Evening Report | July 12, 2022
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No bullish surprises in July crop reports... Grain and soy complex futures sharply extended today’s already-hefty price declines after USDA’s Supply & Demand and Crop Production Reports contained no bullish surprises. USDA’s U.S. and global ending stocks forecasts for 2021-22 and 2022-23 all topped the average pre-report expectations. In addition, the first U.S. all-wheat crop estimate was slightly bigger than traders anticipated. Click here for report details.
World Weather: 1956 U.S. weather revisited – July still following the trend... Weather patterns rarely repeat for any great length of time, but a parallel that World Weather Inc. noted a couple weeks ago seems to be in place. That parallel is with 1956, another year like this one in which La Nina had been around for much of the previous two years and a significantly negative Pacific Decadal Oscillation (PDO) was present. Both of these anomalies had been prevailing since the 22-year solar minimum occurred in 2020 (which is similar to that of 1954-1956). The rainy weather occurring so far in July across portions of the Midwest seems to be following that of 1956 after a very dry June.
World Weather reports, “June 2022 weather was quite similar to that of 1956 in the sense that most of the Plains, Midwest, Delta and southeastern states all reported mostly below-average precipitation. The pattern of June 1956 then suddenly changed in July with a wetter-than-usual pattern occurring in many of the same areas that had been drier biased in June. The same kind of pattern has evolved in the first 12 days of this month. Even though the specific details of the rain distribution in 1956 and those of July 1-12, 2022 are not exactly the same one must admit the trend change was similar and the impact was also quite the same – at least thus far.”
What happened in August and September 1956? World Weather says August 1956 was still wetter biased in the Northern Plains and Upper Midwest, but there was a drier tendency that returned to portions (not all) of the lower Midwest. The southern states remained drier than usual with the southern half of the Plains, Delta and portions of the southeastern states drier biased. September 1956 then turned more notably drier throughout the Great Plains and across much of the Midwest while staying dry in the Delta. The southeastern states, however, turned wetter – probably the byproduct of tropical cyclone activity or a trough of low pressure over the eastern U.S.
World Weather does not expect the parallel with 1956 to last through the next three months, but some flavor of these trends is expected because of the similarity to La Nina, PDO and the solar cycle as well as an upper air wind flow pattern that is quite similar to that which occurred in 1956. The weather forecaster this year’s ridge of high pressure may be a little stronger and a little farther to the east in late summer than that of 1956, which is why there may be some potential for soybeans in the pod filling stage late this summer to be impacted by late-season dryness. It is also the reason why World Weather believes there may be a greater risk to lower yields in the western Corn Belt this year relative to that in 1956 – mostly in and near the Missouri River Basin.
The forecaster concludes, “World Weather still does not believe there is any potential for a drought like 2012 this year and the evidence is building to keep all of the dryness in the Plains and western Corn Belt. Despite recent trade comments trying to parallel the June rainfall anomalies with 1988 and 2012, the parallel ended earlier this month with the significant rain that fell.” As of now, World Weather is “most concerned over Central and Southern Plains production potential along with the Delta and the southwestern Corn Belt (including Missouri, Kansas, southwestern Iowa, Nebraska and parts of South Dakota). These areas will be closely monitored for stress and late season downward pressure on production potentials. Other pockets of dryness and moisture stress may occur from time to time in the remainder of the Midwest, but recent history has shown that crop genetics have improved greatly over recent decades and timely rainfall with no extreme heat is almost better than any other pattern.”
USDA’s year-end discussion in 1956 pointed out that many crops yielded the best since 1948 (1950-55 were plagued by extended dryness). There were some record yields in 1956, despite hot, dry weather in the Plains and far western fringes of the Midwest.
Brazil could export corn to China before year-end... Brazil may start exporting corn to China before the end of this year, Cesario Ramalho, the head of institutional affairs at corn farmer group Abramilho, said on Tuesday. Ramalho said the timeline was provided by ag ministry officials, who are in talks with China related to the approval of certain types of transgenic corn.
In May, China’s customs authority finalized an agreement to allow imports of Brazilian corn, lining up an alternative to U.S. supplies to replace imports from Ukraine. But shipments have not begun, as talks are ongoing for China to approve certain types of transgenic corn that Brazilian farmers already plant with authorization from Brazilian biosecurity agency CTNBio, Ramalho said.
More on dollar/euro relationship... As we mentioned in “First Thing Today,” the euro is worth about the same as the U.S. dollar for the first time in nearly two decades. This is a result of the euro dropping around 20% over the past 14 months due to economic issues. The last time it happened the euro dropped below 90 cents in 2000, one year after the formation of the European Union and its currency.
A less-discussed reason for the dollar’s strength is the deterioration of global trade, Barron’s notes. Of all the major economies the U.S is the least levered to global trade, so it stands to reason that as trade falters, the greenback will thrive. And that feeds upon itself – since the dollar is the currency of global trade, a strong U.S. dollar will further depress worldwide commerce, points out Jon Turek of the macro research firm JST Advisors. A strong greenback threatens to eat into profits for U.S.-based firms and weigh down stocks. U.S. firms generate about 30% of their sales abroad.
White House trying to get ahead of ‘highly elevated’ inflation report tomorrow... The White House expects June’s consumer price index figures to be “highly elevated” as Americans grappled with substantial increases in the cost of gasoline and food, but said the reading was “already out of date” because of falling energy prices. Economists expect the report to show consumer prices rose 8.8% in June from a year earlier, which would be a fresh 40-year high following an 8.6% reading in May.
Inflation expectations ease... A Federal Reserve Bank of New York survey shows long-term inflation expectations are falling. The bank’s June Survey of Consumer Expectations said that three years from now, respondents see inflation at a 3.6% rise, down from 3.9% in May. The bank also said five years from now, the expected rate of inflation is seen at a 2.8% gain, from the prior month’s projected 2.9% rise. The easing in longer-term inflation expectations is good news for the Fed that is currently engaged in an aggressive campaign to raise rates to quash the highest inflation readings in 40 years.
House Ag Committee leaders want online ag sector feedback about 2018 Farm Bill... House Agriculture Committee leaders announced an online feedback effort for the upcoming farm bill. Members of the public will be able to submit their feedback on how the 2018 Farm Bill has operated and offer their ideas on what the next farm bill should focus on via an online form (link).
Tyson Foods trying to repair supply chain in its signature chicken business... The largest U.S. chicken supplier has committed millions of dollars to expand production, the Wall Street Journal reports, after struggling for years to meet demand and turn a consistent profit in its poultry operations. The problems preceded the pandemic but have grown as upheaval in demand and distribution patterns have strained operations. Tyson’s challenges have played out across its sprawling operations, from problems at hatcheries to short-handed processing lines, undercutting the supplier’s ability to consistently fill growing customer orders. The recovery plan includes $1.3 billion in investment in automation across production lines, along with plans to cut $1 billion in costs by 2024. Market conditions are working in Tyson’s favor. Demand from grocery stores and restaurants remains strong and meat prices are rising, providing a financial cushion amid the internal changes.
U.S. wants revamp to WTO settlement dispute process... U.S. officials want World Trade Organization (WTO) member countries to meet informally every few weeks to build a consensus on how to revamp the body’s dispute-settlement system, a suggestion some trade policy analysts called for years ago.
Meanwhile, the U.S. is working to resolve an impasse that has left the WTO without senior judges to resolve trade disputes, U.S. officials told the Wall Street Journal. Lower panels still hear cases brought by members, but any appeals by those dissatisfied with initial decisions have no place to go.
