Evening Report | July 20, 2022

Check our advice monitor on ProFarmer.com for updates to our marketing plan.

Wheat hedgers: Claim profits on 2022-crop hedges… We aren’t convinced the wheat market is done going down given the steep downtrend from the May highs, but we don’t want major profits in our hedge position to dissipate. We advise wheat hedgers to claim profits on the 15% 2022-crop hedges held in December SRW futures. Our exit was $8.32 for a $1.90 profit. If support at the July 15 low is violated, we would likely reestablish hedges, as that would open sharp downside risk.

World Weather: Changing U.S. weather only temporary; watch August... Computer forecast models suggest a break from recent extreme temps and dryness will come to the Central and Northern Plains and western Corn Belt beginning late this weekend and lasting into the first couple of days in August. But World Weather says ridging will return to the central U.S. after the relief and induce warmer and drier conditions again.

World Weather says, “The weather pattern change coming is seen as being only temporary, though. The shift of high pressure aloft out of the Plains is only expected to last a short period of time and then it will return. World Weather, Inc. does not expect the same level of extreme temperatures seen this week necessarily returning in August, but as long as dryness remains in the Southern Plains the heat source will remain in place and the potential for expanding heat and dryness to the north will continue especially since it is only mid-summer.”

Weather in August and September will be influenced by tropical storm activity. World Weather says, “Keeping a close eye on the tropics will give us some additional clue as to where the mean ridge position will be in the middle and latter part of August and September. If tropical cyclones pass frequently near or over the southeastern U.S. a ridge of high pressure will have some potential to prevail in the Plains with some expansion into the Midwest. If tropical cyclones come into the Gulf of Mexico they may help keep the ridge over the Plains and allow some potential for more rain to come into the eastern Midwest or into southern Texas. In either solution the Central Plains would likely be an area still favored for the driest and warmest weather since the mean ridge position for this summer is already predicted to be in that region and the tropics will only reinforce that.”

World Weather concludes, “For now, the conclusion of all this is that after this coming week to ten days of potential relief in the Central Plains and southwestern Corn Belt, the odds favor a return of conditions similar to that of recent weeks.”

Turkish leader wants Ukraine grain export deal in writing this week... Turkish President Tayyip Erdogan on Wednesday said he wants a general agreement reached between Ukraine, Russia, his country and the United Nations on a UN-led plan to resume Ukrainian Black Sea grain exports to be put in writing this week. “An agreement emerged from the talks in Istanbul last week on the general outline of the process under the UN plan. Now, we want to tie this agreement to a written document,” Erdogan said after meeting with Russian President Vladimir Putin. “We hope the plan will begin to be implemented in the coming days,” Erdogan added.

A UN spokesperson said Secretary-General Antonio Guterres is “trying to make as much progress as we can on this right now,” while he’s on vacation. Guterres told reporters last week: “I’m optimistic, but it’s not yet fully done.”

U.S. Ambassador to the United Nations, Linda Thomas-Greenfield, told the U.S. Senate Committee on Foreign Relations today Washington was encouraging the UN in its efforts to broker a deal on Ukrainian grain exports. “But we will also be watching the Russians and hold them accountable for any agreement that they should make with the UN,” she said. “We thought we might even hear that an announcement would happen today. So far, it hasn’t happened.”

German rail operator plans ‘grain bridge’ for Ukraine exports... Germany’s state-owned rail company Deutsche Bahn said it was planning to transport grain by train from Ukraine to Germany’s ports. Deutsche Bahn said it will transform its network that was set up to transport humanitarian aid to bring grain from Ukraine to the German ports of Rostock, Hamburg and Brake near Bremerhaven. The railway operator plans to run several trains per week and a large part of the grain would be transported via Romania and Poland, though the company said it couldn’t quantify how much grain it could transport.

Light cattle placements expected in Cattle on Feed Report... USDA’s Cattle on Feed Report on Friday is expected to show the July 1 feedlot inventory just a tick higher than year-ago. But it will be the placements category that gives traders the “read” on the report. After lighter-than-anticipated placements of cattle into feedlots in May, on average traders expect the category to be down 5% from year-ago for June. The implied level of 1.587 million head would be the smallest June placements figure since 2016. The following estimates are based on a Reuters survey.

U.S. cattle herd contraction continued, will persist... Friday’s Cattle Inventory Report is expected to show the U.S. cattle herd continued to contract and signal producers have no intentions of rebuilding their herds. Traders expect the total U.S. cattle herd to be reported at 98.683 million head, down 2.1% from year-ago. The projected 2022 calf crop is expected to have shrunk another 2%. Beef heifers held back for breeding are expected to be down 3.2% from last year. The following estimates are based on an Urner Barry survey.

Report: Crop insurance means test could save billions of dollars, but... Billions in taxpayer dollars could be saved over the next decade if the next farm bill puts a cap on federal subsidies paid to farmers who purchase crop insurance, according to a special report (link) published Tuesday by the National Sustainable Agriculture Coalition (NSAC). The report was likely timed to coincide with today’s House Agriculture General Farm Commodities and Risk Management Subcommittee hearing on crop insurance. NSAC is hosting a webinar next week to present the full findings of the special report.

The report says a cap would impact relatively few farmers, have little impact on total insurance use and make resources available for conservation programs and other initiatives that help farmers further reduce the risk of weather-related loss.

The strictest cap would require the complete elimination of insurance subsidies for any farm with an adjusted gross income over $250,000, which would amount to total savings of $20.2 billion and would impact 10.66% of all farms. All of the other caps would provide some savings on subsidy payments and reduce the extent to which subsidy payments are concentrated on a few farms, but to a lesser degree.

Comments: One ag policy analyst emailed us: “Among all the misguided things that NSAC pushes, this might be one of the worst. To spite others they bite off their own nose. In the name of helping small farmers, they hurt small farmers. Why? Take good risk out of the insurance risk pool — the thousands of midsized and larger full-time farm and ranch families — and you increase premiums on all the small farmers left in the insurance. Of course, it also seriously injured those booted out of crop insurance, but it also hurts those small farmers. Beyond this, crop insurance has collateralized agriculture without which we would return to asset-based lending, which gave us the 1980s farm financial crisis. Such an incredibly bad idea.”

U.S. begins trade fight with Mexico over energy policy... The Biden administration accuses Mexico President Andrés Manuel López Obrador’s government of favoring state-owned energy companies at the expense of American businesses, in a trade dispute that could lead to U.S. tariffs. The U.S. is seeking dispute settlement consultations under the U.S.-Mexico-Canada Agreement (USMCA) — the first step in what could lead to tariffs on a range of Mexican products.

U.S. Trade Representative Katherine Tai said an array of Mexican policies undermine American companies and U.S.-produced energy in favor of Mexico’s state-owned power company Comision Federal de Electricidad (CFE) and oil company Petróleos Mexicanos (Pemex). “We have repeatedly expressed serious concerns about a series of changes in Mexico’s energy policies and their consistency with Mexico’s commitments under the USMCA,” Tai said. The policies discourage “investment by clean-energy suppliers and by companies that seek to purchase clean, reliable energy,” she said. U.S. officials said that Mexican officials haven’t been responsive to U.S. concerns raised repeatedly over the past 18 months.

Mexico’s economy ministry, which is in charge of trade negotiations, said his government is willing to reach a “mutually satisfactory” solution during the consultation stage.

Under USMCA, the U.S. and Mexico must start consultations within 30 days. If the consultations don’t lead to a resolution, the U.S. could request the establishment of a panel of experts. If an agreement isn’t reached there, Washington could impose import tariffs on Mexican products to offset the damage suffered by U.S. companies.