Evening Report | July 29, 2022

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Your Pro Farmer newsletter is now available... Weather is becoming a greater concern as dryness is spreading, especially in the northwestern Corn Belt. Forecasts call for a return of the blocking high pressure ridge over the Plains and western Corn Belt this week, which will stress crops in those areas. USDA’s Cattle Inventory Report showed the U.S. cattle herd contracted another 2% as of July 1 and signaled numbers will continue to tighten. That paints a stronger price picture for cattle through next year. Meanwhile, the cash hog market continues to firm, signaling market-ready supplies might not be as plentiful as thought. On the economic front, the U.S. economy contracted again in the second quarter but the Fed continued to raise interest rates in its battle against inflation. We take a look at potential impacts to farmland values and rental rates in our News page 4 feature. We cover all of these items and much more in this week’s newsletter, which you can access here.

Corn hedgers: Claim profits 2022-crop on hedges… December corn futures have rebounded sharply this week, signaling at least a short-term low. As a result, we advise hedgers to claim profits on the 10% 2022-crop hedges in December futures that were entered at $6.92 on June 1. Our exit was $6.28 for a 64-cent profit.

Soybean producers: Increase 2022-crop sales… November soybean futures have surged roughly $1.65 this week to the highest level since June 30. We advise soybean hedgers and cash-only marketers to sell another 10% of expected 2022-crop production to get to 60% sold in the cash market. Hedgers should maintain the 10% short hedge position in November futures at $14.73.

Heat dome over the central U.S. next week... Extreme heat and generally dry conditions will be seen across the Plains and Midwest this week as a high-pressure ridge develops over the central United States. Crop stress will be greatest in the northwestern Corn Belt and Plains, where soils are the driest. The Delta should receive some rains.

The high-pressure ridge is expected to shift back over the Rocky Mountains Aug. 8-12, which would bring cooler temps and rainfall chances, especially to northern and eastern areas of the Corn Belt, though World Weather Inc. believes current weather models are projecting too much rainfall.

Commenting on today’s midday GFS model run, World Weather said, “Once again, today’s midday GFS operational model run has brought on greater second week rainfall because of a change in the upper air wind flow pattern. Today’s midday operational model run created two changes that will not verify. First, the high-pressure ridge that builds into the eastern Midwest from the Atlantic Ocean late next week and into the following weekend starts pulling moisture out of the Gulf of Mexico and from the southwest monsoon flow into the Great Plains. The GEFS (GFS Ensemble) has a broader based ridge of high pressure that impacts much more than the eastern Midwest and Atlantic Coast States so moisture that is pulled from the Gulf of Mexico moves more to Texas and does not come northward into the Plains as much. The second more important change at midday has to do with too much cold air in Canada. The GFS brings a huge amount of cold into western Canada inducing a significant cold front that passes into the Great Plains late next week and into the following weekend. This cold surge (even though it does not come very far to the south) and associated frontal system is way overdone and causes the high-pressure ridge to stay in the eastern U.S. much longer than it should. So, the set up for moisture coming northward out of the Gulf of Mexico occurs at the same time the frontal system cuts through the Plains pulling monsoon moisture out of the southwestern states. This is not going to happen! The GEFS has a broad-based strong ridge late next week and into the following weekend that extends from the central Rocky Mountain region to the middle Atlantic Coast. This orientation of the ridge is much more likely to verify and would keep Gulf of Mexico moisture out of the Midwest and central Plains and would actually shift monsoon moisture to the west into the Great Basin instead of into the Plains.”

World Weather concludes, “If we are correct about this then there would not be any serious moisture boost or cooling until the Aug. 10-12 period when the ridge gets to the Rocky Mountain region and high Plains at which time a cool front should come out of Canada and into the northern and eastern Midwest inducing a little shower and thunderstorm activity and slightly cooler temperatures. Even then, Aug. 10-12, there would not be any widespread heavy rain events unless we have this all wrong.”

Blinken presses Lavrov to fulfill grain export deal commitments; Ukraine waits for ships to sail... U.S. Secretary of State Antony Blinken held a “frank and direct” phone conversation with Russian Foreign Minister Sergei Lavrov in which he told him the world expected Russia to fulfill its commitments under a deal with Ukraine struck in Turkey to reopen grain and fertilizer exports. “Ambassador Brink, our ambassador to Ukraine, was in Odesa this morning. She confirmed the ships are loaded and ready to go... As I made clear, we’re looking to see that move forward as soon as possible,” Blinken said.

Ukraine says, in total, 17 ships have already been loaded, 10 of which are in position to set sail, thus kicking off the first grain exports from Ukrainian ports since the outbreak of the war. “For the first time since Feb. 24, work has resumed at Ukrainian seaports. The ships, which were loaded with grain during the winter, are ready to leave as soon as our partners, the United Nations and Turkey agree on a ‘humanitarian corridor’ in the direction of the Bosporus,” Ukrainian Infrastructure Minister Oleksander Kubrakov said.

U.S. inflation continues to rise... Inflation hit the highest annual rate in 40 years in June, according to the metric favored by officials at the Federal Reserve. The U.S. personal consumption expenditures (PCE) index rose 6.8% annually in June — the highest level since January 1982. Core PCE (minus food and energy costs) climbed 4.8%, though that was down from the February peak of 5.3%.

Sen. Sinema reviewing Manchin/Schumer reconciliation deal... Sen. Kyrsten Sinema (D-Ariz.) is a potential obstacle to her party’s efforts to pass a landmark tax, climate and health-care package next month, in part due to long-standing opposition to closing the carried-interest loophole. The tax perk allows private equity and hedge-fund managers to pay lower capital-gains tax rates, which top out at 23.8%, rather than the 37% income-tax rate on a portion of their earnings. Manchin told reporters he wants to assure Sinema that tax rates have not been raised. He said he’s “not prepared to lose” closing the carried interest loophole, which he has talked about ending for years. The provision would raise $14 billion over 10 years.

Sinema is “reviewing the text and will need to review what comes out of the parliamentarian process,” her spokesperson said Thursday, referring to the top Senate rules official’s decision on whether the language of the package comports with strict budget rules.

Senate Democrats sent their 725-page Inflation Reduction Act to Parliamentarian Elizabeth MacDonough for a review that isn’t expected to be completed until at least next week.

Big push for EVs in reconciliation measure... The Biden administration is using regulation to essentially mandate that auto makers churn out electric vehicles. If the reconciliation measure becomes law, taxpayers will subsidize that cost, on top of the $7,500 EV tax credits. The bill removes the 200,000 manufacturer cap for the $7,500 EV tax credit, which GM, Tesla and Toyota have hit and Ford soon will.

And in a twist, it gives hydrogen fuel-cell vehicles access to the tax credits.

• Automakers will continue to offer $7,500 in tax credits for the purchase of new “clean cars,” a category that includes electric and hydrogen vehicles.
• Caveats: vehicles will need to be built with minerals extracted or processed in a country the U.S. has a free trade agreement with, and have a battery that includes a large percentage of components that were manufactured or assembled in North America.
• The deal also includes a cap on suggested retail prices of eligible vehicles: $55,000 for new cars and $80,000 for pickups and SUVs. Credits would be capped to an income level of $150,000 for a single filing taxpayer and $300,000 for joint filers for new vehicles, and at $75,000 and $150,000 for used cars.
• For the first time, buyers would be eligible to receive $4,000 for used clean cars.
• The bill also creates a 30% tax credit for commercial electric vehicles.
• It includes $3 billion for the U.S. Postal Service plus $1 billion for clean heavy-duty vehicles like school buses, transit buses and garbage trucks. The legislation also makes up to $20 billion available in loans to build new clean vehicle manufacturing facilities.