Evening Report | July 7, 2021
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Cotton producers: Finish old-crop sales, increase new-crop sales… Cotton futures have struggled to push above the recent contract highs and there’s risk USDA could increase its harvested acreage and production figures in the July 12 Supply & Demand Report. As a result, we advise cotton hedgers and cash-only marketers to sell the final 10% of 2020-crop to get to 100% priced in the cash market. We also advise all cotton producers sell another 10% of expected 2021-crop for harvest delivery to get to 50% forward-priced.
The median response of the Fed’s survey of primary dealers and market participants is for a decline in the pace of the Fed’s asset purchases to begin in the first quarter of 2022, though a fair amount of participants expected that to occur either a quarter earlier or later. The Fed is buying $120 billion a month in Treasury securities and mortgage-backed bonds to keep longer-term interest rates low and encourage more borrowing and spending. "Various participants" felt conditions for reducing the central bank's asset purchases would be "met somewhat earlier than they had anticipated.” The median response is for those purchases to end in the fourth quarter of 2022.
Meanwhile, the median response is for the first target rate increase to occur in the third quarter of 2023, and that increase is likely to be quite small. After the mid-June meeting, the Fed issued a set of economic projections signaling it would likely raise short-term interest rates twice by the end of 2023. In March, policymakers had signaled no rate hikes were expected to occur before 2024.
Today’s minutes commented that information as of mid-June suggested U.S. real gross domestic product was expanding faster during the second quarter than it had in the first, and that labor conditions had improved further during April and May. Consumer price inflation through April “has picked up notably,” according to the FOMC, but the committee said this largely reflected “transitory factors.”
Strike by contract workers interrupting flow of exports at Argentina’s Rosario port hub… Workers at Argentina’s Rosario shipping hub have disrupted exports and blocked roads at some of its key ports, Guillermo Wade, manager of the Chamber of Port and Maritime Activities (Capym), told Reuters. Construction workers started protesting late Tuesday and the work stoppages spread today. Wade says, “There are pickets at the entrances to the plants. All ports are stopped. They cannot unload or load ships. There is a terrible congestion with trucks.” Workers who are part of the UOCRA union are demanding better salaries from construction firms working for agro-export companies in the region. Argentine strikes typically do not last long, though this interruption does come right in the midst of the country’s busy corn and soybean harvest season.
Abiove hikes Brazilian soybean export forecast… Brazil will likely export a record 86.7 MMT of soybeans in 2021, forecasts the oilseed lobby group Abiove. That’s a 1-MMT hike from its June forecast. The higher export outlook and steady domestic processing projection at 46.5 MMT dropped its ending stocks forecast by 1 MMT to 4.16 MMT. But Abiove also said domestic processing could slide by 800,000 MT if Brazil does not resume mixing 13% of biodiesel into diesel in September. Brazil lowered the biodiesel blend mandate from 13% to 10% in April due to tight supplies and high prices. But Abiove says the recent drop in biodiesel should justify the increase in the mandatory biodiesel mix and it warns leaving the blend level at the reduced 10% could discourage soybean plantings next season.
Indian monsoon rains expected to pick up later this week… India’s monsoon rains have been light since June 19, but they will likely pick up later this week, according to Mrutyunjay Mohapatra, director-general of the India Meteorological Department (IMD). Mohapatra told Reuters in an interview, “the monsoon is likely to revive over southern India by July 8 and over central and northwestern India by July 10, and rains are likely to gather pace by July 11, when a low-pressure area will create more favorable conditions.” The weather watcher expects better rain the second half of July to make up for the shortfall to start the month. July is an important month in India for planting crops like rice, corn, sugarcane, soybeans and cotton, which has heightened concerns about the recent drier spell.
Texas ranchland, dryland cropland post double-digit gains… The value of Texas crop and ranchland slipped in the second quarter versus the first quarter, but still posted strong annual gains, according to the second-quarter survey of ag bankers conducted by the Federal Reserve Bank of Dallas. The bank reports the value of dryland cropland across Texas rose 11.6% compared with a year earlier while the value of irrigated cropland rose 4.4%. Yhe value of Texas ranchland rose 13.6% versus a year ago.
In addition to Texas, the Dallas Fed bank also serves northern Louisiana and southern New Mexico. When looking at the entire bank’s district, the value of dryland cropland rose 11%, irrigated cropland increased 8.7% and ranchland jumped 13.5%.
Looking ahead, the bank notes: “The anticipated trend in farmland values index grew in the second quarter 2021 to its highest historical value, suggesting respondents expect farmland values to continue increasing.”
The Fed bank says survey respondents report overall better conditions across most regions of the district. They note recent rainfall has contributed to favorable crop prospects, particularly for wheat, corn and cotton. Producers are optimistic about higher commodity prices but worried about increasing input costs. Cattle markets remain relatively steady, though prices are lower than in previous years. Find more details.
USDA making permanent change on cover crops… Farmers will be able to hay and graze the cover crops planted on prevent-plant (PP) acres without waiting until November. Previously, farmers who grazed or cut cover crops before Nov. 1 would only get 65% of their prevent-plant payment. USDA’s Risk Management Agency (RMA) is making a change for 2021 that will become permanent via a regulatory modification.
Biden team spoke to Saudis, UAE about OPEC+ talks and oil prices… Biden administration officials are “encouraged” by ongoing OPEC talks and have spoken with officials in Saudi Arabia and the United Arab Emirates in hopes of reaching an agreement to stem the rise in crude prices, White House Press Secretary Jen Psaki said yesterday. The U.S. hopes talks will lead to an agreement that “will promote access to affordable and reliable energy,” she said. “We’re not a party to these talks but over the weekend and into this week, we’ve had a number of high-level conversations with officials in Saudi Arabia, the UAE and other relevant partners,” Psaki said. She declined to specify which U.S. officials were involved but signaled that she didn’t expect President Joe Biden to personally make calls. A Wall Street Journal editorial says, “The president wants the cartel to pump more oil, but the U.S. to pump less.”
The average price of a gallon of regular gasoline is up nearly a dollar from a year ago, AAA said, and may rise another 20 cents through the end of the summer. The disagreement between Saudi Arabia and the United Arab Emirates over production quotas appears unlikely to be solved soon.
Ever Given container ship to finally set sail… The ship that blocked the Suez Canal for almost a week earlier this year is due to sail after its owners reached a deal with Egyptian authorities for its release, ending a months-long saga. The 1,300-foot cargo ship ran aground and blocked the Suez Canal for six days in March. It set sail Wednesday after the ship’s owners reached what the Wall Street Journal said was “multimillion-dollar compensation deal” with Egyptian authorities for its release. Details of the settlement were not made public, but a preliminary deal was struck in June that was reported as about $200 million. However, Egyptian media has said the settlement was much higher and the deal also included a tug boat.
The Committee on Foreign Investment in the U.S. (CFIUS) is getting an expanded role… This comes as the Biden administration urges cooperation among allies to compete with China. CFIUS, which reviews business deals for national security concerns, is looking to share information with similar review bodies set up by allies and is paying closer attention to Biden’s priorities, including securing supply chains.
