Evening Report | July 6, 2022

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Soybean cash-only marketers: Trim old-crop inventories… Given recent price action, we are no longer comfortable carrying as much old-crop inventory as gambling stocks. We advise cash-only marketers to sell 5% of 2021-crop to get to 90% sold. We’ll carry the final 10% of old-crop into the critical summer weather period for new-crop soybeans but will look to finish sales on an extended corrective recovery.

 

Cotton producers: Increase 2022-crop sales... The cotton market has broken down technically and could face more heavy price pressure based on chart patterns. As a result, we advise hedgers and cash-only marketers to sell another 10% of expected to 2022-crop production for harvest delivery to get to 60% forward-sold.

 

World Bank lending Ukraine rail operator money to ramp up grain exports... The World Bank could lend $200 million to Ukrainian railway operator Ukrzaliznytsia to boost grain export capacity, Interfax news agency reported. “We have tentatively agreed with the World Bank on $200 million in funding for our projects to develop grain export capacity,” company chief Oleksandr Kamyshin said following the Ukraine Recovery Conference in Lugano, Switzerland.

Kamyshin said earlier Ukrzaliznytsia was unable to increase grain exports to any great extent in June due to existing logistics constraints.

 

Russia to buy wheat, sugar for state reserves... Russia’s ag ministry will buy 1 MMT of wheat and 90,000 MT of sugar from the domestic market in 2022 for the intervention fund (state stockpiles), state-controlled trader United Grain Company (UGC) said. Russia has plans to purchase up to 3 MMT of wheat and 250,000 MT of sugar in total for state reserves by 2024, UCG Chief Executive Dmitry Sergeyev told President Vladimir Putin.

Russia expects to harvest a bumper wheat crop this year with a record amount of wheat available for export after domestic needs have been secured.

 

FOMC minutes confirm hawkish Fed... Minutes from the Federal Reserve’s June 14-15 Federal Open Market Committee (FOMC) meeting revealed growing anxiety over inflation and plans to adopt a restrictive policy stance in order to tame prices.

The minutes stated the Fed is likely to raise rates at least another 50 basis points following the July 26-27 meeting. “In discussing potential policy actions at upcoming meetings, participants continued to anticipate that ongoing increases in the target range for the federal funds rate would be appropriate to achieve the Committee’s objectives,” the minutes stated. “In particular, participants judged that an increase of 50 or 75 basis points would likely be appropriate at the next meeting.”

“Participants concurred that the economic outlook warranted moving to a restrictive stance of policy, and they recognized the possibility that an even more restrictive stance could be appropriate if elevated inflation pressures were to persist,” the minutes said. “Participants recognized that policy firming could slow the pace of economic growth for a time, but they saw the return of inflation to 2% as critical to achieving maximum employment on a sustained basis.”

The minutes noted that risks to the outlook were skewed lower for GDP and higher for inflation as tighter policy could slow growth. The committee prioritized fighting inflation. While the minutes were hawkish, the recent sharp drop in commodity prices may limit interest rate increases from levels the Fed discussed, especially if economic growth continues to slow.

 

IMF chief: ‘Cannot rule out’ possible global recession... The head of the International Monetary Fund (IMF) on Wednesday said the outlook for the global economy had “darkened significantly” since April and she could not rule out a possible global recession next year given the elevated risks. IMF Managing Director Kristalina Georgieva told Reuters her group would downgrade in coming weeks its 2022 forecast for 3.6% global economic growth. That would be the third time the IMF has lowered its global growth forecast this year.

IMF is expected to release its updated forecast for 2022 and 2023 in late July, after slashing its forecast by nearly a full percentage point in April.

Georgieva cited a broad spread of inflation, more substantial interest rate hikes, a slowdown in China’s economic growth and escalating sanctions related to Russia’s war in Ukraine were behind her more dour tone. “We are in very choppy waters,” she said. “The risk [of global recession] has gone up so we cannot rule it out.”

Recent economic data showed some large economies, including those of China and Russia, had contracted in the second quarters, she said, noting the risks were even higher in 2023. “It’s going to be a tough 2022, but maybe even a tougher 2023,” she said. “Recession risks increased in 2023.”

Georgieva said a longer-lasting tightening of monetary policy would complicate the global economic outlook, but added it was crucial to get surging prices under control. Slower economic growth may be a “necessary price to pay” given the urgent and pressing need to restore price stability, she warned.

 

U.S. requests WTO consultations with India on wheat, rice subsidies... The request by the U.S. and other countries June 29 for consultations with India over their subsidies for rice and wheat got the thumbs up by Senate Agriculture Committee Ranking Member John Boozman (R-Ark.). “America’s farmers deserve a level playing field,” Boozman said in a statement. “I appreciate the Office of the United States Trade Representative (USTR) taking this action. Furthermore, I thank the governments of Australia, Canada, Japan, Paraguay, Thailand and Uruguay for joining the U.S. in these consultations on India’s subsidies for rice and wheat.”

Perspective: India has “worked” the WTO for years with all sorts of delaying tactics. In this case, India will further resist calls for it to reduce the use of subsidies to build stockpiles and even to report those subsidies to the WTO. No dates have been set for the consultations. It will take years for this case to unfold, if it ever does.

 

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