First Thing Today | July 25, 2022
Good morning!
Firmer tone to start the week... Grain and soy futures firmed overnight amid concerns about the deal to restart Ukraine’s grain exports and forecasts calling for a return of heat and dryness after some temporary relief. As of 6:30 a.m. CT, corn futures are trading 10 to 11 cents higher, soybeans are 10 to 12 cents higher, winter wheat futures are 20-plus cents higher and spring wheat is mostly 13 to 19 cents higher. Front-month U.S. crude oil futures are around $1 higher and the U.S. dollar index is about 475 points lower this morning.
Russian strikes hit Ukraine’s port of Odesa... A day after Ukraine and Russia signed a deal to resume grain exports from Ukraine’s Black Sea ports, Russian missiles hit Odesa, the biggest of those ports. A Ukrainian foreign ministry spokesman accused Russian President Vladimir Putin of “spitting in the face” of the United Nations Secretary General António Guterres and Turkish President Recep Tayyip Erdogan, who brokered the agreement. The Kremlin said a Russian cruise missile strike against the port of Odesa in southern Ukraine would not affect the export of grain. “These strikes are connected exclusively with military infrastructure,” a Kremlin spokesperson said. “They are in no way related to infrastructure that is used for the export of grain. This should not affect - and will not affect - the beginning of shipments.”
Ukraine: Grain shipments could start this week... Despite the Russian attacks on Odesa, Ukrainian officials say they are moving forward with implementing the deal to restart grain exports. Ukraine’s infrastructure minister hopes the first shipment will be this week from Chornomorsk and the country will be able to work on the export of grains from all ports in the agreement within two weeks. The minister says the deal included no limits on the volume of grain exports and also includes the shipment of fertilizers from Ukrainian ports.
Some weather relief this week, but heat and dryness will return... Beneficial rains fell on some areas of the Corn Belt, but weekend precipitation was light from eastern Nebraska to Minnesota and that region may stay drier biased during the next ten days, despite a few more opportunities for scattered showers and thunderstorms, according to World Weather Inc. The forecast says weather will improve during the coming week with rain likely from the central Plains through the Ohio River Basin and northern Delta as waves of rain move across the region. The second week of the two-week outlook is drier and warmer in the central U.S. once again as a high-pressure ridge returns to the region. World Weather says long term trend changes still suggest a limited amount of crop stress in the Corn Belt during the first half of August, but a close watch will be warranted for mid- to late month.
The week ahead in Washington... The House Ag Committee today will hold another farm bill listening session, this time on a farm in Northfield, Minnesota. Senators will receive a classified briefing on Ukraine Wednesday as the Russian invasion hits the five-month mark. The real focus this week will be how much the Fed raises interest rates following the conclusion of its two-day monetary policy meeting on Wednesday. Another 75-basis-point increase is expected, though there is a chance for a 100-point hike. The Congressional Budget Office will publish the “2022 Long-Term Budget Outlook” on Wednesday afternoon. This includes spending, deficit and debt projections for the next 30 years. On Thursday, the preliminary estimate for U.S. second quarter GDP will be released and economists expect it will show a decline of 1% to 2%. It would be the second straight quarter of decline — which is often seen as signaling a recession.
Biden administration already downplaying coming GDP report... “I do want to emphasize: What a recession really means is a broad-based contraction in the economy,” Treasury Secretary Janet Yellen said on NBC’s Meet the Press on Sunday. “And even if that [Q2 GDP] number is negative, we are not in a recession now. And I would, you know, warn that we should [not be] characterizing that as a recession. “We’re likely to see some slowing of job creation,” Yellen said Sunday. “I don’t think that that’s a recession. A recession is broad-based weakness in the economy. We’re not seeing that now.” Yellen said she’d “be amazed if the [National Bureau of Economic Research] would declare this period to be a recession even if it happens to have two quarters of negative growth.” The NBER is responsible for declaring whether the economy is in a recession or not. “I’m not saying we will definitely avoid a recession, but I think there is a path that keeps the labor market strong and brings inflation down,” Yellen concluded.
North America trading partners on ‘potential train crash’ over energy policy... “We are watching a potential train crash between the U.S., Mexico and Canada,” Kenneth Smith Ramos, who was Mexico’s chief USMCA negotiator through 2019, said in an interview with Bloomberg. “Mexico would need to completely overhaul two pieces of legislation that are essential to AMLO.” U.S. and Canadian companies have been pressing for action against Mexico’s nationalist energy policies. President Andrés Manuel López Obrador, known as AMLO, has made strengthening Mexico’s state energy companies at the expense of private firms the hallmark of his administration. His insistence could lead to a protracted trade spat under the U.S.-Mexico-Canada Agreement (USMCA). Former negotiators of the accord say the dispute would cost Mexico between $10 billion and $30 billion in tariffs. Obrador on Friday said that Mexico’s trade relationship with the U.S. can’t come “at the cost of our dignity.” He has insisted his energy policy doesn’t violate USMCA and said he’ll announce his formal response to the complaint at a military parade to commemorate Mexico’s Independence Day on Sept. 16. “Given how strongly López Obrador feels about his protectionist policies in the energy sector, it is unlikely that an agreement will be reached,” said Carlos Petersen, a political analyst at Eurasia Group. “This will not jeopardize USMCA as a whole but will certainly create tensions and potential retaliatory measures from the U.S. and Canada.”
Growth Energy, EPA reach agreement on 2023 RFS requirements... Growth Energy and the Environmental Protection Agency (EPA) submitted a consent decree agreement to the U.S. District Court for the District of Columbia that requires EPA to propose the 2023 renewable fuel volume requirements no later than Nov. 16, 2022, and to finalize those requirements no later than June 14, 2023, Growth Energy said in a news release Friday. The court is expected to approve the agreement in the coming weeks. The consent decree follows Growth Energy’s notice of intent to sue and filing of a complaint in federal district court in response to the agency’s violation of the statutory deadlines to issue renewable fuel volume requirements for the Renewable Fuel Standard (RFS) program. Growth Energy added: “For 2023 and beyond under the RFS, EPA, in coordination with the U.S. Department of Energy (DOE) and the U.S. Department of Agriculture (USDA), is required to set renewable fuel volume requirements through rulemaking, taking into consideration six statutory factors, including environmental, economic, and energy security… EPA is required to set the 2023 volume requirements at least 14 months prior to the calendar year in which they are to take effect. For 2023, EPA was required to finalize the 2023 renewable fuel volume requirements by Nov. 1, 2021.”
China confirms warnings to U.S. on Pelosi’s possible Taiwan visit... China delivered sterner warnings to U.S. officials about House Speaker Nancy Pelosi’s (D-Calif.) possible visit to Taiwan, a foreign ministry spokesman said. CNN reported China could declare a no-fly zone over Taiwan to prevent a visit by Pelosi in the coming weeks. China’s Ambassador to the United States Qin Gang on July 20 criticized Washington for “hollowing out” the One China principle, Caixin reported July 22.
Cattle report data mostly neutral... USDA’s Cattle Inventory Report showed the U.S. cattle herd contracted 2.0% as of July 1, while the beef cow herd declined 2.4% and the calf crop is estimated to be 1.4% lower than last year. While those figures were all slightly higher than the respective pre-report estimates, they weren’t enough so to greatly influence prices. The beef heifer replacements category declined a slightly more than expected 3.5%, signaling herd contraction will continue. The Cattle on Feed Report showed the July 1 feedlot inventory up 0.4% from year-ago, as June placements dropped slightly less than anticipated. In total, the data was neutral and should have little to no price impact today.
Cold Storage Report: Record June beef stocks... USDA’s Cold Storage Report showed a June record 516.2 million lbs. of beef in storage. While that could imply sluggish demand, it may also be related to facilities building inventories due to ongoing strong exports. Pork stocks declined less than average during June to 541.0 million lbs., down 5.1 million lbs. from May.
August hog futures premium to cash index... The CME lean hog index jumped another $1.12 to $118.16. August lean hog futures ended Friday at a 54-cent premium to today’s quote (as of July 21). With the lead contract now virtually in line with the cash index, it could slow buyer interest some. But seller interest should be limited until the cash index signals the seasonal rally has exhausted.
Weekend demand news... Exporters reported no tenders or sales.
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
- 8:00 a.m. Food Price Outlook — ERS
- 10:00 a.m. Export Inspections — AMS
- 2:00 p.m. Poultry Slaughter — NASS
- 3:00 p.m. Crop Progress — NASS
