Grain Markets Adding U.S. and European Weather Premium

( )

Biden and his team don’t get capping price of Russian oil, nor Saudi boost in oil production

 

                                                In Today’s Digital Newspaper

 

Fed Officials are preparing to lift interest rates by another 0.75 percentage point, the Wall Street Journal reported over the weekend. The hike will come during the FOMC’s July 26-27 meeting.

Finance ministers from the G20 concluded their meeting in Indonesia over the weekend without an agreement to cap the price of Russian oil, as the U.S. had proposed.

President Biden departed Saudi Arabia on Saturday without a firm commitment for an oil production hike, saying only that based on his conversations he expects “further steps in the coming weeks.” That suggests an announcement may be delayed until OPEC+’s August meeting. Saudi ministers insisted that oil policy decisions would be taken according to market logic and within the OPEC+ coalition.

President Biden suggested on Friday he could address climate change through executive orders. Environmental groups and progressives in Congress say he could put tougher regulations on power utilities, block new oil and gas drilling on federal land, and raise auto fuel-efficiency standards.

President Biden’s appointment of a Presidential Emergency Board pushes back potential disruptions in rail services. We filed a special report on this topic Saturday. Meanwhile, dockworkers at U.S. West Coast ports also are working without a contract, raising anxiety levels in supply chains.

Transportation Secretary Pete Buttigieg on Tuesday will give the House Transportation and Infrastructure Committee an update on the Biden administration’s infrastructure spending and progress implementing the infrastructure law.

Volodymyr Zelenskyy, Ukraine’s president, fired the head of the country’s security service, the SBU, as well as the state prosecutor-general. Zelenskyy said on Telegram that over 60 officials in the two agencies had been found to be collaborating with Russia in territory it has occupied. More collusion is suspected: the Ukrainian president said 651 cases of alleged treason had been opened against officials.

Russia is preparing “the next stage of the offensive,” with a renewed assault on the eastern province of Donetsk likely in the coming days, a Ukrainian official said on Saturday, as British military intelligence said Russia was fortifying occupied positions across southern Ukraine.

Russian naval vessels have taken unusual measures to avoid Ukraine’s missile attacks, while grains ships have now been able to slip Russia’s blockade.

Authorities across southern Europe spent this weekend battling huge wildfires in countries including Spain, Greece and France, with hundreds of deaths blamed on soaring temperatures. Temperatures in Spain have reached as high as 114 degrees Fahrenheit during the nearly weeklong heat wave. In France, wildfires have forced the evacuations of more than 14,000 people as officials continue to issue red alerts, the highest possible to warn residents. Italy is experiencing its worst drought in years. Extremely high temperatures are forecast in Britain today and tomorrow in what would top a previous official record of 102 degrees Fahrenheit.

In the U.S., several states from the north-central Plains to Texas face possible record high temperatures this week, according to the National Weather Service.

A vote is expected today by the International Trade Commission on whether to levy new duties against Russia and Trinidad and Tobago. The two countries account for more than 80% of imports of U.S. urea ammonium nitrate fertilizers. The American Farm Bureau Federation estimates that about 25% of U.S. fertilizer operating costs are due to UAN solutions. Proposed duties range from about 17% to 130% on imports from Russia and about 113% percent from Trinidad and Tobago. Last year, the ITC voted 5-0 that there was enough evidence that CF Industries was being harmed by the imports for the case to proceed.

The World Health Organization is set to reconvene its expert committee this week to decide whether monkeypox now constitutes a global health emergency. Back in June, a majority of the expert panel felt the situation had not met that threshold, which could release additional resources to combat the crisis.

In Sri Lanka, acting President Ranil Wickremesinghe issued orders late Sunday for a fresh state of emergency. It comes ahead of Wednesday's vote in parliament to elect a new president, after Gotabaya Rajapaksa fled to the Maldives (and then Singapore) to escape a widespread uprising against his government.
 

MARKET FOCUS

Equities today: Global stock markets were higher overnight. U.S. stock indexes are pointed toward higher openings. Second-quarter earnings season continues next week, with roughly 70 S&P 500 firms scheduled to report. Bank of America topped expectations on revenue as the lender benefits from higher interest rates. Other earnings highlights will be Goldman Sachs, and IBM on Monday, followed by Netflix, Lockheed Martin, and Johnson & Johnson on Tuesday. Tesla and United Airlines report on Wednesday, then AT&T, Dow, Snap, American Airlines Group, Domino's Pizza, and Freeport-McMoRan all go on Thursday. Results from American Express, Verizon Communications, and Twitter will close the week on Friday. In Asia, Japan closed. Hong Kong +2.7%. China +1.6%. India +1.4%. In Europe, at midday, London +1.4%. Paris +1.5%. Frankfurt +1.4%.

     U.S. equities yesterday: The Dow gained 658.09 points, 2.15%, at 31,288.26. The Nasdaq was up 201.24 points, 1.79%, at 11,452.42. The S&P 500 was up 72.78 points, 1.92%, at 3,863.16. Stocks ended the week on a high note after banking giant Citi beat earnings projections, and the prospect of a 100 basis point rate hike by the Fed dimmed. Also helping boost stocks: A new survey showed that Americans’ long-term inflation expectations fell from the month before.

     Friday's rally still was not enough to overcome three days of selling earlier in the week, leaving the three major market indexes with weekly losses of 1.6% for the Nasdaq, 0.9% for the S&P 500 and 0.2% for the Dow.

     Stocks 071522

Agriculture markets Friday:

  • Corn: December futures closed up 2 3/4 cents at $6.03 3/4. It was down 19 3/4 week over the week.
  • Soy complex: November soybean futures closed the day up 1 1/4 cents at $13.42 1/4 and for the week lost 54 1/4 cents. August soybean meal futures fell $7.90 at $431 and on the week dropped only 30 cents. August bean oil rose 194 points at 60.08 cents and for the week fell 251 points.
  • Wheat: September SRW wheat closed down 18 1/4 cents at $7.76 3/4, lower by $1.14 3/4 week over week. September HRW wheat down 11 1/4 at $8.37 1/2, and off $1.08 1/4 from last week’s close. September HRS wheat ended the day 3 3/4 cents lower at $9.06 3/4, down 85 cents week over week.
  • Cotton: Cotton futures rebounded strongly from mid-week losses. December futures surged the expanded 5.00-cent daily limit and settled at 88.71 cents per pound Friday. However, that marked a 6.92-cent drop from last Friday’s close.
  • Cattle: Cash cattle slippage seemed to undermine futures again Friday, with August live cattle ending the week at $134.925, down 47.5 cents on the day, but up 97.5 cents on the week. August feeder futures also fell, dropping $2.55 to $176.35 at Friday’s close. However, that marked a weekly increase of $4.625.
  • Hogs: July lean hog futures went off the board today at $114.90, down 2 1/2 cents. August lean hog futures closed the day Friday up 25 cents at $109.825 and for the week rose 65 cents.
     

Ag markets today: Corn, soybeans and wheat all traded solidly higher overnight amid a round of corrective buying. As of 7:30 a.m. ET, corn futures were trading 6 to 7 cents higher, soybeans were 21 to 26 cents higher and wheat futures were mostly 6 to 12 cents higher. Front-month U.S. crude oil futures were nearly $2 higher and the U.S. dollar index was down around 675 points.

Technical viewpoints from Jim Wyckoff:

     July 18 Corn

     July 18 Soybeans

     July 18 Crude

     July 18 Bonds

     July 18 Euro

     July 18 Gold

On tap today:

     • National Association of Home Builders housing market index, due at 10 a.m. ET, is expected to tick down to 66 in July from 67 one month earlier.
     • USDA Grain Inspections report, 11 a.m. ET.
     • USDA Crop Progress report, 4 p.m. ET.
     • Russian President Vladimir Putin will meet this week with his Turkish and Iranian counterparts.

Federal Reserve officials have signaled they are likely to raise interest rates by 0.75 percentage point later this month, for the second straight meeting, as part of an aggressive effort to combat high inflation, the Wall Street Journal reports (link). “Policy makers left the door open to a larger, full-percentage-point increase at the July 26-27 gathering. But some of them simultaneously poured cold water on the idea in recent interviews and public comments ahead of their premeeting quiet period, which began Saturday,” the WSJ said.

Economists surveyed by the Wall Street Journal now put the chance of a recession sometime in the next 12 months at 49% in July, on average, up from 44% a month ago and just 18% in January. Some 46% of economists said they expect the Fed to raise interest rates excessively and cause unnecessary economic weakness. Slightly fewer, 42%, said they anticipated the Fed increasing rates about the right amount to balance inflation and growth. Around 12.3% thought it would raise rates too little.

     Recession survey

     Respondents cut their growth forecasts for 2022, projecting inflation-adjusted gross domestic product to rise 0.7% in the fourth quarter of this year from a year earlier. That’s down from 1.3% projected in June and 3.6% nine months ago.

     GDP survey

Biden and the Saudis. After exchanging a fist-bump with Muhammad bin Salman, Saudi Arabia’s crown prince, in Jeddah, President Joe Bide says he confronted him about Jamal Khashoggi, a journalist whose state-sponsored murder in 2018 once prompted Biden to threaten to make the kingdom a “pariah.” He said the crown prince denied involvement. He also said he expects to see steps from Saudi Arabia in the coming weeks to increase energy supplies.

The Federal Reserve has a long way to go to get inflation back to its target. "To get inflation back to 2%, the central bank will have to push the unemployment rate up significantly from the current 3.6%. Even an 0.5-percentage-point increase would probably mean a recession, because that’s what has always happened in the past when the unemployment rate has breached that threshold," former New York Fed President Bill Dudley writes at Bloomberg Opinion (link).

Fed study concludes what many already knew: pandemic fiscal support boosted inflation. Fiscal support enacted in many countries to support households during the Covid-19 pandemic helped to boost spending without increasing production, widening the mismatch between supply and demand and worsening inflation in some countries including the U.S., according to Fed research released on Friday. Link

A Chinese company’s recent purchase of farmland in North Dakota has lawmakers and analysts cautioning about potential espionage. The 300-acre farm, sold to Fufeng Group, is just 12 miles from Grand Forks Air Force Base, which houses sophisticated military drone technology. Fufeng Group said it is planning to use the land to build a $700 million corn milling plant that would create at least 200 jobs as well as residual opportunities for logistics, trucking, and other services.

     Sen. Kevin Cramer (R-N.D.) has also expressed opposition to the presence of Fufeng Group, which he views as a front for the Chinese government. “I think we grossly under appreciate how effective they are at collecting information, collecting data, using it in nefarious ways,” Cramer told CNBC.

     The move comes as lawmakers are looking to ban the sale of U.S. farmland to Russian, Chinese, North Korean and Iranian companies. “More needs to be done to ensure the U.S. food supply chain is secure and independent,” said Rep. Dan Newhouse (R-Was.), who authored the measure in the USDA and Food and Drug Administration funding bill.

     Meanwhile, senators sent a letter (link) to Defense Secretary Lloyd Austin and Treasury Secretary Janet Yellen requesting that the Committee on Foreign Investment in the United States (CFIUS) conduct a review of the Chinese food manufacturer Fufeng Group’s recent purchase.  The senators said they believe that a full CFIUS review would clarify whether the purchase of this land by Fufeng Group carries national security implications. Signing the letter were Senate Agriculture Appropriations Subcommittee Ranking Republican Member, Sen. John Hoeven (R-N.D.); Senate Intelligence Committee Ranking Republican Member, Sen. Marco Rubio (R-Fla.), and Sen. Kevin Cramer (R-N.D.).  

Commerce Secretary Gina Raimondo and former Treasury Secretary Lawrence Summers will join a Thursday evening panel at the Aspen Institute, titled "Global Economic Recovery: The Path Forward."

Market perspectives:

     • Outside markets: The U.S. dollar index is solidly lower in early U.S. trading. The yield on the 10-year U.S. Treasury note is fetching 2.95%. Oil rose and was trading at around $100 a barrel, while bitcoin rallied to trade above $22,000.

     • Will White House keep on saying Russia is behind gas price rise? WTI crude oil tumbled below $91 on Thursday — erasing all the gains seen in the wake of Russia's invasion of Ukraine — though U.S. gasoline prices remain expensive at the pump, averaging $4.58 per gallon nationwide.

     • Nationally, the average price of a gallon of regular gasoline is $4.532, down from $5 one month ago, according to AAA. But stricter sanctions on Russia this fall could send the price of oil up 50%, according to an internal U.S. Treasury analysis, the Washington Post reported (link). A full ban of cargo shipments of Russian oil to Europe is set to take hold on Dec. 5, with the market expected to factor in its impact much sooner. The sanctions are intended to double the amount of Russian oil pulled from the market, the WaPo reported.

     • Commodities from row crops to industrial metals have sold off since Russia/Ukraine war. Oil dropped from above $120 a barrel in early June to below $100. Lumber, cotton and copper have each fallen by at least 30% since March. Corn, wheat and soybeans cost less now than they did before Russia invaded Ukraine and shocked agricultural markets.

        Price drops

     • In the first four months of 2022, renewable energy sources provided 25.5% of electricity in the U.S., according to reporting from CleanTechnica (link) based on numbers from the Energy Information Administration. That’s up from 21.7% during the same period in 2020. It’s also more electricity than is provided by coal in the U.S., which was 20.2%, as well as nuclear. Natural gas provided 34.7% of U.S. electricity during this period of time, a number that’s down from 39.6% of U.S. electricity during the first four months of 2020.

     • The Federal Energy Regulatory Commission (FERC) will meet on Wednesday with state utility commissioners for the fourth meeting of the Joint Federal-State Task Force on Electric Transmission in San Diego, Calif. The meeting likely will inform a proposed rule by the commission on increasing transfers of electricity among regions that mostly operate their own grids, to update the nation's transmission system.

     • Think it’s hot where you are? It’s likely hotter in Europe where a heat wave is threatening crops. The crop in France, the European Union’s largest and the world’s fourth-largest wheat exporter, is especially important this year with more than 20 million tons of grain in Ukraine blocked from distribution by Russian warships. However, prolonged droughts and heat have hurt the wheat crops in France. The agriculture ministry said that the country’s soft wheat output would drop by 7.2% this year from 2021’s total.

     The heat wave is stretching across parts of France, Spain, Italy and Portugal and is expected to scorch Britain in the next few days. The European Union, which produces 17.6% of the world’s wheat, has reduced its estimate for the soft wheat crop by roughly 5 million tons, from an earlier prediction.

     • Ag trade: Egypt tendered to buy an unspecified amount of wheat to be sourced from the U.S., Canada, Australia, Argentina or Brazil.

     • NWS weather: Dangerous and record-breaking heat to impact much of the Great Plains and portions of the Mississippi Valley... ...Severe thunderstorms likely across portions of northeastern Montana and northern North Dakota today... ...Heavy rain with isolated to scattered flash flooding possible from the Ohio and Tennessee valleys to the Northeast today.

        NWS 071822

Items in Pro Farmer's First Thing Today include:

     • Firmer tone to start the week
     • Hot, mostly dry week ahead
     • Indonesia temporarily scraps palm oil export tax
     • Big week for cattle data
     • Cash hog index continues to climb

 

RUSSIA/UKRAINE

— Summary: Ukrainian President Volodymyr Zelenskyy sacked the country’s head of domestic intelligence and prosecutor general Sunday, a big change for his wartime administration. Russia shelled Nikopol in south Ukraine on Saturday, the latest in a series of attacks on cities that have killed at least 37 people since Thursday. Ukraine accused Russia of terrorizing civilians by firing long-range missiles at crowded residential blocks, industrial plants, schools and shops. Russia’s defense ministry said the target of its cruise-missile strike on Vinnytsia on Thursday was a meeting between officials and foreign arms suppliers. Meanwhile, Ukrainian forces have launched an offensive against Russian-occupied Kherson, a strategic city west of the Dnipro River that, if retaken by Kyiv, would shore up defenses around the southern port of Odesa and weaken Russia’s land bridge from the occupied Crimean Peninsula. 

  • Russian defense minister Sergei Shoigu ordered military units to intensify operations to prevent Ukrainian strikes on eastern Ukraine and other areas held by Russia, where he said Kyiv could hit civilian infrastructure or residents, according to a statement from the ministry. His remarks appeared to be a direct response to what Kyiv says is a string of successful strikes carried out on 30 Russian logistics and ammunitions hubs, using several multiple launch rocket systems recently supplied by the West. The strikes are causing havoc with Russian supply lines and have reduced Russia’s offensive capability, Ukraine’s defense ministry spokesperson said.
  • Finance ministers from the G20 concluded their meeting in Indonesia over the weekend without an agreement to cap the price of Russian oil, as the U.S. had proposed. Treasury Secretary Janet Yellen continues to push a global price cap on Russian oil exports, with a target around $50 a barrel. “The idea is not as crazy as I thought at first,” says David Wessel, a Brookings Institution senior fellow in economics. “It’s very clever and creative.” Barron’s notes that “oil, shipped in enormous quantities on slow-moving tankers, is relatively easy to track. For another, the plan dovetails with European Union sanctions and planned curbs on Russian oil. The EU has pledged to stop importing Russian oil, starting in December, and to clamp down on global sales by banning insurers from covering the ships involved. EU and United Kingdom insurers are the dominant issuers of maritime policies.” Given Russia’s limited tanker fleet, this one-two punch could cut Russian exports by as much as half, or up to three million to four million barrels a day, estimates Craig Kennedy, associate at Harvard’s Davis Center for Russian and Eurasian Studies. That would hurt Putin but might hurt Western industries and consumers more in an already tight market. The U.S. “Treasury is trying to dilute the effect of European sanctions that would cause a global recession,” Wessel told Barron’s.

    Impacts. Speaking at the outset of the G20 summit, Yellen characterized the oil price cap as both a powerful tool that would deprive Putin of revenue, but also one that would help drive down consumer costs. An oil price cap will “put downward pressure on prices for consumers in America and globally at a time when energy prices are spiking,” Yellen said. If the price cap works, “you’re not going to see any difference in the price of oil,” said James Stock, a Harvard Kennedy School economist who served the White House Council of Economic Advisers under former President Barack Obama. “The only thing you'd see is a difference in the price of revenues to Russia, and the profits of the refiners who are able to purchase the Russian oil.”

    But in the short run, a lot depends on Putin. Russia could copy its recent strategy on European gas sales: ship less, at higher prices, to countries that resist the cap. But some stress Siberian oil wells can’t be turned off for long periods without harming their future productivity. The risks of Russia shutting down production are high, as some analysts have predicted such a move could cause oil prices to rise closer to $140 a barrel. 

    Meanwhile, Chinese Ministry of Commerce spokeswoman Shu Jueting suggested the price cap could risk exacerbating the Ukraine crisis and instead urged countries to “pursue peace talks,” CNBC reports. India has remained silent so far on the proposal.

 

POLICY UPDATE

— President Biden vowed to use executive action to cut greenhouse-gas emissions after climate-change legislation stalled in the Senate. Centrist Sen. Joe Manchin (D-W.Va.) said that he opposed the inclusion of clean-energy incentives in a social-spending bill until more is known in August about inflation and the Federal Reserve interest rate hikes. Biden urged the Senate to pass the bill, even without the climate bits, to reform prescription-drugs pricing. See more in The Week Ahead.

— Schumer may set up USICA (China competition) bill action. Senators had been told to expect a procedural vote this week on a pared-back China competition bill (HR 4521) that would include, at a minimum, $52 billion in incentives and an investment-tax credit for U.S. semiconductor manufacturing. It isn’t clear if Republicans are going to continue to block conference talks on the wider China bill, as Minority Leader Mitch McConnell (R-Ky.) threatened they’d do if Democrats pursued a budget reconciliation bill. Leadership have circulated text and a summary of legislation that would include $52 billion in grants and incentives to attract chip companies to the U.S. along with money for training and wireless technology.

     Sen. John Cornyn (R-Texas) indicated Senate Republicans will support moving forward with a bill to shore up the domestic semiconductor industry, after Sen. Joe Manchin (D-W.Va.) doused any short-run consideration of the climate and tax provisions in the Democrats' quickly changing reconciliation package.

     Bottom line: If Senate Majority leader Chuck Schumer (D-N.Y.) files a motion to proceed on Tuesday, that sets up a cloture vote on Thursday. This would line up final passage next week.

 

CHINA UPDATE

— China’s banking regulator asked lenders to provide credit to certain property developers so that they could complete unfinished residential properties. A growing number of home buyers across China have stopped paying mortgages on incomplete and stalled projects, threatening to worsen a slump in the property sector. Banks have also been asked to support mergers and acquisitions by developers to help stabilize the market.

— Chinese pork imports remain light. China imported 120,000 MT of pork in June, down 10,000 MT (7.7%) from May and 64.2% less than last year. Through the first half of this year, China’s pork imports at 800,000 MT fell 65.1% from the same period last year.

 

CORONAVIRUS & MONKEYPOX UPDATE

Summary:

  • Global Covid-19 cases at 562,475,410 with 6,369,631 deaths.
  • U.S. case count is at 89,542,371 with 1,023,799 deaths.
  • Johns Hopkins University Coronavirus Resource Center says there have been 599,289,113 doses administered, 222,682,315 have been fully vaccinated, or 67.58% of the U.S. population.

— Covid timeline. “If somebody says, ‘You’ll leave when we don’t have Covid anymore,’ then I will be 105. I think we’re going to be living with this.” That’s what Anthony Fauci told Politico in an interview.

— Former FDA Commissioner Scott Gottlieb says the window for controlling the spread of monkeypox is "starting to close" as cities across the country are struggling to vaccinate people against the virus.

 

POLITICS & ELECTIONS

Maryland primaries on Tuesday will pave the way for Republicans to retain control of one House district and have a shot at winning a second. The Democratic legislature’s initial congressional map — one that could have delivered an 8-0 shutout for the party — was struck down earlier this year.

 

OTHER ITEMS OF NOTE

Ranil Wickremesinghe, Sri Lanka’s acting president, declared a state of emergency to quell widespread unrest. The ruling party has nominated him for the permanent job, which has infuriated protesters. He would replace Gotabaya Rajapaksa, who last week fled to Singapore after mass protests and resigned. Wickremesinghe is likely to face several challengers when nominations are submitted on Tuesday.


 

Latest News

H&P Report negative compared to pre-report expectations
H&P Report negative compared to pre-report expectations

Nearly every category topped the average pre-report estimates.

After the Bell | March 28, 2024
After the Bell | March 28, 2024

After the Bell | March 28, 2024

Pro Farmer's Daily Advice Monitor
Pro Farmer's Daily Advice Monitor

Pro Farmer editors provide daily updates on advice, including if now is a good time to catch up on cash sales.

PF Report Reaction: Bullish USDA data for corn
PF Report Reaction: Bullish USDA data for corn

Corn planting intentions and March 1 stocks came in lower than expected.

Report Snapshot: USDA shows lighter-than-expected corn acres and stocks
Report Snapshot: USDA shows lighter-than-expected corn acres and stocks

USDA reported corn acres of 90.036 million acres for 2024 and March 1 stocks of 8.347 billion bu., both well below trade estimates. Soybean acres were slightly lower than expectations, while stocks were higher.