First Thing Today | July 28, 2022

Good morning!

Price strength overnight... Corn and soybean futures were supported by followthrough buying overnight amid forecasts calling for hot and dry conditions next week, while wheat rebounded from Wednesday’s losses. As of 6:30 a.m. CT, corn futures are trading 12 to 13 cents higher, soybeans are mostly 6 to 8 cents higher and wheat futures are 12 to 16 cents higher. Front-month U.S. crude oil futures are more than $2 higher and the U.S. dollar index is up around 450 points this morning.

Rains roll through, but focus is on next week’s heat and dryness... A couple waves of rains pushed across the central U.S. last night and are continuing this morning – one across northern areas and the other in southern locations. But traders are focused on the coming heat and dryness, as a high-pressure ridge is expected to form over the central U.S. and last through at least Aug. 8.

Day 2 HRS wheat tour results... Scouts on Day 2 of the Wheat Quality Council’s annual spring wheat tour found an average HRS yield of 47.7 bu. per acre on routes through central and northern North Dakota, up from the five-year average of 37.9 bu. per acre on similar routes. But the crop’s lagging maturity, estimated by the North Dakota Wheat Commission to be two to three weeks behind normal, have raised some concerns that yields may fall short of expectations. Scouts will samples fields in northeast North Dakota and in bordering Minnesota counties today, with the tour’s final yield estimate and a production guesstimate from scouts released this afternoon.

Weekly Export Sales Report out this morning... For the week ended July 21, traders expect:

Deal on healthcare, energy/climate issues, taxes and U.S. debt... Sen. Joe Manchin (D-W.Va.) went from being his party’s main holdout on expansive social policy, climate and tax legislation, and instead struck a deal on a domestic spending package that includes climate and energy programs and tax increases. As part of the agreement, Senate Majority Leader Chuck Schumer (D-N.Y.) and House Speaker Nancy Pelosi (D-Calif.) agreed to pass legislation governing energy permits. Democrats will need the support of all their members in the 50-50 Senate. Sen. Kyrsten Sinema (D-Ariz.) hasn’t signed off yet. Also, the measure must meet Senate chamber rules for avoiding a filibuster. Proponents say the plan would increase cleaner energy production and reduce carbon emissions by about 40% by 2030; lower Affordable Care Act premiums for some Americans; cap out-of-pocket Medicare prescription costs at $2,000; and raise taxes on corporations and the ultra-wealthy. The plan would raise about $739 billion by imposing a 15% minimum corporate tax and by allowing Medicare to negotiate prescription drug prices. It would spend $369 billion on energy security and climate change policies and put $300 billion-plus toward deficit reduction.

     Some ag and biofuel sector provisions in the measure (click here for a link to the full list):

• $20 billion to support climate-smart agriculture practices
• $5 billion in grants to support fire resilient forests, forest conservation and urban tree planting
• Sustainable Aviation Fuel tax credit of $1.25 per gallon

Europe’s energy woes starting to reach into industrial and agricultural supply chains... Chemical giant BASF says it will reduce production of fertilizer ingredient ammonia, the Wall Street Journal (WSJ) reports, as it seeks to curb its natural gas use after Russia throttled flows to Europe. Moscow has started reducing supplies through the Nord Stream pipeline to around 20% of capacity. The supply cuts and rising natural gas prices carry a heavy burden for BASF, which uses the fuel both to generate power and as feedstock for products. Although BASF said ammonia output cuts won’t affect farmers this year, as they have bought fertilizer and the harvest is already taking place, issues might arise next year. BASF expects to operate its sprawling manufacturing hub in Ludwigshafen, Germany, at a reduced load and is looking at alternatives to gas but says those can only partly fill the gap.

Biden, Xi talks today... Expectation is building that President Joe Biden may scrap some of the tariffs imposed on roughly $350 billion in Chinese imports following a highly anticipated conversation with Chinese leader Xi Jinping today.

China drops GDP target mention, aims for ‘best possible’ results... China will try hard to achieve the best possible results for the economy this year, state media reported after a high-level meeting of the ruling Communist Party, in contrast to previous calls to meet its full-year economic growth target of around 5.5%. In the second half of 2022, China should “stabilize employment and prices, maintain economic operations within a reasonable range, and strive to achieve the best possible results,” state-run Xinhua news agency reported, after the 25-member Politburo chaired by President Xi Jinping met to assess the economy. The Politburo will reportedly step up food security and the country’s energy supply amid its supportive measures. China is widely expected by analysts to miss its 2022 economic growth target for the first time since 2015. China’s gross domestic product in the first half grew only 2.5% from a year earlier, pointing to huge pressure in the second half amid fears of a global recession, uncertainties from the Ukraine war and worries of any recurring Covid lockdowns.

China’s Wuhan locks down district with one million people... Wuhan, the central Chinese city that was the epicenter of the early Covid-19 outbreak, locked down a district of about 1 million people due to four asymptomatic cases, as the nation’s leaders maintain their zero tolerance toward the virus, a policy that has cast a shadow over both the national and global economies. It is the first time that Wuhan has imposed a restriction since late January 2020, when the city had the world’s first Covid lockdown, which lasted for 76 days. Last month, Xi visited the city and said the country would rather sacrifice some of its economic development to maintain its Covid-zero policy.

China plans big real estate sector bailout... China is seeking to mobilize up to 1 trillion yuan ($148.2 billion) of loans for stalled property developments, the Financial Times reported, as it tries to revive the debt-stricken sector. The People’s Bank of China will initially issue about 200 billion yuan ($29.6 billion) of low-interest loans, charging about 1.75% a year, to state commercial banks, the paper said, citing people involved in the discussions.

Backup of 40 container ships has grown off Georgia’s Port of Savannah... The port backup raises fresh concerns that goods arriving for the fall will face new delays as operators scramble to keep shipments moving. Georgia Ports Authority officials say the backlog has grown in part because of constraints in berth capacity during a construction project and because retailers have been ordering goods early to ensure their shelves are stocked this fall. The new backup at the fourth-largest U.S. gateway for seaborne container imports comes as bottlenecks in Southern California have extended to rail services and into overfilled container yards at Midwest hubs. North of Savannah, South Carolina’s Port of Charleston says ships are moving without delay. But for most shippers, relief from congestion may only come if inventory-laden big retailers pull back their orders. Meanwhile, unionized dockworkers at U.S. West Coast ports and shipping companies signaled progress in contract talks with a tentative agreement on health benefits.

Rural broadband funding to be announced... USDA Secretary Tom Vilsack will announce $401 million in grants and loan guarantees for rural broadband. Yesterday, he announced a $43.3 million federal investment in California food banks.

Cash cattle trade lower... Cash cattle trade started around $135 in the Southern Plains and $225 in the Nebraska dressed market on Wednesday, down around $1 and $2, respectively, compared with last week. Seller interest was limited in live cattle futures, however, as the August contract is trading more than $4 below last week’s average cash price.

Big jump in cash hog bids... The national direct cash hog price firmed $5.70 on Wednesday, fueled by gains in the western Corn Belt. While hog numbers will build seasonally during the second half of the year, cash sources signal buyers are actively competing for supplies. That will keep the cash hog index on its upward trajectory. The index is up another 25 cents to $119.73 (as of July 26).

Overnight demand news... Bangladesh purchased 50,000 MT of optional origin milling wheat. Iran passed on a tender to buy 110,000 MT of milling wheat.

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

• 7:30 a.m. Weekly Export Sales — FAS