First Thing Today | December 13, 2023
Good morning!
Grains under pressure overnight... Corn, soybeans and wheat all traded solidly to the downside during overnight trade. As of 6:30 a.m. CT, corn futures are trading 2 to 3 cents lower, soybeans are 8 to 9 cents lower and wheat futures are 8 to 10 cents lower. Front-month crude oil futures and the U.S. dollar index are both modestly higher.
Focus on Fed chair comments, ‘dot plot’ projections... The Federal Reserve is widely expected to keep interest rates unchanged for a third consecutive time following the conclusion of its two-day monetary policy meeting at 1:00 p.m. CT. Markets will focus on the post-meeting economic projections from Fed officials and Chair Jerome Powell’s press conference for ideas of the future path for monetary policy.
Milei’s ‘shock’ plan for Argentina’s economy... Argentina will weaken its peso 54% to 800 per dollar and enact extensive spending cuts with the goal of eliminating the primary fiscal deficit in the next year, new Economy Minister Luis Caputo announced, as part of President Javier Milei’s shock plan aimed at fixing the country’s worst crisis in decades. Caputo said the plan would be painful in the short-term but was needed to cut the fiscal deficit and bring down triple-digit inflation. Caputo, echoing previous pledges by Milei, said the government would look to gradually erase export tariffs, something farmers have long sought. The International Monetary Fund called the measures “bold” that would “help stabilize the economy and set the basis for more sustainable and private-sector led growth” following “serious policy setbacks” in recent months.
Upcoming SAF credit details may be lacking... Recent reports suggest the Treasury Department is preparing to provide instructions on how to qualify for sustainable aviation fuel (SAF) credits under the Inflation Reduction Act. However, Bloomberg notes that even if the rules are released this week, crucial components may remain undisclosed until spring. One significant issue revolves around the model used to determine greenhouse gas emission reductions from the SAF feedstock. If the Department of Energy’s model is adopted, it could potentially include corn-based ethanol for SAF credits. In contrast, using a model developed by the United Nations might exclude certain feedstocks like ethanol from eligibility. Of note: In late November, USDA Secretary Tom Vilsack told Reuters he was confident ethanol will become an SAF feedstock. “They (U.S. Treasury) will provide some direction and guidance, and I think the actual rules and regulations and so forth may take a little bit longer,” he said.
France raises non-EU wheat export forecast... France’s ag ministry increased its forecast for 2023-24 wheat exports outside the EU by 100,000 MT to 10.2 MMT, which would be 0.4% above last year. The forecast for exports within the bloc was trimmed 10,000 MT to 6.69 MMT, though that would still be 4.8% higher than 2022-23.
Fitch calls China’s 2024 outlook neutral even as challenges mount... Fitch Ratings said its outlook for China in 2024 was neutral, but the country would continue to see headwinds from subdued external demand, property sector challenges and local government debt. Fitch forecast China’s GDP growth would moderate to 4.6% in 2024 from just over 5% this year, adding it “forecast growth to be broadly stable and generally at levels above those of rating peers.” Policy support, in particular fiscal policy, is likely to be judiciously deployed to limit downside risks, according to Fitch. However, “such support may keep fiscal deficits wide and put further upward pressure on the debt ratio.”
China’s economic plan underwhelming... China’s top leaders declared industrial policy will be their primary focus for the upcoming year, leaving investors disappointed, as they anticipated a more substantial stimulus package for the country’s economy. The annual economic work conference of the ruling Communist Party outlined goals that were viewed as conventional, lacking any innovative solutions for the troubled property sector. However, outside of this conference, one of China’s leading housing officials has made a strong commitment to preventing a series of defaults by property developers, signaling a determination to address the liquidity crisis within the industry. Trivium China notes the readout repeated a key phrase from Friday’s Politburo meeting, saying: “Next year, we must adhere to the principles of seeking progress while maintaining stability, promoting stability through progress, and implementing policies that are conducive to stabilizing expectations, growth, and employment.” The China watchers concludes that “market reaction to the meeting readout has largely been bearish, but we see top officials gearing up to fight harder to support growth next year.”
China’s Nov. bank loans rise less than expected... Chinese banks extended 1.09 trillion yuan ($151.73 billion) in new yuan loans in November, up from October’s 738.4 billion yuan but missing analysts’ expectations. Household loans, including mortgages, rose 292.5 billion yuan, after contracting 34.6 billion yuan in October, while corporate loans rose to 822.1 billion yuan from 516.3 billion yuan the month before. China’s broad M2 money supply rose 10.0% from a year earlier, while outstanding yuan loans increased 10.8% -- both below expectations. The People’s Bank of China is expected to deliver more modest policy easing in the coming weeks, following a pledge this week by top leaders to step up policy adjustments to support the economic recovery in 2024.
COP28 climate talks reach agreement... COP28 climate talks in Dubai have concluded with a historic agreement. This landmark deal marks the first-ever commitment to transition away from all fossil fuels. To achieve this, negotiators had to strike a balance by securing support from the U.S. and European Union while also gaining the cooperation of oil-producing nations like Saudi Arabia. The agreement’s emphasis on a just and orderly transition convinced skeptics and ultimately garnered broad support.
Euro zone industrial production continues to contract... Industrial production in the euro zone declined 6.6% annually in October, a slight improvement from a 6.8% drop the month prior but extending the string of contraction to an eighth consecutive month.
Cal-Maine Foods temporarily shuts Kansas facility hit by HPAI... Egg producer Cal-Maine Foods temporarily ceased production at a facility in Kansas after some of the flock tested positive for highly pathogenic avian influenza (HPAI). The company said HPAI had affected about 684,000 laying hens, or nearly 1.6% of its total flock. The company said there were no positive tests for HPAI at any other of its locations to date.
China approves three Australian meat plants for exports... China’s customs authority updated its list of approved meat exporters, which included the re-listing of three Australian meat plants. That’s the latest sign of improving trade relations between the two countries.
Critical day(s) for cattle futures... Live cattle and feeder cattle futures have posted three consecutive days of gains, which is a typical correction. Additional buying this week would go a long way toward signaling lows have been posted. But if fresh selling shows up, it would suggest futures will make near-term moves to new lows.
February hogs move above cash index... February lean hog futures firmed 92.5 cents on Tuesday to $68.25, moving to a 55-cent premium to today’s cash index quote (as of Dec. 11). That implies traders expect the cash index to post a seasonal bottom and then rise slightly before the February contract expires in mid-February. Traders probably expect continued cash market weakness into the end of the year, followed by a modest recovery in early 2024.
Overnight demand news... Algeria purchased between 910,000 and 930,000 MT of optional origin milling wheat, with most of it expected to be sourced from the Black Sea region. Jordan tendered to buy up to 120,000 MT of optional origin milling wheat. South Korea purchased 60,000 MT of optional origin feed wheat, excluding India, Pakistan, Argentina and Russia. Japan received no offers in its tender to buy 60,000 MT of feed wheat and 20,000 MT of feed barley.
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
- 9:30 a.m. Weekly Ethanol Production — EIA
- 11:00 a.m. Feed Grains: Yearbook Tables — ERS
- 2:00 p.m. Broiler Hatchery — NASS
- 2:00 p.m. Turkey Hatchery — NASS
