First Thing Today | August 10, 2022
Followthrough buying overnight... Corn, soybean and wheat futures were boosted by followthrough buying during overnight trade. As of 6:30 a.m. CT, corn futures are trading 2 to 3 cents higher, soybeans are fractionally to a penny higher and wheat futures are mostly 7 to 10 cents higher. Front-month crude oil futures are around $1.65 lower an the U.S. dollar index is nearly 400 points lower.
Bad signs for U.S. economy... U.S. labor productivity fell for the second straight quarter this spring while labor costs climbed, a bad sign for Federal Reserve officials trying to get inflation back under control. U.S. non-farm labor productivity — a measure of goods and services produced per hour worked — fell at a seasonally adjusted annual rate of 4.6% in the second quarter from the prior quarter, the Labor Department said Tuesday. Unit labor costs, a measure of worker compensation and productivity, increased at a 10.8% pace in the second quarter from the prior quarter. The quarterly figures are volatile, but the latest numbers follow a 7.4% productivity pullback in the first quarter, the sharpest drop in 74 years. “The Fed simply can’t get to 2% inflation with this sort of productivity and wage growth,” said Wells Fargo economist Sarah House. Meanwhile, Bank of America thinks the U.S. yield curve could invert more deeply than at any time since the 1980s because of the Fed’s efforts to cool inflation. The two-year Treasury rate currently exceeds the 10-year by almost 50 basis points. The inversion, around the deepest since 2000, is viewed as a sign of a looming recession.
Ukrainian grain, oilseed exports surge... Ukrainian exports of grains, oilseeds and vegoils reached 2.66 MMT in July, up 22.7% from June. The total included 412,000 MT of wheat, 183,000 MT of barley, 1.1 MMT of corn, 362,100 MT of sunflower seeds and other commodities. But Ukrainian grain and oilseed exports still declined nearly 52% from year-ago during the first month of the 2022-23 marketing year.
Europe bans Russian coal... The European Union’s ban on imports of Russian coal, agreed in April as part of its fifth package of sanctions, takes effect at midnight tonight. One of the world’s biggest exporters of coal, Russia supplied around 70% of the EU’s imports of thermal coal (used to generate electricity) and 45% of all coal imports last year, according to Bruegel, a think-tank in Brussels. Of the €94.3 billion ($96.5 billion) the EU spent on Russian fuel last year, just €5.3bn ($5.4 billion) went for coal. Also, the Rhine — a pillar of the German, Dutch and Swiss economies for centuries — is set to become virtually impassable at a key waypoint later this week, stymieing vast flows of diesel and coal, according to Bloomberg News. The river is forecast to drop below a critical depth where it becomes uneconomical to transport commodities and will likely deepen Europe’s energy crisis. Meanwhile, Russian oil stopped flowing via a pipeline that feeds countries in Central and Eastern Europe. Transneft PJSC, the government-owned oil-pipeline operator, said Tuesday crude exports through Ukrainian territory had halted on Aug. 4. It blamed payment difficulties caused by Western sanctions on Moscow and said Ukraine’s pipeline operator had declined to carry crude after it didn’t receive funds. The move severs supplies through the southern branch of the Druzhba pipeline that carries oil to Slovakia, Hungary and the Czech Republic.
China completes military tasks around Taiwan but will conduct regular patrols... China's military has “completed various tasks” around Taiwan but will conduct regular patrols, it said on Wednesday, potentially signaling an end to days of military drills. But reports signaled Chinese navy ships and aircraft remained active around Taiwan. The People’s Liberation Army Eastern Theatre Command said its series of joint military operations in the sea and airspace around Taiwan had “successfully completed various tasks and effectively tested the integrated combat capabilities of the troops. Theatre forces will keep an eye on the changes in the situation in the Taiwan Strait, continue to carry out training and preparation for combat, organize regular combat readiness patrols in the direction of the Taiwan Strait and resolutely defend national sovereignty and territorial integrity.”
China removes some of Taiwan’s autonomy in document... China has withdrawn a promise not to send troops or administrators to Taiwan if it takes control of the island, an official document showed on Wednesday, signaling a decision by President Xi Jinping to grant less autonomy than previously offered. China had said in two previous white papers on Taiwan, in 1993 and 2000, that it “will not send troops or administrative personnel to be based in Taiwan” after achieving what Beijing terms “reunification.” That line, meant to assure Taiwan it would enjoy autonomy after becoming a special administrative region of China, did not appear in the latest white paper. A line in the 2000 white paper that said “anything can be negotiated” as long as Taiwan accepts that there is only one China and does not seek independence, is also missing from the latest white paper. China’s white paper on its position on self-ruled Taiwan follows days of unprecedented Chinese military exercises near the island.
Chinese producer prices ease, consumer inflation builds... China’s producer price index dropped for the 19-straight month and fell to a 17-month low of 4.2% above year-ago in July amid a drop in raw material costs. Through the first half of 2022, China’s factory gate prices still rose 7.2% versus year-ago. China’s consumer price index increased 2.7% versus July 2021 — the fastest rise in consumer prices since July 2020. The rise in consumer inflation was driven by a surge in food prices, which rose the most in 22 months to 6.3% above year-ago, while non-food prices eased to 1.9% above year-ago.
Chinese pork prices surge... China’s pork prices in July surged 25.6% from the previous month, with the strong gains attributed to production capacity cuts, farmers holding back pigs from market and a recovery in consumer demand. On an annual basis, Chinese pork prices jumped 20.2% last month.
Egg prices lead U.S. food inflation surge... Egg prices at grocery stores soared 47% over year-ago in July, according to retail analytics firm Information Resources Inc. Prices have been driven by bird flu outbreaks, killing more than 30 million commercial and wild birds. The crisis hurt egg-laying hens and turkeys the most. Although the outbreak has eased, growers are still repopulating their flocks, which is expected to bring prices down eventually. Other jumps in prices in the IRI data include butter (26%), packaged bread (15%), frozen meals (23%) and frozen pizza (18%).
Wholesale beef prices continue to chop... Wholesale beef prices dropped sharply Tuesday, with Choice down $1.51 and Select $1.16 lower, though strong movement of 154 loads signals there’s plenty of retailer demand. Choice beef prices have found a comfort zone in the mid-$260 range, with retailer demand easing on days when prices are firmer and building on days with weaker prices. Despite the sideways beef trade, the cash market is well supported as packer margins remain in the black.
Cash hog fundamentals remain supportive... The national direct cash hog price firmed $8.29 on Tuesday, while the CME lean hog index is 33 cents firmer to $122.25 (as of Aug. 6). Cash sources signal packers are pulling hogs forward to fill near-term slaughter runs. Any pulling forward of animals is not only price-supportive near-term but would somewhat reduce the seasonal buildup in hog numbers relative to expectations through the end of the year.
Overnight demand news... Japan purchased 82,955 MT of wheat from its weekly tender, including 25,070 MT U.S. and 57,885 Canadian, and tendered to buy 70,000 MT of feed wheat and 40,000 MT of feed barley. Jordan tendered to buy 120,000 MT of optional origin milling wheat.
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