Evening Report | July 8, 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... Price action immediately following the July 4th holiday often sets the tone for summer price action in corn and soybeans. On July 5, December corn futures dropped 4.8% and November soybeans fell 5.7% — the third and second largest post-holiday declines, respectively, since 1986. The post-Fourth price action suggests more price pressure is likely ahead this month — potentially longer. Improved weather was a catalyst for the selloff in grain and soy futures, but so was increased concerns over a recession as central banks around the world tighten monetary policy to combat surging inflation. While focus is on weather and macroeconomic happenings, President Joe Biden is nearing his first major trade policy move regarding China. We cover all of these items and much more in this week's newsletter, which you can access here.
Dry conditions, mild temps after Saturday rains... World Weather Inc. says today’s midday GFS model run produced “a ridiculously strong ridge of high pressure over the heart of Iowa and Missouri. The previous model run had also generated impressive heat in the Plains and western Corn Belt, but this midday model run was even more silly than its predecessor.”
World Weather noted, “The GFS And European Ensembles and the operational European model runs are not on board with the GFS operational model and much caution is warranted in interpreting today’s midday GFS model run. World Weather, Inc. believes the ridge of high pressure will be reduced in size and relocated to the west into the Great Plains in future model runs. When the market trade returns Sunday evening the ridge of high pressure should be back into the Plains and not as intense as advertised today. That should allow for periodic showers and thunderstorms of limited significance to move across the Midwest periodically, but not with much vigor. Resulting rainfall will struggle to counter evaporation, but the kind of oppressive heat the GFS is promoting will not be a threat for the Midwest, instead the Midwest will be warmer than it will be in this first week of the outlook and rainfall will be periodic, but not likely enough to counter evaporation in very many areas. The central and southern Plains will be hot and the western Corn Belt warm enough to stress some crops, but the eastern Midwest will only see seasonably warm conditions slowly evolve.
“So the bottom line for the U.S. is that the drier and milder weather in this coming week will be followed by some warming and a little increase in rainfall in the second week, but no general soaking. The trend will be toward reducing this week’s beneficial moisture, but crop development should continue favorably in this first week of the outlook except in the areas that failed to get much rain this week (i.e. the southwestern Corn Belt, northern Delta, Michigan and some neighboring areas in the northeastern Corn Belt) where there will be continued crop moisture stress. The second week of the outlook will trend drier throughout the Midwest and the levels of crop stress should gradually increase over time.”
Record beef exports in May... The U.S. exported 321.0 million lbs. of beef in May, according to USDA, which is an all-time record, eclipsing the previous high from May of last year. Beef exports increased 17.0 million lbs. (5.6%) from April and 6.7 million lbs. (2.1%) from last year’s record. Through the first five months of this year, the U.S. shipped 1.471 billion lbs. of beef, an 81.5-million-lb. (5.9%) increase from the same period last year. Beef exports to China surged 40.3% and shipments to South Korea also increased, more than offsetting declines to Japan, Mexico and Canada.
U.S. pork exports totaled 548.7 million lbs. in May, up 20.0 million lbs. (3.8%) from April but 136.0 million lbs. (19.9%) less than last year. Through the first five months of this year, pork exports at 2.618 billion lbs. dropped 644.9 million lbs. (19.8%) from the same period last year, driven by a 71.5% plunge in shipments to China.
Stronger-than-expected jobs growth = aggressive Fed... U.S. non-farm payrolls increased 372,000 in June and the unemployment rate held at 3.6%. Hourly earnings increased 5.1% over the past year. Economists expected jobs growth of 268,000 non-farm payrolls and hourly earnings of 5.0%.
Fed Chair Jerome Powell has repeatedly made the case that slowing the jobs market is necessary to put it on a more sustainable longer-term path. The 2-year/10-year bond yield curve further inverted following the jobs data, signaling traders sense the Fed will remain aggressive in its fight against inflation, which could cause a recession. The strong jobs report boosts prospects of another 75-basis-point hike to interest rates by the Fed after its July 26-27 monetary policy meeting.
Goldman says commodity outlook strong, pullback a buying opportunity... The fundamental outlook for commodity prices is strong, Goldman Sachs said, terming the recent price pullback as longer-term buying opportunities. Commodity markets have been oversold, de-linking with supply-demand fundamentals, the bank said in a note dated July 7.
Commodities will weather risks of a recession in the U.S. and Europe in the next 12 months, “on China’s large-scale counter-cyclical stimulus,” Goldman said. It forecast returns of 34.4%, 30.4% and 36.9% on commodities over a three-, six- and 12-month period, respectively, on the S&P/Goldman Sachs Commodity Index (GSCI), adding commodities were a “great macro hedge.” It stated, “An allocation to a true real asset like commodities remains a necessity to protect a multi-asset portfolio.”
Industrial metals were seen returning 57.2% over a 12-month period, followed by precious metals at 48%, energy at 40.7% and agriculture at 24.4%, the bank said.
Oil refiners press EPA biofuel blending costs... Oil refining companies and their labor union representatives pressed the Environmental Protection Agency at a virtual meeting last week to lower costs of the nation’s biofuel blending program when it resets the policy next year, Reuters reported, citing sources familiar with the call.
In the virtual meeting last week, representatives of PBF Energy Inc. and Monroe Energy LLC discussed RINs policy with EPA officials, according to three sources familiar with the matter. Two of the sources said refinery representatives asked EPA for measures that could lower the steep costs of the credits. Small refiners say high RINs costs could put them out of business.
EPA reportedly told the refiners and labor groups they need to appeal to lawmakers or officials in the administration for any changes to RINs policy and pricing, two of the sources said.
EPA said it has met with multiple stakeholders over the last several months to gather input on the upcoming RFS proposal. “We encourage stakeholders to share their perspectives with us and other parts of the administration to ensure our regulatory decisions are based on the best information possible,” said EPA spokesperson Lindsay Hamilton.
EPA is also expected to somehow incorporate the electric vehicle industry into the next phase of the RFS, which would help advance President Joe Biden’s efforts to reduce greenhouse gas emissions from transportation and fight climate change. Refiners and biofuel producers both oppose that idea.
Lawmakers support improved WRDA cost-share formula... In a July 7 letter to leaders of the Senate Committee on Environment and Public Works and the House Committee on Transportation and Infrastructure, 75 House lawmakers requested that waterways legislation being negotiated in a conference include an updated funding cost-share.
“Historically, Congress and the nation have consistently recognized the vital contribution that waterborne transportation makes to overall economic prosperity,” lawmakers noted. “As a result, public expenditures to maintain navigation channels and build related infrastructure were among the nation’s earliest investments. However, our constituents have a growing concern over our aging inland waterways infrastructure as they become more vital to our economy with agriculture exports increasing each year.” More than 80% of the locks and dams on the inland waterways system are past their design life of 50 years, they noted.
Virtually all HPAI restrictions removed from U.S. commercial poultry operations... Only three of the 186 commercial poultry complexes depopulated for highly pathogenic avian influenza (HPAI) have yet to be released from quarantine, according to Animal and Plant Health Inspection Service (APHIS) data. All three are egg laying operations representing about 2.3 million head — less than 1% of the U.S. commercial egg layer flock.
China to buy cotton for state reserves... The China National Cotton Reserve Corporation (NCRC) said its purchases of cotton for state reserves will start July 13, targeting 300,000 MT to 500,000 MT of cotton from the 2021-22 Xinjiang cotton crop. This will help Chinese textile firms meet restrictions from the U.S. and others against any supplies sourced from Xinjiang over allegations of forced labor.
Chicken execs acquitted in antitrust trial... Five chicken industry executives who had been put on trial for a third time by the Department of Justice were found not guilty of conspiring to fix prices from 2012 to 2019. That is a major setback for the Biden administration’s attempts to police rising meat costs.
Jurors acquitted all five defendants in Denver federal court on Thursday after more than a day of deliberations. Two earlier trials ended in hung juries, and prosecutors had hoped for success the third time around after narrowing the case from 10 individuals to five. Instead, the result was a win for former Pilgrim’s Pride Corp. chief executive officers Jayson Penn and William Lovette; Roger Austin, a former Pilgrim’s vice president; Mikell Fries, president of Claxton Poultry; and Scott Brady, a Claxton vice president.
