First Thing Today | September 8, 2022
Good morning!
Quiet, two-sided trade overnight... Grain and soybean futures traded both sides of unchanged overnight, with corn weaker while soybeans and wheat are firmer this morning. As of 6:30 a.m. CT, corn futures are trading 1 to 3 cents lower, soybeans are 4 to 5 cents higher, winter wheat futures are mostly 1 to 3 cents higher and spring wheat is 6 to 7 cents higher. Front-month crude oil futures are nearly 50 cents higher and the U.S. dollar index is around 400 points lower this morning.
Turkey’s president sides with Putin on grain exports... Turkish President Tayyip Erdogan said on Thursday he wanted grain from Russia to be exported too, and President Vladimir Putin was right about grains exported from Ukraine under a United Nations-backed deal going to wealthy countries, not poor ones. Erdogan said Putin was uncomfortable with grain shipments going to countries that sanction Russia. Putin said, “If we exclude Turkey as an intermediary country, then almost all the grain exported from Ukraine is sent not to the poorest developing countries, but to European Union countries. Once again, developing countries have simply been deceived and continue to be deceived. It is obvious that with this approach, the scale of food problems in the world will only increase ... which can lead to an unprecedented humanitarian catastrophe.” Meanwhile, Putin claimed on Wednesday Russia had not lost anything because of its war in Ukraine. He threatened to cut off energy supplies if price caps are imposed on Russia’s oil and gas exports, warning the West it would be “frozen” like a wolf’s tail in a famous Russian fairy tale (Russian folk story The Sister-Fox and the Wolf).
U.S. ag trade deficit shrinks a little in July... The U.S. exported $14.9 billion of ag goods in July against imports of $15.8 billion for a trade deficit of $938.3 million. That was down slightly from a trade deficit of nearly $1.1 billion in June. Through the first 10 months of the fiscal year (FY) 2022, ag exports total $167.3 billion against imports of $161.2 billion for a surplus of $6.1 billion. USDA forecasts FY 2022 ag exports at $196.0 billion and imports at $192.0 billion, which would result in a trade surplus of $4.0 billion.
Fed vice chair signals more rate increases ahead as inflation remains too hot... Federal Reserve Vice Chair Lael Brainard says the U.S. central bank will need to see “several months” of low monthly inflation data to be convinced rapid price growth is finally cooling, raising the odds Fed leaders will again raise interest rates by three-quarters of a percentage point when they meet later this month. “We are in this for as long as it takes to get inflation down,” Brainard said, in remarks to an annual conference of The Clearing House and Bank Policy Institute. Brainard also suggested corporate decision-making was partly to blame for rising prices. She said high profit margins in some industries, including retailers and car dealers, suggest companies could be using market power to raise prices — and that reducing those markups “could make an important contribution to reduced inflation pressures in consumer goods.” She warned it would take time for the Fed’s efforts to work their way through the economy to reduce consumer demand and bring down inflation, which could eventually raise the risk of the Fed going too far. But, she said, “if history is any guide, it is important to avoid the risk of pulling back too soon.”
Goldman Sachs raises forecast for Fed rate hikes... The investment banker now expects the Fed to deliver a 75-basis point hike to interest rates later this month, citing several hawkish comments from Fed officials in recent weeks. The bank’s analysts also lifted their expectations for November’s meeting, forecasting a 50-basis point hike. The U.S. lender had previously expected a 50-basis point hike in September followed by a 25-basis point rise in November. Goldman stuck to its forecast for a 25-basis point hike in December, seeing the fed-funds rate at 3.75% to 4% by the year end.
U.S. dollar's strength has prompted particularly aggressive moves from China... The U.S. dollar is up 8% against the yuan in 2022. The dollar’s relentless advance has sent China’s foreign exchange reserves to the lowest point since 2018, Chinese government data revealed this week, as the value of its other assets declines. Meanwhile, the People’s Bank of China has moved to shield its currency from further declines as it nears the psychological threshold of 7 per dollar. On Thursday, Beijing imposed a stronger-than-expected reference rate for the yuan for the 12th day in a row.
Rail unions, carriers race deadline... Several rail unions and carriers will be meeting with the National Mediation Board this week to discuss recommendations issued by a Presidential Emergency Board last month to resolve a contract dispute. Labor Secretary Marty Walsh attended a meeting with both sides Wednesday, as seven of the 12 unions have not reached a tentative agreement based on the recommendations. Rail unions and carriers will have until Sept. 16 to accept or reject the plan from the emergency board. Meanwhile, two House Transportation and Infrastructure subcommittees — Railroads, Pipelines, and Hazardous Materials; and Livestock and Foreign Agriculture — will hold a joint hearing on Thursday, Sept. 15 examining the impact of rail service challenges on agricultural shippers.
U.S./South Korea hold talks on EVs... South Korea Trade Minister Ahn Duk-geun will hold weekly talks with U.S. Trade Representative Katherine Tai on ways to minimize damage from the Inflation Reduction Act on South Korean carmakers, Yonhap reports, citing comments from Ahn. “The U.S. government fully understands the seriousness of this issue, and so we plan to continue our consultations on how it can actually be resolved with practical measures,” Ahn said following a meeting with Tai.
WRDA talks progressing... Negotiations on the bipartisan 2022 Water Resources Development Act (WRDA) legislation (Senate amendment to HR 7776) have been going well and will continue this month, according to congressional aides. Staffers for the Senate Environment and Public Works Committee met during the August recess to discuss the next steps. The House and Senate need to hold a conference committee this fall to settle some differences between the chambers’ versions. Congress needs to pass a final bill before the end of the year. The biennial legislation authorizes waterway improvements and spending for flood control and coastal resilience across the country.
NPPC issues statement on SCOTUC reply brief to petitioners on California Proposition 12... The following statement was released Wednesday by Terry Wolters, National Pork Producers Council (NPPC) president: “Today’s (Sept. 7) filing of our reply brief to petitioners brings the National Pork Producers Council and the American Farm Bureau Federation one step closer to the Supreme Court hearing our case on how California Proposition 12 violates the U. S. Constitution. “Ironically, California’s Department of Food and Agriculture also announced today it finally completed the Proposition 12 implementation rules, more than three years after the original statutory deadline. This delay unnecessarily exacerbated pork supply chain disruptions and now creates significant concerns for farmers that these arbitrary regulations put the nation's pig herd at risk of disease. Any farmers raising pigs that provide pork products to the California market must register and will be required to have California agents inspect their farms, which will create serious biosecurity threats across the country. We look forward to presenting our case before the Supreme Court on Oct. 11 to defend the livelihoods of America’s pork producers.”
China pork imports expected to decline in 2023... USDA’s attaché in China expects the country’s pork production to increase 1 MMT to 53 MMT, which would remain below pre-African swine fever levels but be in line with consumer demand. The attaché forecasts pork imports will decline 8% from this year to 1.85 MMT “as domestic production and prices stabilize. Additionally, imports are expected to be constrained as global pork prices are less competitive compared to domestic prices.” The post expects China’s beef production to rise 300,000 MT to 7.4 MMT. Beef imports are forecast to decline to 2.5 MMT amid “high global beef prices, lower domestic prices and a weaker economy impacting consumers purchasing decisions of high-value products such as imported beef.”
Slow developing cash cattle market... Cash cattle negotiations have been slow to develop, with feedlots seeking $1 to $2 higher prices and packers reluctant to make initial bids. While there has been virtually no movement on the negotiations front, traders’ expectations are generally leaning toward steady to possibly slightly firmer prices.
Futures/cash spread narrows in hog market but attitudes still pessimistic... The CME lean hog index is down another $1.78 to $101.48 (as of Sept. 6). October lean hog futures finished $10.405 below that level on Wednesday. While that’s much less of a discount than the lead contract recently held, the cash index has firmed an average of nearly $4.75 from now until mid-October over the past five years. Despite indications market-ready numbers will fall short of levels implied by USDA’s June Hogs & Pigs Report, futures continue to reflect a pessimistic stance by traders.
Overnight demand news... Taiwan purchased 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
- 8:30 a.m. Weekly Ethanol Production — EIA
- 10:00 a.m. Livestock and Meat International Trade Data — ERS
- 2:00 p.m. U.S. Agricultural Trade Data Update — ERS
