First Thing Today | December 26, 2023
No overnight price action... There was no overnight trade in the grain markets due to Christmas. Grain and livestock markets will resume trading at 8:30 a.m. CT. Front-month crude oil futures are favoring the upside along with U.S. stock index futures, though volume is light after the holiday. The U.S. dollar index is trading near unchanged.
Conflicts in the Middle east intensify… The U.S. military carried out retaliatory air strikes on Monday in Iraq after a drone strike from Iran-aligned militants left one U.S. serviceman in critical condition and wounded two others. Meanwhile, the Israeli Prime Minister has vowed to keep fighting in Gaza until Hamas is destroyed, despite global calls for a ceasefire as concerns rise the conflict will spread.
Ukraine strikes Russian warship… Ukraine struck a large Russian landing warship in Crimea with crude missiles in an overnight attack. The attack likely rendered the landing warship inoperable, dampening Russia’s efforts to control more land off the Black Sea. The missiles were a part of a larger attack on the Crimean port.
Russian crop second largest ever… Russia’s grain harvest in 2023 will total 142.6 MMT, down 9.5% from last year’s record, according to Russian state statistics. Russian wheat production totaled 92.77 MMT, down from 104.23 MMT in 2022. Russia is the world largest exporter of wheat, expecting to total 65 MMT this year, though exports are limited by lack of vessels and problems with insurance and payments caused by Western sanctions, says Russian Agriculture Minister Patrushev.
Soymeal for feed drops heavily in China… While China’s animal feed production rose in the first 11 months of 2023, the use of soymeal as feedstock dropped 11% year-on-year, according to its agriculture ministry. The nation is trying to reduce its heavy reliance on soymeal exports as part of a push for food security, and is opting to use alternatives for feed, such as sunflower seed, rapeseed and distiller’s dried grains.
The week ahead in Washington… Congress remains on holiday break until the House returns on Jan. 9. No major economic reports are on the schedule this week, bringing the focus to regional reports. President Biden signed the National Defense Authorization Act (NDAA) into law, authorizing an annual military spending budget of $886 billion. A funding package for Ukraine was not included in NDAA. While some rail crossings have reopened, the ports of entry in Lukeville, Arizona and Morely Gate in Nogales, Arizona remain closed. While welcoming the reopening of the crossings, concerns remain over future closures as the situation at the border has not improved much. The National Grain and Feed Association and the North American Export Grain Association called on the U.S. and Mexican governments to continue their dialogue and implement border measures to avoid a repeat of such closures.
Shippers returning to Red Sea as multinational force deploys… Shipping company Moller-Maersk said Sunday it plans to restart shipments through the Red Sea and Suez Canal as soon as operationally possible, according to WSJ. The return is expected to be gradual, as concerns over Yemen’s Houthi forces remain. A multinational force, including the U.S., U.K., Bahrain, Canada, France and others have sent ships to deter further strikes.
H&P Report negative compared to expectations... USDA’s Hogs & Pigs Report estimated the U.S. hog herd at 74.971 million head as of Dec. 1, up 15,000 head from year-ago, whereas traders expected a 481,000-head decline based on the average pre-report estimate. The market hog inventory increased 221,000 head (0.3%) from year-ago, while the breeding herd declined 205,000 head (3.3%). The data was negative compared to pre-report expectations, though it wasn’t overly bearish. However, the sharp revisions to past data will increase trader skepticism toward these numbers and may cause them to believe USDA’s sampling methodology is consistently undercounting hog numbers.
Cattle on Feed Report: Mildly negative but not likely market-moving... USDA’s Cattle on Feed Report estimated the Dec. 1 large feedlot (1,000-plus) head inventory increased 313,000 head (2.7%) from year-ago. Traders expected feedlot supplies to rise 257,000 head (2.2%). November placements of cattle into feedlots declined 1.9%, though traders anticipated a 3.8% decline. November marketings fell 7.4% compared with the expected 6.7% drop. The data is mildly negative compared to pre-report expectations, though we doubt it will have much of lasting market impact.
Cold Storage Report: Pork stocks decline less than normal... USDA’s Cold Storage Report showed pork inventories totaled 416.1 million lbs. at the end of November, down 21.8 million lbs. (5.0%) from October. The five-year average was a 45.2-million-lb. decline during the month. Pork stocks dropped 35.5 million lbs. (7.9%) from year-ago and were 55.1 million lbs. (11.7%) under the five-year average. Beef stocks totaled 454.7 million lbs., up 9.0 million lbs. (2.0%) from October. The five-year average was a 10.4-million-lb. increase during the month. Beef stocks fell 68.6 million lbs. (13.1%) from year-ago and were 49.0 million lbs. (9.7%) less than the five-year average.
Cash cattle modestly firmer… Trade through Thursday last week averaged $170.13, which will likely be enough to end the six consecutive weeks of continued weakness in the cash cattle average. Holiday-shortened kill schedules are likely to weigh on prices, though packers appear to continue to be short bought on slaughter needs.
Hogs search for seasonal low… Despite a brief uptick in the CME lean hog index last week, the index fell 44 cents to $66.25 (as of Dec. 21), marking a fresh seasonal low. Price action today is likely to be dictated by Friday’s Hogs & Pigs Report, though traders will remain focused on cash fundamentals as the week goes on.
Holiday weekend demand news... South Korea purchased an estimated 60,000 MT of soymeal, expected to be sourced from South America. Bangladesh tendered to buy 50,000 MT of milling wheat. Pakistan issued an international tender to buy up to 110,000 MT of 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
