First Thing Today | February 28, 2022
Markets reflect increased Russia/Ukraine anxiety... Grain and soy markets posted strong gains overnight, led by wheat, amid increased anxiety with the Russia/Ukraine crisis. As of 6:30 a.m. CT, winter wheat futures are trading mostly 40 to 60 cents higher, spring wheat is 22 to 30 cents higher, corn is 15 to 24 cents higher and soybeans are 24 to 40 cents higher. Front-month U.S. crude oil futures are more than $4 higher and the U.S. dollar index is up more than 300 points.
Russia/Ukraine update... Activity accelerated over the weekend as Ukraine continued to exert strong resistance against Russian troops and military hardware. In the face of Ukrainian opposition, Russia has had to “commit a bit more logistics and sustainment capability, like fuel specifically, than what we believe they had originally planned to do this early in the operation,” a U.S. defense official said. President Vladimir Putin on Sunday ordered Russian nuclear deterrent forces put on high alert in response to what he called “aggressive statements” by leading NATO powers. A Ukrainian delegation met with Russian officials near the Belarusian border, Ukrainian President Volodymyr Zelenskyy’s office confirmed. The announcement comes after Zelenskyy rejected an offer to hold talks in Belarus, saying the country is not neutral territory because Moscow carried out part of its assault from there on Thursday. Meanwhile, the European Union is banning Russian planes from its airspace and will fund arms purchases for Ukraine, in what the bloc’s president called a “watershed moment.” The EU also will extend to Belarus its sanctions on Russia and ban from the 27-country bloc, Russian state-owned media outlets reported.
EU, U.K., Canada, U.S. plan to cut some Russian banks from SWIFT... The European Union, United Kingdom, U.S. and Canada announced powerful new sanctions plans, including taking some Russian banks off the SWIFT financial network and taking measures to paralyze the activities of Russia’s central bank over the Kremlin’s attack on Ukraine. “Russia’s war represents an assault on fundamental international rules and norms that have prevailed since the Second World War, which we are committed to defending. We will hold Russia to account and collectively ensure that this war is a strategic failure for Putin,” the leaders of the Group of Seven (G7) countries wrote in a joint statement that outlined the new measures. G7 leaders are also restricting the Russian Central Bank from (1) “deploying its international reserves,” (2) blocking the sale of “golden passports” to people with links to the Russian government, (3) creating a task force to begin “identifying and freezing assets” of any sanctioned companies, officials and oligarchs and (4) working on ways to boost the fight against disinformation campaigns. Russia’s central bank raised interest rates to 20%, up from 9.5%. As global sanctions kick in, the ruble is crashing, and crippling hyperinflation could be on its way.
Foreign Policy: Russia’s war on Ukraine could cause a global food crisis... With some of the most fertile land on Earth, Ukraine is known as Europe’s breadbasket. Its fast-growing agricultural exports are crucial to feeding the world. A substantial part of Ukraine’s most productive agricultural land is in its eastern regions, exactly those parts most vulnerable to Russian attacks. As the war unfolds, Foreign Policy says “one concern that has gone relatively unnoticed is the question of what happens to these regions — and to the countries around the world that depend on Ukraine for food.
The week ahead in Washington... The House and Senate both return this week, but to a very different situation due to Russia’s invasion of Ukraine, which is expected to be one of the key issues President Joe Biden talks about during his State of the Union (SOTU) address on Tuesday. Biden’s SOTU address also could take the opportunity to adjust his Covid policy along the lines of the United Kingdom, which last week lifted all remaining Covid-19 restrictions. Biden will also focus on his push for carbon mitigation programs and will likely say agriculture will play a big role in that effort. Biden will attempt to soothe a worried nation faced with geopolitical concerns (Russia, China, Iran, etc.) inflation and rising interest rates once the Fed starts hiking them in March while also beginning to reduce stimulus. On the economic front, Fed Chair Pro Tempore Jerome Powell will give his semiannual policy update to Congress on Wednesday and Thursday. The Labor Department will release February employment data on Friday.
Strategie Grains adjusts Ukraine oilseed export outlook... Russia’s attack on Ukraine is expected to halt the processing and export of Ukrainian oilseed crops for at least one month, curbing flows of sunflower seed to the European Union, consultancy Strategie Grains said. The firm trimmed its forecast for 2021-22 EU sunflower seed imports from Ukraine by 41,000 MT from a month earlier to 97,000 MT, while cutting projected EU imports of Ukrainian sunmeal by about 230,00 MT to 1 MMT. For sunoil, for which Ukraine is the main source of EU imports, Strategie Grains kept its forecast of total EU imports this season at 2.4 MMT. However, it reduced its outlook for overall Ukrainian sunoil exports to 6.2 MMT from 6.4 MMT last month and after initially planning to raise the forecast to 6.7 MMT before Russia’s invasion. The crisis would not have a short-term effect on Ukrainian rapeseed flows to the EU, with Ukraine having virtually completed its rapeseed exports for 2021-22.
Russian wheat export tax declines again... Russia’s wheat export tax for March 2-8 will be $88.20 per metric ton, based on an indicative price of $326.10 per metric ton. The wheat export tax has dropped seven straight weeks and is down from the peak rate of $98.20 per MT in mid-January, but is still 214% higher than the initial rate of $28.10 per MT at the beginning of June when Russia started using the sliding scale.
China sells nearly all of wheat put up for auction... China sold 522,037 MT out of the 529,607 MT of state-owned wheat reserves put up for auction last week at an average price of 2,753 yuan ($436) per metric ton. The average sales price was the highest since China started wheat sales in October.
China to facilitate commercial production of GMO crops... China’s ag ministry said it will facilitate the commercialization of genetically modified corn, soybeans and cotton. China will improve management and regulation of GMO crops.
China to buy pork for state reserves... China will buy 40,000 MT of pork for state reserves this week in the first round of stockpiling this year, China Merchandise Reserve Management Center said. The National Development and Reform Commission will also guide local authorities to actively buy pork for local reserves. China is seeking to support hog prices after a sharp fall following the Lunar New Year holiday, when excess supply and flat demand weighed on the market.
USDA’s 2022 food price inflation forecasts rise, as expected... USDA now expects food price inflation in 2022 to rise 2.5% to 3.5% from last year, up from its prior outlook food prices would increase 2% to 3%. The forecast for food away from home (restaurant) prices is for an increase of 4% to 5%, the second increase in as many months. Food at home (grocery store) prices are now forecast to be up 2% to 3% in 2022, up from USDA’s initial outlook that those prices would increase 1.5% to 2.5% from 2021 levels.
Neutral Cattle on Feed Report... Last Friday’s Cattle on Feed Report showed the Feb. 1 large feedlot (1,000-plus head) inventory up 0.8% from year-ago, which was in line with expectations. January placements dropped 1.2% and marketings fell 3.1%, both a little lower than anticipated, but not enough to influence cattle futures. Focus will be on money flow, technical price action and outside markets.
Early week price action key for near-term direction of hog futures... Price action in hog futures the final three days last week signaled a seasonal late-winter peak. Active followthrough selling early this week would confirm a deeper corrective pullback is underway. But if buyers resurface early this week, it will signal the sharp pullback was little more than a correction in the bull market.
Weekend demand news... Egypt tendered to buy an unspecified amount of wheat from multiple origins, with results expected later this morning.
Today’s reports
- 10:00 a.m. Export Inspections — AMS
- 2:00 p.m. Agricultural Prices — NASS
- 2:00 p.m. Cold Storage - Annual — NASS
- 2:00 p.m. Egg Products — NASS
- 2:00 p.m. Trout Production — NASS
