First Thing Today | August 4, 2022

Good morning!

Relatively quiet overnight trade... Two-sided trade was seen in the grain and soy markets overnight, with corn and soybeans mildly weaker and wheat favoring the upside this morning. As of 6:30 a.m. CT, corn futures are trading 2 to 3 cents lower, soybeans are mostly 1 to 2 cents lower, winter wheat futures are steady to fractionally higher in most contracts and spring wheat is 4 to 12 cents higher. Front-month crude oil futures are modestly higher and the U.S. dollar index is around 200 points lower this morning.

Ukraine expects first ship to arrive for grain on Friday... A Turkish bulk carrier is expected to arrive in the Ukrainian Black Sea port of Chornomorsk on Friday and will be the first vessel to arrive at a Ukrainian port since the war began, a spokesperson for the regional administration of Odesa said. “The Turkish bulk carrier OSPREYS, flying the flag of Liberia, is heading from the Dardanelles Strait to the port of Chornomorsk,” the spokesperson wrote late Wednesday. “This will be the first vessel that has not been blocked in our ports since Feb. 24, heading to (collect) Ukrainian export grain,” he noted.

Russia: Grain export deal not a ‘one-time mechanism’... The Kremlin said on Thursday the deal to unblock Ukraine’s grain exports from the Black Sea was not a “one-time mechanism,” and that it hoped it would continue to work effectively. “This is not a one-time mechanism, but a mechanism that is designed to ensure the export of the grain that has accumulated in these ports,” Kremlin spokesman Dmitry Peskov told reporters. He also noted Russian President Vladimir Putin and Turkish President Recep Tayyip Erdogan will discuss the departure of the first ship laden with Ukrainian grain and performance of Istanbul agreements. Peskov said, “There will be an exchange of opinions about the first voyage with grain from Odessa. In broad terms, this is a good opportunity to assess efficiency of operations of the mechanism created owing to Istanbul agreements.”

China conducts major military drills in waters off Taiwan... China fired multiple missiles around Taiwan on Thursday as it launched its largest ever military drills a day after a visit by U.S. House Speaker Nancy Pelosi (D-Calif.) to the self-ruled island that Beijing regards as its sovereign territory. China’s Eastern Theatre Command said it had completed multiple firings of conventional missiles on waters off the eastern coast of Taiwan as part of the planned exercises. The last time China fired missiles into waters around Taiwan was in 1996. Taiwan’s defense ministry said several Dongfeng missiles had been fired in waters to the northeast and southwest of the island. Taiwan officials said the drills violate United Nations rules, invade Taiwan’s territorial space and are a direct challenge to free air and sea navigation.

China fires back at G7 leaders... China scolded foreign ministers of the Group of Seven (G7) nations on Thursday for telling Beijing not to use a visit by Pelosi to Taiwan as “pretext for aggressive military activity in the Taiwan Strait.” A G7 foreign ministers joint statement warned that China’s escalatory response risked increasing tensions and destabilizing the region and said it was routine for legislators from their countries to travel internationally. Chinese Foreign Minister Wang Yi rejected their statement, saying: “It groundlessly criticizes China for taking such measures, which are reasonable and legitimate steps to safeguard its sovereignty and territorial integrity. From where have they received such a prerogative? Who has given them such qualification to? To shield the infringer of rights and to accuse their defenders - how inexplicable!”

Weekly Export Sales Report out this morning... For the week ended July 28, traders expect:

BOE raises rates by most since 1995... The Bank of England (BOE) raised interest rates by 50 basis points – the most in 27 years – despite warning that a long recession is on its way, as it rushed to tamp inflation, which is now set to top 13%. The sixth consecutive rate increase takes borrowing costs to 1.75% and marks the first half-point hike since BOE was made independent from the British government in 1997. BOE warned Britain was facing a recession with a peak-to-trough fall in output of 2.1%, similar to a slump in the 1990s but far less than the hit from Covid-19 and the downturn caused by the 2008-09 global financial crisis. It forecasts the British economy would begin to shrink in the final quarter of 2022 and contract throughout all of 2023.

CBO says tax, climate and drug-price deal cuts deficit by $102 billion... The Senate Democrats’ tax, climate and drug-pricing bill would reduce federal budget deficits by $102 billion over 10 years, the nonpartisan Congressional Budget Office (CBO) said. CBO also calculated that increasing the Internal Revenue Service budget would generate $204 billion in new revenue from cracking down on tax avoidance, something that wasn’t included in the official deficit score. When that is factored in, the CBO analysis is in line with the $300 billion in deficit reduction claim initially made for the bill by Sen. Joe Manchin (D-W.Va.) and Senate Majority Leader Chuck Schumer (D-N.Y.). The deficit decrease is driven in part by a repeal of a Trump administration restriction on prescription drug rebates, generating $122 billion and by allowing Medicare to negotiate the cost of high-priced drugs, which generates $102 billion. A 15% corporate minimum tax on large corporations generates $313 billion, as expected, while a narrowing of the carried interest loophole nets $13 billion in the score, slightly less than Democrats forecast.

Stabenow seeks changes to EV tax credit limits... Sen. Debbie Stabenow (D-Mich.) is seeking last-minute changes to strict new electric-vehicle tax-credit limits in the tax, climate and drug-pricing bill amid pressure from the auto industry. Stabenow called the provision a “serious concern,” adding that the EV tax credit, worth billions of dollars, wouldn’t be usable for years. Major automakers including Ford Motor Co., General Motors Co. and Toyota Motor Corp. are arguing against limits that include prohibitions on batteries and critical minerals that are processed in China and other “foreign entities of concern,” which could render the credit useless. Other limits include new caps on vehicle prices and consumer income that have drawn opposition from newer automakers like Rivian Automotive LLC.

Senate votes today on environmental permitting rules... The Senate this afternoon will vote on a resolution under the Congressional Review Act that would claw back the Biden administration’s changes to the nation’s environmental permitting rules. Republicans need only a simple majority to pass SJRes 55, which would nullify a White House rule finalized in April that requires agencies to consider the climate change impacts of a proposed infrastructure project. But even if the Senate passes the measure, it faces long odds against Democrats’ majority in the House.

Strong technical performance for cattle futures... Live cattle futures posted strong gains and technical breakouts above the June highs on Wednesday. Fundamental support came from better-than-expected cash cattle trade so far this week. But gains were led by October and December contracts, signaling traders could be looking ahead to a tightening supply of market-ready cattle in the fourth quarter and beyond. There’s premium in deferred live cattle futures, but the tighter supply outlook should continue to provide solid underlying support.  

Cash hog fundamentals weaken... The CME lean hog index is down 63 cents today (as of Aug. 2), its second straight daily decline after a nearly month-long rally. The pork cutout value fell $5.53 on Wednesday, as all cuts except hams declined, led by sharp drop of more than $26 in bellies. While cash fundamentals are likely to trend lower seasonally into year-end, we feel traders are overly pessimistic with the big discounts they have built into fall- and winter-month lean hog futures.

Overnight demand news... Taiwan purchased 50,910 MT of U.S. milling wheat. Japan purchased 122,103 MT of wheat from its weekly tender, including 54,680 MT of U.S., 32,410 MT of Canadian and 35,013 MT of Australian. Iran purchased between 180,000 and 240,000 MT of milling wheat likely to be sourced from Russia.

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
• 2:00 p.m. Dairy Products — NASS