First Thing Today | September 6, 2022
Good morning!
Varied post-holiday price tone... Corn, soybean and wheat futures are trading near session lows this morning. As of 6:30 a.m. CT, corn futures are trading around a penny higher, soybeans are mostly 13 cents lower, SRW wheat is 4 to 5 cents lower, while HRW and HRS wheat futures are mixed. Front-month crude oil futures are mildly weaker, while the U.S. dollar index is modestly firmer this morning.
Russia halts Europe’s main gas pipeline until sanctions lifted... Russia will not restart the flow of gas to Germany as planned. Gazprom, the Russian-owned energy giant, said it would postpone restarting the pumping of natural gas through the Nord Stream 1 pipeline until the “collective west” lifts sanctions against Moscow over its invasion of Ukraine, the Kremlin said. The announcement, which raises fears of an extended energy shortage in Europe, followed an agreement by the G7 finance ministers to cap the price of Russian oil. A full cutoff of gas to Europe, Russia’s main export market, could cost as much as 400 billion rubles ($6.6 billion) a year in lost tax revenues, according to a report. It won’t be possible to fully compensate the lost sales with new export markets even in the medium term.
OPEC+ agrees to small production cut amid recession fears... OPEC+ agreed Monday to cut oil production for the first time in over a year, delegates said, saying it should pull back about 100,000 barrels a day from October amid fears of a global recession and more Iranian oil coming to the market in the event of a revived nuclear deal. The news came just a day after the Wall Street Journal reported Russia did not support a cut at this time. The global oil market that has experienced a 25% decline in Brent crude prices in the past three months, fueled by growing concerns that interest rate hikes and Covid-related restrictions in parts of China could slow global economic growth and curtail oil demand. OPEC+ said it would be ready to hold emergency meetings in the coming weeks, signaling that it would act if prices took another dive. The next OPEC+ meeting is scheduled for Oct. 5.
California declares grid emergency as odds of blackouts accelerate... California declared a power grid emergency Monday as a blistering and sustained heat wave threatens to push the state’s electricity system beyond its limit. California narrowly avoided implementing rotating outages while officials warned that the state’s power grid will face a bigger test today amid a record-breaking heat wave. “We are now moving into the extreme part of this heat wave, and really stepping up those actions will be essential for maintaining reliability,” Main Elliot Mainzer, chief executive officer of the California Independent System Operator (Caiso) said. If voluntary conservation measures fall short, Caiso will declare a level-2 grid emergency, which would free up more generation supplies, he said. Rotating blackouts would be used as a last resort. Much of California is under an excessive heat warning for the next four days.
Argentina boosts exchange rate for soy exports... For September, the exchange rate for Argentine soybean farmers will be 200 pesos per U.S. dollar, up from the previous rate of 139 per dollar, the official exchange rate. The move is an attempt by the Argentine government to boost exports and hard currency reserves. But industry leaders were critical in their initial reaction to the sales sweeteners. Nicolas Pino, head of the SRA rural association, described the measures as “transitory” since they will only last for one month, while Carlos Achetoni of the FAA agrarian federation argued that only big farmers would benefit. Through the end of August, Argentina's farmers sold nearly 52% of the 44-MMT of the 2021-2022 harvest, according to official data, significantly below sales notched during the same period in the previous season.
Australia expects another large wheat crop... Australia’s wheat production is forecast to be the second highest ever at 32.2 MMT, according to the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES), though that would be down 11% from last year’s record. ABARES says, “Timely and sufficient rainfall in late winter greatly benefitted crop development in many regions and lifted average yield potentials across all states. Cropping regions in Western Australia, South Australia and Victoria have benefitted more consistently from these winter developments than those in New South Wales and Queensland.” According to the three-month (September to November) rainfall outlook, there are high odds cropping regions in the eastern states and South Australia will exceed their median spring rainfall, while Western Australia is likely to receive average to below-average spring rainfall. ABARES also expects a bumper canola crop, with its forecast of 6.6 MMT the second highest behind last year’s record 6.8 MMT production.
Firm cuts EU sunseed crop forecast, raises rapeseed estimate... Strategie Grains cut its forecast for this year’s European Union sunflower seed, citing damage from recent dry and hot weather. The firm now estimates EU sunflower seed production at 9.17 MMT, down nearly 1.2 MMT from its previous forecast. That would be down 11.3% from last year, despite a sharp increase in planted acreage. Strategie Grains raised its estimate of this year’s rapeseed crop to 19.15 MMT from the 18.47 MMT previously and now expects production to rise 12.7% from last year’s level.
China to accelerate rollout of stimulus measures... It is “crucially important” for China to adopt supportive policies this quarter, Yang Yinkai, deputy secretary general at the National Development and Reform Commission, told reporters in Beijing on Monday. Yang and other officials noted that 300 billion yuan ($43.6 billion) in funds have been distributed via a policy bank financing program intended to spur infrastructure investment this year. Local governments have also sold 3.5 trillion yuan worth of special bonds through August, they said, including almost all of the bond quota allocated for construction projects. Meanwhile, central bank Deputy Governor Liu Guoqiang addressed the yuan’s weakness, saying authorities will be able to keep the currency stable. The People’s Bank of China cut the foreign-currency reserve ratio by two percentage points, a move aimed at boosting the yuan.
The week ahead in Washington... The Senate returns to Washington this week, while the House will remain on recess until Sept. 13. Congress is beginning to work on stopgap funding legislation on which President Joe Biden’s signature is required before Oct. 1 to avert a partial government shutdown. A continuing resolution (CR) will need 60 votes to clear the evenly divided Senate. Congress hasn’t acted on any of the 12 fiscal 2023 spending bills and the CR is intended to buy time to get through the midterm elections on Nov. 8 and into the lame duck session to wrap up the year’s legislative business. The key economic data this week is Wednesday’s Fed Beige Book report, featuring economic conditions across the 12 federal districts.
Australia raises rates, other hikes likely later this week... The Reserve Bank of Australia Tuesday raised its main interest rate by 50 basis points to 2.35%, its highest since early 2015. The Bank of Canada rate decision will come Wednesday and the European Central Bank (ECB) meets Thursday. Many expect the ECB to raise its main interest rate by 75 basis points.
China to sell more pork from reserve stockpiles... China will sell 37,000 MT of pork from state-owned reserves on Sept. 8. The sales are meant to boost domestic supplies and ease prices, which have recently spiked.
Post-holiday trade key for cattle futures... Live cattle futures finished high-range last Friday, which could encourage followthrough buying, though buyer interest could be limited by a softening cash market. Price action in futures early this week could be key to near-term direct and also set the tone for cash cattle trade later in the week.
Cash hog fundamentals continue to weaken... National direct cash hog prices continue to fall seasonally, with the bulk of the pressure noted in the Iowa/southern Minnesota market. The CME lean hog index is down another $1.52 today (as of Sept. 1) to $104.74. While fall- and winter-month hog futures hold wider-than-normal seasonal discounts to the cash market, additional chart-based selling can’t be ruled out.
Weekend demand news... South Korea purchased 65,000 MT of Australian feed wheat and tendered to buy up to 140,000 MT of optional origin corn. Taiwan tendered to buy 55,375 MT of U.S. 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
- 10:00 a.m. Export Inspections — AMS
- 3:00 p.m. Crop Progress — NASS
