First Thing Today | July 22, 2022
Good morning!
Wheat leads overnight price pressure... Wheat futures faced heavy selling overnight, while corn extended this week’s sharp losses amid reports a deal to restart Ukrainian grain exports will be signed today (see next item). Soybeans traded lower for much of the overnight session but are mixed and near session highs this morning. As of 6:30 a.m. CT, corn futures are trading 2 to 3 cents lower, soybeans are 4 cents lower to fractionally higher and wheat futures are 17 to 25 cents lower. Front-month crude oil futures are around $1.50 lower and the U.S. dollar index is around 175 points higher this morning.
Ukraine grain export deal to be signed today... Ukraine, Russia, Turkey and UN Secretary-General Antonio Guterres reportedly will sign a deal at 8:30 a.m. CT to resume Ukraine’s Black Sea grain exports. Under the terms of the deal, Ukraine will escort ships through mined waters to reach its ports, while Russia has agreed not to target vessels involved in grain shipment. As a confidence measure, Turkish officials have agreed to inspect the ships to allay any smuggling concerns. Removing the underwater minefields that protect the ports Kyiv still controls may expose them to attack. Bloomberg notes there is also the question of “why Russia would relinquish a major point of leverage as it pushes to annex more Ukrainian territory, since it’s unlikely to win its demand that economic sanctions ease.” The U.S. National Security Council said in a statement that “we are hopeful though realistic about the prospects for re-opening Ukraine’s agricultural exports given how Russia has been blocking exports throughout the war, exacerbating global food insecurity. Success in ending Russia’s blockade will of course depend not only on Russia agreeing to a deal, but on Russia actually implementing it.” Bottom line: Risks remain. A UN official cautioned that last-minute problems could still arise before the deal is signed. Even after the deal is signed, logistical and geopolitical hurdles remain. Implementation will be critical. A signed agreement and actual resumption of exports are two very different things.
Ukraine warns of military response to any Russian ‘provocations’ over grain export deal... Ukrainian presidential adviser Mykhailo Podolyak wrote on Twitter before the expected signing ceremony for the grain export deal: “1. Ukraine does not sign any documents with Russia. We sign an agreement with Turkey and the UN and undertake obligations to them. Russia signs a mirror agreement with Turkey and the UN. 2. No escorting of transport by Russian ships and the presence of Russian representatives in our ports. In case of provocations, an immediate military response. 3. All inspections of transport ships will be carried out by joint teams in Turkish waters should the need arise.”
Euro zone business activity went into reverse in July for the first time since February 2021... S&P Global’s flash composite purchasing managers’ index, which measures both service sector and manufacturing companies in the euro zone, dropped to a 17-month low of 49.4 in July, a sharp fall from 52.0 in June. Economists expected a slight decline to 51.0, but a reading below 50.0 signaling contraction was unexpected.
Indonesia considers scrapping domestic sales requirement for palm exports... Indonesia is considering removing a domestic sales requirement for firms to obtain palm oil export permits because high inventories have been holding back a recovery of palm oil fruit prices, the country’s trade minister said. Policies to address the glut of palm oil inventories including a temporary removal of an export levy and a larger export quota, had failed to slash stocks quickly. An industry association said this week Indonesia will have to export 6 MMT of palm oil by August if it wants to cut its inventory levels back to normal.
China to auction more soybean reserves... China will auction another 500,000 MT of imported soybeans from its state reserves on July 29. Beijing continues to sell state-owned soybeans into the domestic market via weekly auctions to ensure plentiful supplies.
Commerce Dept. probing Huawei towers near U.S. military sites... Reuters reports the Biden administration is “investigating Chinese telecoms equipment maker Huawei over concerns U.S. cell towers fitted with its gear could capture sensitive information from military bases and missile silos that the company could then transmit to China... Authorities are concerned Huawei could obtain sensitive data on military drills and the readiness status of bases and personnel via the equipment.” According to Reuters, “The previously unreported probe was opened by the Commerce Department shortly after Joe Biden took office early last year... following the implementation of rules to flesh out a May 2019 executive order that gave the agency the investigative authority.” Meanwhile, a group of Republican senators wrote to the heads of the U.S. Treasury and Defense departments last week requesting they review a Chinese subsidiary's purchase of farmland in North Dakota, which is approximately 12 miles from Grand Forks Air Force Base.
WRDA on Senate agenda before recess... The Senate as soon as next week is expected to consider the 2022 Water Resources Development Act (WRDA). Environment and Public Works Chairman Tom Carper (D-Del.) and ranking member Shelley Moore Capito (R-W.Va.), as well as Transportation and Infrastructure Subcommittee leaders Ben Cardin (D-Md.) and Kevin Cramer (R-N.D.) have offered a substitute amendment to the House-passed WRDA bill, since the chambers’ two versions are different. The plan to pass the measure by unanimous consent means the expected absence of Carper, who in a statement Thursday said he’s tested positive for Covid, wouldn’t impact the vote. After the Senate passes its measure, which is expected before it leaves for August recess, the House and Senate will go to a conference committee to iron out remaining differences. The measure would authorize improvements to the nation’s waterways and investments in flood control and coastal resiliency projects in nearly every congressional district in the country.
Australia finds traces of foot-and-mouth disease on imported food products... Viral fragments of food-and-mouth disease were found in a sample of pork floss offered for sale in Melbourne. Authorities have ramped up surveillance to prevent an incursion and are set to deploy sanitation foot mats at international airports. A widespread outbreak could have a direct economic impact of A$80 billion ($55 billion). It would also hurt global beef supplies as the country is one of the top shippers, comprising 13% of world trade.
Big report day for cattle market... USDA’s Cattle on Feed Report this afternoon is expected to show the July 1 feedlot inventory up 0.1% from year-ago levels, with June placements expected to have declined 5% and marketings to have risen 1.9%. USDA’s Cattle Inventory Report is expected to show U.S. cattle herd as of July 1 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.
Cold Storage Report out this afternoon, too... USDA will detail frozen meat stocks at the end of June. The five-year average is a 3-million-lb. decline in beef stocks and a 25.8-million-lb. drop in pork stocks during the month.
Limited packer demand for cash cattle... Packer demand for cash cattle has been limited so far this week, as they are seemingly content to pull from committed supplies. Feedlots also haven’t been in a rush to sell cattle at lower prices given their currentness. As a result, cash cattle activity has been limited and any further sales may now wait until after this afternoon’s key report data.
August lean hog futures remain supported... The CME lean hog index is up another 67 cents to $117.04 (as of July 20), which should keep front-month August lean hog futures supported, barring profit-taking ahead of the weekend. Deferred lean hog futures weakened Thursday on a corrective pullback but any price pressure should be limited as October hogs already hold more than double the normal seasonal decline from now until mid-October.
Overnight demand news... South Korea purchased 128,000 MT of corn expected to be sourced from South America or South Africa and 65,000 MT of optional origin corn.
See ‘Policy Updates’ for late-breaking morning news updates... For updates to items in “First Thing Today” or any late-breaking morning news stories, check “Policy Updates” on www.profarmer.com.
Today’s reports
- 2:00 p.m. Cattle — NASS
- 2:00 p.m. Cattle on Feed — NASS
- 2:00 p.m. Cold Storage — NASS
- 2:00 p.m. Peanut Prices — NASS
- 2:30 p.m. Commitments of Traders — CFTC
