First Thing Today | April 11, 2022
Good morning!
Wheat and corn firmer, soybeans weaker to open the week... Wheat and corn futures were supported by solid followthrough buying from last week’s gains in overnight trade, while soybeans weakened. As of 6:30 a.m. CT, winter wheat futures are mostly 10 to 13 cents higher, spring wheat is mostly 8 to 12 cents higher, corn is 4 to 6 cents higher and soybeans are 2 to 6 cents lower. Front-month U.S. crude oil futures are down more than $4 and the U.S. dollar index is just above unchanged.
World Bank: Ukraine economy to fall 45% in 2022, Russia 11%... The war will cause Ukraine’s economy to contract by 45.1% this year, while Russia’s will shrink by 11.2%, according to the World Bank. Emerging market and developing economies in Europe and Central Asia are projected to decline by a combined 4.1% this year, twice the drop triggered by the onset of the Covid-19 pandemic in 2020, the World Bank said in its spring forecasts published on Sunday.
Ukraine’s grain harvest, exports to fall sharply... Ukraine’s grain traders union UGA expects wheat production to plunge around 45% to 18.2 MMT and corn output to fall 38% to 23.1 MMT this year due to fallout from the war with Russia. UGA expects the country to export 10 MMT of wheat and 20 MMT of corn in 2022-23. UGA says the country is currently able to export 600,000 MT of grains and oilseeds per month, though that capacity could increase to 2 MMT. Before the war with Russia, Ukraine could export up to 6 MMT of grains and oilseeds per month.
The week ahead in Washington... Focus of the Biden administration remains on Russia’s war with Ukraine an escalating sanctions placed on the country by the U.S. and its western allies. Congress is on recess this week. On the economic front, U.S. consumer inflation for March will be released on Tuesday, with production price inflation data out Wednesday. Both are expected to show big increases from year-ago. Government offices are open on Friday, but markets are closed in observance of Good Friday.
Soaring gas prices are squeezing transportation businesses... The soaring fuel costs are setting off debates about who will cover the higher costs, the Wall Street Journal reports. Firms such as FedEx, Uber and Lyft have imposed new or higher fuel surcharges but drivers and local contractors say that’s not enough. The national average price for a gallon of regular gasoline in the U.S. rose 20% in March from February.
Perspective on inflation, interest rates and QT... During the 1980s, interest rates were on average more than four percentage points higher than inflation. The Fed funds target rate now is an extraordinary seven percentage points below inflation. Also, the last time the Fed conducted quantitative tightening (QT), it waited two years after interest-rate liftoff to shrink its balance sheet. Its newly suggested plan would amount to double policy tightening — something investors might be missing, say some analysts. Traders are pricing in 80% odds of a half-point interest rate increase in May and a 50% chance of another in June, according to CME data. The Fed signaled that it would let its balance sheet run down by $60 billion in Treasuries and $35 billion in mortgage-backed securities a month, ramping up to that pace over three months.
China’s March inflation stronger than expected... China’s producer price index eased to 8.3% versus year-ago in March, down from 8.8% the prior but above market consensus of 7.9%. This marked the 15th straight month of higher producer prices compared to the previous year. Chinese consumer prices increased 1.5% last month, up from 0.9% in February and the sharpest consumer inflation in three months. Economists expected consumer prices to rise 1.2%.
China’s new bank loans jump in March... Chinese banks extended 3.13 trillion yuan ($492 billion) in new yuan loans in March, up sharply from February and exceeding analyst expectations. That pushed bank lending in the first quarter to a record 8.34 trillion yuan, up 8.7% from 7.67 trillion yuan in the first quarter of 2021, which was the previous record.
China accelerating its nuclear buildup over rising fears of a conflict with the United States... China has stepped up an expansion of its nuclear arsenal because of a change in its assessment of the threat posed by the U.S., people with knowledge of the Chinese leadership’s thinking told the Wall Street Journal. The Chinese nuclear effort long predates Russia’s invasion of Ukraine, but the U.S.’s wariness about getting directly involved in the war there has likely reinforced Beijing’s decision to put greater emphasis on developing nuclear weapons as a deterrent, some of these people say. Chinese leaders see a stronger nuclear arsenal to deter the U.S. from getting directly involved in a potential conflict over Taiwan. Work has accelerated this year on more than 100 suspected missile silos in China’s remote western region that could be used to house nuclear-tipped missiles capable of reaching the U.S., according to analysts that study satellite images of the area.
Kazakhstan wheat, flour export restrictions to start Friday... Kazakhstan plans to restrict wheat and wheat flour exports from April 15 until June 15, the country’s ag ministry said. Earlier this month the ministry said it plans to limit wheat and wheat flour exports to 1 MMT and 300,000 MT, respectively.
Strong demand at Chinese wheat auction... China sold 527,622 MT of state-owned wheat, or 95.4% of the total volume put up for auction. The average selling price dropped to 2,709 yuan ($425) per metric ton, down from 2,857 yuan ($449) the previous week.
Another week of flat cash cattle prices?... The cash cattle market has been basically flat for the past five weeks, with only minor moves in either direction. While feedlots have hopes of firmer cash prices this week, the likelihood is the market will remain relatively steady again. Steady cash trade would be negative to bulls, but with spring- and summer-month contracts trading below the cash market, it should limit seller interest in those contracts.
Cash hog index continues to decline... The CME lean hog index is down another 62 cents today (as of April 7), the seventh straight daily decline. April hogs finished $1.035 below today’s cash quote, though traders are likely to not be overly concerned about a discount in the lead contract unless the index shows solid strength.
Weekend demand news... Exporters reported no tenders or sales.
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
- 10:00 a.m. Export Inspections — AMS
- 11:00 am Feed Grains Database — ERS
- 2:00 pm Season Average Price Forecasts — ERS
- 2:00 pm Wheat Data — ERS
- 2:00 pm Crop Production Historical Track Records — NASS
- 2:00 pm Crop Progress — NASS
