First Thing Today | March 21, 2022

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Good morning!

Strong start to the week... Bulls controlled overnight trade in the grain and soy complex amid global supply concerns as Russia’s invasion of Ukraine is showing no signs of letting up or ending anytime soon. As of 6:30 a.m. CT, corn is trading 13 to 14 cents higher, soybeans are 15 to 24 cents higher, winter wheat is mostly 26 to 30 cents higher and spring wheat is 12 to 16 cents higher. Front-month U.S. crude oil futures are around $4.50 higher and the U.S. dollar index is up around 175 points this morning.

Russia/Ukraine update... Ukraine rejected Russia’s ultimatum that Mariupol surrender after weeks of Russian bombardments and ongoing street-by-street guerrilla warfare. Ukraine described the situation in Mariupol on Monday as “very difficult” and said it had been unable to establish a new safe corridor to evacuate civilians from the city. The Kremlin said on Monday peace talks between Russia and Ukraine had not yet made any significant progress. Moscow has accused Kyiv of stalling talks by making proposals unacceptable for Russia. Ukraine has said it is willing to negotiate but will not surrender or accept Russian ultimatums.

European leaders considering another round of sanctions on Russia... European Union leaders began talks on a possible fifth round of tough sanctions against Russia including an embargo against its lucrative oil and gas sector. But EU countries still largely depend on Russia for their energy supply and cannot simply cut themselves off on short notice. Deciding whether to target Russian oil, as the U.S. and Britain have done, is a tough and divisive choice for the 27-nation EU, which relies on Russia for 40% of its gas. Diplomats told Reuters that Baltic countries including Lithuania are pushing for an embargo as the next logical step, while Germany, which very much depends on Russian gas, is warning against acting too quickly because of already high energy prices in Europe.

Russian wheat exports actively flowing from Black Sea ports... Russia is exporting more wheat via its Black Sea ports as Azov Sea routes remain restricted, while domestic wheat prices rose last week because of the weakening ruble. “Exports are active. If the weather permits - it is currently unstable in the Black Sea due to strong wind - Russia will export more than 2 MMT of wheat in March,” said Dmitry Rylko, the head of the IKAR ag consultancy. SovEcon, another consultancy, said:
Traders report some issues with payments from abroad when banks refuse to send money even to non-sanctioned institutions, but the overall situation seems to improve. Russia continues to actively ship wheat, mainly from its Black Sea terminals.”

Canadian Pacific Railway work stoppage begins as talks restart with help of federal mediator... Global shipments of key manufactured goods and commodities such as fertilizers halted after contract negotiations between Canadian Pacific and its conductors and engineers collapsed. Canadian Pacific and the Teamsters Canada Rail Conference, which represents more than 3,000 conductors, engineers and yard workers at the railway, disagreed over what triggered the breakdown in talks. Canadian Pacific said if the two sides were unable to agree on a new contract it would favor shifting the discussions to a binding arbitration process. Some are urging the Canadian government to introduce back-to-work legislation that would force striking workers to return to their jobs. But this would require a vote of Canada’s parliament, which is set to convene today after a break. Canadian Pacific is the sixth-largest freight railway in North America and is the primary shipper of fertilizers such as Canadian potash.

More food price rises coming in U.S., other countries... Russia’s war in Ukraine has sparked a fresh wave of hoarding in parts of Europe with panic buying surfacing caused in part by shortages of various food and other products in world markets. This month, global wheat prices spiked at more than 80% higher than a year ago. Sunflower oil — 80% of it produced by Ukraine and Russia — is rapidly becoming unavailable, pushing up the cost of alternatives. Other products, such as some fish and the wood pulp used in packaging and labels, are becoming scarce as supplies from Russia and Ukraine dry up. In the U.S., food inflation will likely continue longer than most government forecasters currently predict. USDA this Friday will issue an update on food prices, which should show some upward revisions.

U.S. grain shipping costs soar... War in Ukraine and drought in Brazil have global crop importers turning to the U.S. for supplies. Result: costs to ship grains and soybeans on the Mississippi River have soared to an almost eight-year high. Rates for dry bulk barges on the Mississippi at St. Louis jumped to $34.75 per short ton, the highest since 2014, according to USDA. Elevated water levels on Mississippi River were also restricting the number of barges towboats could push by about 15. Waters were near a minor flood stage on the Mississippi River at Baton Rouge. Further pushing up barge freight was the resurgence in coal markets amid demand to replace Russian natural gas and crude oil, presenting a rare demand boon for both agricultural and energy along U.S. rivers.

Chinese shipping backlogs building... Backlogs of cargo ships are building off some of China’s busiest ports after lockdowns aimed at curbing new Covid-19 outbreaks. More than 35 ships have gathered off Shenzhen and another 30 were waiting recently to the north at Qingdao, the Wall Street Journal reports, raising the prospect of a new round of bottlenecks that could push up freight rates and slow deliveries. The shipping slowdowns come even as restrictions in Shenzhen are easing and operations at the world’s fourth largest port remain open. The tighter bars on business shuttered many factories over the past week, however, and container loading at terminals has slowed because fewer trucks are arriving. Freight forwarders are adjusting operations, even switching off drivers to meet Covid restrictions while keeping goods moving. But the backups at sea suggest supply chains remain fragile and that new waves of disruption could reach across the Pacific in the coming weeks.

Demand remains high for Chinese wheat reserves... China sold 522,804 MT of state-owned wheat reserves out of 524,804 MT put up for auction last week – 99.6% of the total. But the average price declined slightly from the two previous weeks to 2,958 yuan ($465) per metric ton.

China releasing potash reserves ahead of spring planting... China’s state planner has asked major companies to release 1 MMT of state potash reserves. It is also organizing the timely release of imported potash fertilizer to the market to secure demand during spring planting. The National Development and Reform Commission will work with other departments and take measures to promote domestic fertilizer production, increase imports and release fertilizer reserves to ensure supplies.

The week ahead in Washington... Russia’s invasion of Ukraine will continue to grab Washington’s focus. On Friday, President Joe Biden and Chinese leader Xi Jinping held a nearly two-hour virtual talk. Jinping assured Biden his country didn’t want war in Ukraine. Biden on Thursday meets with NATO and EU leaders to discuss Russia’s invasion of Ukraine. The two-day summit will be held at NATO headquarters in Brussels. Biden will also join a European Council meeting. On the economic front, a host of Fed officials will give speeches on the economy, including Chair Jerome Powell. The ag reports of interest this week are Wednesday’s Cold Storage Report and the Cattle on Feed Report Friday.

Hopes for firmer cash cattle trade... The average cash cattle price firmed a little last week and traders come into this week expecting the modestly higher trade to continue. April live cattle are trading around $2 above last week’s cash market, suggesting there’s some optimism built into the market, but if there are signs of a strong cash advance, there’s more upside potential in futures.

Bears hold the upper hand in hog futures... Price action in hog futures late last week culminated with weekly low-range closes. The market is likely to face followthrough selling pressure early this week. But April hogs finished last Friday nearly $2 below today’s CME lean hog index quote (as of March 17), which could limit seller interest if bulls defend support at the recent lows.

Weekend demand news... South Korea purchased 60,000 MT of U.S. corn and 45,000 MT of U.S. milling wheat.

See ‘Policy Updates’ for late-breaking morning news updates... For updates to items in “First Thing Today” or any late-breaking morning news stories, check “Policy Updates” on www.profarmer.com.

Today’s reports

 

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