possibilities in the future.”

Grain exports shift from Ukraine to Romania and France... Grain exporters are moving grain sourcing from Ukraine to Romania and France, according to traders. Since ports shut down after the invasions, 400,000 to 500,000 MT of Romanian wheat and 200,000 to 300,000 MT of Romanian corn have been purchased for shipment in March and April. Traders think some of the Romanian exports are heading to Algeria.

Exporters have also purchased French corn for EU destinations like the Iberian Peninsula and the Benelux countries. There are rumors of traders taking French wheat as well. Buyers did not buy any German wheat due to high prices.

Some cargoes have been hit as part of the Russian invasion. In addition, shippers are reporting higher insurance rates for shipments from the area.

Two Chinese banks restrict Russian export financing... Two of China’s state-owned banks are limiting the funding to purchase Russian commodity exports as the Chinese government maintains its economic ties with Russia, Bloomberg reported on Friday.

Industrial & Commercial Bank of China Ltd. stopped issuing U.S. dollar-denominated letters of credit to finance Russian commodities. They are still issuing Yuan-denominated letters of credit. Bank of China Ltd. has also curbed financing as it awaits guidance from Chinese regulators.

Since the sanctions have not been announced for Russian energy exports, it is unclear how the banks will react if there are Russian energy sanctions.

Other international lenders including ING Groep NV and Rabobank also have limited Russian commodity-trade financing.

Vilsack: Too early to tell the impacts of the Russian invasion... During his press conference at USDA’s Ag Outlook Forum, Ag Secretary Tom Vilsack said it was “too early to tell” what the impacts will be from the Russian invasion, pointing to comments from USDA Chief Economist Seth Meyer that noted the importance Russia and Ukraine play in the global grain trade.

“It will take time for the impact of this to be felt,” Vilsack said.

He also downplayed the potential for the situation to affect food prices for U.S. consumers, saying it was “still a little too early” to speculate on impacts in Europe. But he did not see a situation where “American consumers on the food side are necessarily going see the kind of impact and effect that the European consumers will see.”

Vilsack acknowledged that sanctions against Russia could have an impact. He explained it depends on how Russia responds and what “disruptions, if any, occur,” and what steps the U.S. might take to “provide help and assistance.”

He warned ag input suppliers not to take “unfair advantage” of the situation.

USTR to work with USDA on Russia invasion effect on ag trade...  U.S. Trade Representative Katherine Tai said her office would work closely with USDA to assess the impacts of the Russian invasion of Ukraine. “There’s a lot of coordination we need to do with our allies and within our own government and economy to look at appropriate responses to the Russian actions,” she said during the Outlook Forum.

Tai explained that the U.S. needs to think through how trade policy considers foreign policy and domestic economic needs to balance U.S. and allies’ needs.

“The critical piece in terms of coordination between allies and within our own government and economy is to figure out how to respond appropriately and also, to look after the impacts to our economy,” she said.

U.S. trade facing headwinds and geopolitical uncertainty... At USDA’s annual Ag Outlook Forum, Chief Economist Seth Meyer cautioned it is “too early to understand the first order effects on grain trade, what the secondary effects on energy in the economy might be” relative to the Russia/Ukraine crisis. Meyer also warned of “headwinds” for U.S. ag trade, despite USDA’s forecasts for record ag exports and imports in fiscal year 2022.

“Although we may expect global and regional grain markets to reorient to alternative suppliers, which may limit direct effects on U.S. agricultural exports, short-term broader macro effects would reverberate through the global economy depending on the severity and duration of the conflict,” Meyer cautioned. “Interlinkages through fertilizer and energy markets” could also impact farmers.

Cattle on Feed Report: As expected... USDA’s Cattle on Feed Report estimated the Feb. 1 large feedlot (1,000-plus head) inventory at 12.2 million head, up 0.8% from year-ago and in line with pre-report expectations. January placements declined 1.2% from last year following three months of figures that were bigger than year-ago and traders’ expectations. Marketings declined 3.1% from January 2021. Both the placements and marketings figures were a little lighter than anticipated.

Feedlots placed 2.4% more lightweight (under 600 lbs.) calves and 1.1% more 6-weights versus January 2021. Placements declined 5.2% for 7-weights and 2.4% for 8-weight calves. Placements of 9-weight and heavyweight calves were equal to last year.

There’s nothing in this report to move cattle futures on Monday. Focus will be on money flow, technical price action and outside markets.