First Thing Today: Followthrough pressure overnight amid heightened risk aversion, month-end selling

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Good morning!

Followthrough pressure overnight amid heightened risk aversion, month-end selling... Grain and soy complex futures faced active followthrough selling from Monday’s losses overnight. As of 6:30 a.m. CT, corn futures are trading around 6 cents lower, soybeans are 11 to 12 cents lower and wheat futures are mostly 10 to 14 cents lower. Front-month crude oil futures are around $1.50 lower and the U.S. dollar index is near 500 points lower this morning.

Moderna: Omicron’s myriad mutations signal a new vaccine may be needed... Executives from vaccine maker Moderna say a new vaccine may be needed for the Omicron variant, but there is still not enough patient data to properly assess whether the new variant is predominantly mild, with public health experts saying studies are needed. President Joe Biden said Omicron is a “cause for concern, not a cause for panic” while urging people to get booster shots. Federal Reserve Chair Jerome Powell said the new variant poses downside risks to employment and growth while adding to uncertainty about inflation. Those growth risks are evident as governments around the world continue to tighten travel restrictions.

Powell and Yellen to testify... The Senate Banking Committee today will hear from Powell and Treasury Secretary Janet Yellen in the first of two days of congressional oversight hearings. Powell will likely be asked to respond to comments in the prepared testimony on the risks posed by the Omicron variant. Some economists feel the Fed could dial back the recently announced tapering of its bond-buying program if Omicron surges in the United States. Yellen will likely emphasize the need to address the debt ceiling, which she has said has a Dec. 15 deadline, while others have a longer timeframe.

Consultant lowers Brazilian corn crop peg... Dry conditions in the far southern state of Rio Grande do Sul and extended forecasts calling for below-normal precip in southern Brazil caused Crop Consultant Dr. Michael Cordonnier to cut his Brazilian corn crop estimate by 1 MMT to 117 MMT. He has a neutral to lower bias toward the crop. Cordonnier left his Brazilian soybean crop estimate at 144 MMT. He also left his Argentine crop pegs at 50 MMT for soybeans and 53 MMT for corn.

Brazil keeps diesel blend at 10% through 2022... Brazil’s National Energy Policy Council (CNPE) decided on Monday to maintain a 10% biodiesel blend in diesel for 2022, citing “the interests of the consumer in terms of price, quality and supply of products.” Earlier this year, Brazil cut its biodiesel blend rate from 13%. Brazil’s soy industry was hoping the rate would be returned to that level and have advocated for a gradual increase to 15% in 2023. “The federal government's decision destroys the national biodiesel program imposing a maximum blending of 10% (B10) in 2022 and gives a signal contrary to the commitments established at COP26”, according to a joint statement from the Brazilian Association of Vegetable Oil Industries (Abiove), the Association of Biofuel Producers in Brazil (Aprobio) and the Brazilian Union of Biodiesel and Biokerosene (Ubrabio).

U.S. winter wheat crop will go into dormancy with below-average CCI ratings... When USDA’s final crop condition ratings of the fall are plugged into the weighted Pro Farmer Crop Condition Index (0 to 500-point scale, with 500 being perfect), the HRW crop dropped 5.2 points to 324.4 and the SRW crop improved 5.5 points to 361.3. The HRW rating is the lowest of the fall and 7.8 points below the five-year-average. The SRW rating is 3.9 points below the initial level and 13.5 points under the five-year average. Click here for details.

Euro zone inflation surges to record-high... Consumer inflation surged to 4.9% versus year-ago in November, up from 4.1% the previous month and by far the highest level in the 25 years the data has been compiled. Economists expected consumer prices to rise 4.5%. Energy prices were up 27% compared with a year earlier. Inflation excluding volatile food and fuel prices and a narrower measure that also excludes alcohol and tobacco products, both rose to 2.6%, well ahead of expectations for 2.3%. Although inflation is now greatly above the European Central Bank's 2% target, economists say it is unlikely to trigger any policy action, as it has long argued inflation will be temporary.

China’s factory sector unexpectedly expands in November... China’s official manufacturing purchasing managers index (PMI) rose to 50.1 in November from 49.2 in October. This marked the first expansion in China’s manufacturing sector since August amid an easing of power shortages and a sharp drop in the price of some raw materials. The subindex for production rose to 52.0 in November from 48.4 in October while new orders fell at a slower pace, although November marked the fourth straight month of declines in customer demand. Analysts warn there could be new restrictions on manufacturing in northern China due to the upcoming Beijing Winter Olympics and the new Omicron strain of Covid.

China: Olympic Games will proceed as planned... China expects to hold the 2022 Winter Olympics, despite challenges posed by the emergence of the new Omicron variant of Covid. “I believe it [Omicrop] will definitely pose some challenge to our efforts to prevent and control the virus, but as China has experience in preventing and controlling the coronavirus, I fully believe that China will be able to host the Winter Olympics as scheduled, smoothly and successfully,” foreign ministry spokesperson Zhao Lijian said. Beijing is set to host the Games from Feb. 4-20, without foreign spectators and with all athletes and related personnel contained in a “closed-loop” and subject to daily Covid testing.

Signs of short-term top in cattle... Live cattle futures faced heavy corrective selling on Monday after posting new contract highs earlier in the day. That’s a sign the market may have run out of steam for now. There is also some talk the cash cattle market may pause after an aggressive rally that saw packers buy a lot of cattle during November. Some of last week’s purchases were for delayed delivery and packers have access to fresh contracted supplies for December.

Another sharp drop in cash hog index... The CME lean hog index is down another $1.03 to $70.60. The cash index reached a seasonal low of $59.86 on Dec. 29 last year, though the drop from the summer high was around $19 versus this year’s $52-plus (and mounting) price plunge. December lean hog futures finished Monday $1.80 above today’s cash index quote.

Overnight demand news... Japan is seeking to buy 51,773 MT of U.S. wheat in its weekly tender.

Today’s reports

 

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