First Thing Today | August 8, 2022

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Good morning!

Weaker prices to start the week... Wheat futures led losses in the grain markets overnight, while corn and soybeans posted lesser declines. As of 6:30 a.m. CT, corn futures are trading around 6 cents lower, soybeans are around a penny lower and wheat futures are 8 to 12 cents lower. Front-month crude oil futures are nearly $1.50 lower and the U.S. dollar index is down about 225 points.

Rains to continue before heat, dryness returns... Weekend rainfall occurred mostly as expected with a few minor exceptions, World Weather Inc. said. Western and southern Iowa, northern Missouri, Nebraska and Kansas missed much of the rain along with some areas in west-central Illinois. More rains are pushing across areas of the Corn Belt this morning and rainfall will continue into Tuesday. The outlook turns hot and dry across the Plains and western Corn Belt from the middle of the week into early next week before the next chance for rains is expected.

More grain ships depart Ukrainian ports... Two more ships, carrying corn and soybeans, departed Ukrainian Black Sea ports on Monday, Turkey and Ukraine said, taking the total to 10 that have sailed under the new grain export deal. Ukraine’s infrastructure minister said Pivdennyi, the third Ukrainian port included in the deal, was finally up and running. So far, around 243,000 MT of corn has been exported from Ukraine on seven ships since the first departure on Aug. 1, according to a Reuters tally of data from Turkey’s defense ministry. The other ships carried 11,000 MT of soybeans, 6,000 MT of sunflower oil and 45,000 MT of sunflower meal.

China conducting more military drills around Taiwan... China’s military announced fresh military drills on Monday in the seas and airspace around Taiwan – a day after the scheduled end of its largest ever exercises to protest against last week’s visit to Taipei by House Speaker Nancy Pelosi. Taiwan’s foreign ministry condemned the move, saying China was deliberately creating crises. It demanded Beijing stop its military actions and “pull back from the edge.” The ministry said, “In the face of military intimidation created by China, Taiwan will not be afraid nor back down, and will more firmly defend its sovereignty, national security, and free and democratic way of life.” The White House said Pelosi’s visit does not signal a shift in its one-China policy and said Beijing overreacted and used it “to increase provocative military activity in and around the Taiwan Strait.”

Chinese soy imports slowed in July... China imported 7.9 MMT of soybeans in July, down 4.5% from June and 9.1% less than last year, as weak crush margins reduced demand from importers. Through the first seven months of this year, China imports 54.2 MMT of soybeans, down 5.9% from the same period last year.

China posts record trade surplus in July... China’s trade surplus surged to a record high of $101.3 billion in July, driven by an 18.0% jump in exports while imports rose 2.3%. For the first seven months of the year, China had a trade surplus of $482.3 billion. China’s trade surplus with the U.S. ticked up to $41.5 billion in July from June’s $41.4 level.  

Firm raises Russian wheat crop forecast... Russia is now expected to produce 95 MMT of wheat this year, according to ag consulting firm IKAR, up from its prior forecast of 90.5 MMT. The firm attributed the increase mostly to higher yields in the Central and Volga regions. Last week, consulting firm SovEcon raised its Russian wheat crop forecast to 90.9 MMT. In July, USDA projected the Russian wheat crop at only 81.5 MMT, so a significant increase could be seen in Friday’s Supply & Demand Report.

Reconciliation measure, U.S. inflation data and USDA’s crop reports highlight the week ahead in Washington... Senate Democrats passed the $740 billion tax, climate and health care reconciliation package (click here to view our special report on the measure). The next step is a House vote Friday in which it is expected to pass and be sent to the White House where President Joe Biden will sign it into law. Inflation updates are the major economic focus this week, with the Consumer Price Index (CPI) on Wednesday and Producer Price Index (PPI) on Thursday. USDA’s August crop reports on Friday will include the first survey-based corn, soybean and cotton crop estimates. USDA will also update its U.S. wheat crop estimates and its domestic and global balance sheets.

A look at the Federal Reserve’s balance sheet tightening... When the U.S. central bank began quantitative tightening (QT), in June, it set out to partially unwind roughly $4.5 trillion in quantitative easing (QE) that was conducted in response to the pandemic. The Fed started by letting up to $30 billion in Treasuries and $17.5 billion in mortgage-backed securities roll off its balance sheet, as opposed to reinvesting the proceeds. Barron’s notes that starting next month, those caps will rise to $60 billion and $35 billion, respectively, meaning the pace of balance-sheet runoff is about to double. Fed Chairman Jerome Powell has suggested that QT would go on for two to 2.5 years, implying that the Fed’s $9 trillion balance sheet would shrink by roughly $2.5 trillion. Ed Yardeni, president of Yardeni Research, says QT will represent the equivalent of at least a half-point rate hike, and probably closer to a full-point increase. That’s not to mention the impact of a 10% run in the U.S. dollar this year, which Yardeni says is equal to another hike of at least 0.5%.

Chinese meat imports inch up but still down from year-ago... China imported 643,000 MT of meat during July, up 40,000 MT (6.7%) from June but 207,000 MT (24.7%) below year-ago. China doesn’t break down the categories of meat imports in its preliminary data, but the sharp year-over-year reduction was due to slower pork demand. Through the first seven months of this year, China imported 4.1 MMT of meat, down 30.9% from the same period last year.

Cautiously optimistic toward cash cattle trade... Traders come into the week cautiously optimistic cash cattle prices will work higher after trade was stronger than expected last week. But packers continue to rely on previously purchased cattle, contracted and formula-based animals to fill out their slaughter schedules, which could again limit demand for negotiated animals. Given the discount nearby live cattle futures hold to the cash market, their march higher should continue – even if cash trade is sluggish.

Cash hog index nearing last year’s peak... Today’s CME lean hog index quote is up 48 cents to $122.09 (as of Aug. 4), just 59 cents shy of last year’s high, though that came in mid-June. Given tighter slaughter supplies than last year, we anticipate the cash index will continue to climb. But slaughter numbers are starting to build seasonally, so there’s no guarantee prices will continue to rise.

Weekend demand news... Exporters reported no tenders or sales.

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

 

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