Good morning!
Modest corrective gains in grains overnight... Corn, soybeans and wheat regained a portion of Tuesday’s losses during overnight trade. As of 6:30 a.m. CT, corn futures are trading mostly 2 cents higher, soybeans are 7 to 8 cents higher, SRW wheat is 8 to 9 cents higher, HRW wheat is 1 to 3 cents higher and HRS wheat is 4 to 7 cents higher. Front-month crude oil futures are anchored near unchanged, while the U.S. dollar index is nearly 100 points lower.
Russia attacks grain storage at another Ukraine Danube port... Russian drone strikes damaged grain silos and warehouses at the Ukrainian river port of Reni on the Danube. While the attacks damaged grain storage, an industry source told Reuters the port continued to operate. There were also reports of Russian drone attacks on the Ukrainian port of Izmail on the Danube. Meanwhile, a Hong Kong-flagged ship trapped at the Odesa port since the Russian invasion, left via the “humanitarian corridor” Ukraine’s Navy announced last week.
U.S. in talks to develop alternative routes for Ukrainian grain... The U.S. is engaged in discussions with Turkey, Ukraine and neighboring countries to develop alternative export routes for Ukrainian grain, the Wall Street Journal (WSJ) reports. The U.S.-supported plan aims to enhance Ukraine’s capacity to export 4 MMT of grain monthly through the Danube River by October. This route would involve sending much of the grain via the Danube and Black Sea to nearby Romanian ports, from where it would be shipped to other destinations. While this approach is slower and more costly, it serves as an alternative to the Black Sea shipping corridor. The U.S. is considering various options, the WSJ article detailed, including military measures, to safeguard ships traveling to and from Ukraine’s Danube ports. However, the specifics of these options and the countries involved have not been disclosed.
China’s economic woes mount... The collapse of China’s real estate bubble is causing concern among investors due to fears of financial contagion. One of China’s major developers, Country Garden, is approaching default. Adding to the gloom, China’s new home prices fell in July for the first time this year, dropping 0.2% on a monthly basis and 0.1% annually. Zhongrong International Trust Co., a major Chinese shadow bank partially owned by Zhongzhi Enterprise Group Co., is facing deeper troubles than previously thought, according to reports. The company has missed payments on dozens of products and is experiencing liquidity challenges, indicating a potentially wider crisis in China’s financial sector. The broader concern is that stress in the property sector could trigger strains in the financial system, impacting credit expansion and economic growth. Bloomberg Economics noted the trust sector’s exposure to real estate is substantial, and Zhongrong’s issues could contribute to a negative feedback loop affecting multiple sectors of the economy. Of note: Fitch may reconsider lowering China’s A+ rating if bank and corporate debt become “real liabilities for the government.”
Firms cut China’s economic growth forecasts... JPMorgan Chase lowered its 2023 economic growth forecast for China to 4.8%, down from the 6.4% call in May, after the slew of disappointing data this week. Barclays cut its China GDP growth estimate for this year to 4.5% from 4.9%, also citing weak data and lack of supportive measures. China is aiming for GDP growth of around 5% in 2023, but that now seems optimistic given the broadening economic struggles.
Yield gap between China and U.S. widens to highest since 2007... The yield differential between the China and U.S. benchmark 10-year government bonds widened to the highest since February 2007 on Wednesday, as investors speculated China’s central bank would ease monetary policy further after a surprise rate cut on Tuesday, even if it puts the yuan under pressure. China is loosening monetary policy in an attempt to save its foundering economy, while the U.S. and most other major central banks are tightening policy to combat high inflation. Foreign holdings in China’s onshore yuan bonds declined in July due to the interest rate differential between China and the U.S. and investors’ disappointment that Beijing has not delivered enough economic stimulus.
China warns floods could aggravate crop diseases, infestation in northeast... China called for more measures to protect its crops after warning recent floods in its northeast grain belt could worsen diseases and infestations. So far, diseases and pest infestations were “relatively light” with no significant impact on grain production, the ag ministry said. But it warned the flooding “may exacerbate the prevalence” of diseases and pest infestations that impact crops.
UK headline inflation falls to 29-month low, but core prices remain sticky... The British annual consumer price inflation rate cooled to 6.8% in July from June’s 7.9% amid falling energy prices. But core inflation, which excludes energy and food prices, was unchanged at 6.9%. The latest UK inflation numbers reinforced bets the Bank of England will likely hike interest rates again.
Indonesia launches WTO dispute over EU duties on biodiesel imports... Indonesia has requested World Trade Organization (WTO) dispute consultations with the European Union regarding the bloc’s duties on its imports of biodiesel. Indonesia argues the EU countervailing duties and the investigation that led to their imposition are inconsistent with WTO provisions. The EU has imposed countervailing duties of between 8% and 18% for Indonesian biodiesel since 2019.
Higher Chinese hog prices expected in H2... Chinese pork processing giant WH Group Ltd expects hog prices in China to rise 10% to 20% in the second half of 2023 from the first six months, supported by stronger demand and smaller supply glut. The head of WH Group forecast the median hog price to reach about 16 yuan ($2.20) per kilogram (kg) in the second half of this year, up from an average of 15.12 yuan in the first-half, but the average 2023 price would still be significantly lower than 2022. WH Group executives also said the recent heavy rains and flooding in northern China did not affect its production.
Cattle futures remain well below cash market... Nearby live cattle futures extended their discounts to the cash market on Tuesday, despite expectations cash cattle prices won’t drop much if any this week and the tight market-ready supply situation. Traders have shown no willingness to actively narrow the discount even amid the outlook for supplies to tighten even further versus year-ago into 2024.
Hog futures continue to roll over... Hog futures faced pressure on Tuesday, despite the big discounts fall- and winter-month contracts already held to the cash index. The recent heavy selling suggests traders expect a bigger-than-normal seasonal decline in cash hog prices through winter.
Overnight 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
- 9:30 a.m. Weekly Ethanol Production — EIA
- 11:00 a.m. Feed Grains: Yearbook Tables — ERS
- 2:00 p.m. Broiler Hatchery — NASS