Good morning!
Grains weaker to open the week... Corn, soybeans and wheat traded lower overnight, pressured by generally favorable weather and strong risk aversion. As of 6:30 a.m. CT, corn futures are trading 4 to 5 cents lower, soybeans are mostly 5 to 6 cents lower and wheat futures are 8 to 13 cents lower. The U.S. dollar index is down more than 550 points and front-month crude oil futures are around $1.40 lower.
Global risk aversion builds... An unwinding of global carry trades is turning into a rout that’s jolting markets around the world to open the week. The yen and yuan pushed higher Monday, while the U.S. dollar fell. The moves came as a selloff in risk assets intensified with global stock markets pummeled by concerns about the U.S. economy as the Federal Reserve is now seen as behind the curve on cutting interest rates. The VIX, Wall Street’s fear gauge, hit 37 early today. If it holds, that will be the VIX’s highest closing level since October 2020.
Rains favor northern and eastern Corn Belt... Numerous rain chances and cooler temps will be seen across the northern and eastern Corn Belt over the next 10 days. Southern areas of the Corn Belt, the southwestern Plains and Delta will see net drying, though cooler temps later this week may limit crop stress. Hurricane Debby made landfall this morning and will bring heavy rains to portions of the Southeast early this week.
July heatwave could shave 6 MMT of Ukraine’s corn crop... A record heatwave in July across most of Ukraine may reduce corn production by about 6 MMT from last year’s level, producer group Ukrainian Agrarian Council (UAC) warned. UAC gave no official production estimate but the warning of potential production loss would be about in line with last week’s forecast from the Ukrainian grain traders union UGA, which expected production of 23.4 MMT compared with 29.6 MMT in 2023. Denys Marchuk, deputy head of the UAC, said the corn yield in many regions may fall by about 30% due to the unfavorable weather.
CBO releases estimate of House Ag farm bill... The Congressional Budget Office (CBO) as expected late Friday released an official House farm bill cost estimate indicating the House Agriculture Committee’s farm bill would increase the federal budget deficit by $33 billion over the next decade. The primary driver of this increase is the cost of several commodity program provisions, which are expected to rise significantly due to higher reference prices in the Price Loss Coverage (PLC) program and other enhancements. A contentious provision in the bill aims to suspend USDA’s use of Section 5 under its Commodity Credit Corporation (CCC) spending authority. However, CBO estimates potential savings from suspending this authority to be between zero and $8 billion, far short of the needed amount. House Agriculture Committee Chair Glenn “GT” Thompson (R-Pa.) expressed dissatisfaction with the CBO’s scoring, particularly regarding the savings from suspending Section 5 of the CCC Charter Act. Thompson believes the CBO’s methodology underestimates the potential savings and has criticized the CBO for what he sees as a history of underestimating CCC outlays. Thompson has indicated a willingness to work with CBO and the Budget Committee to clarify the interpretation of the CCC provision and address the funding gap. However, the top Democrat on the House Ag Committee, David Scott (D-Ga.), and Senate Ag Chairwoman Debbie Stabenow (D-Mich.) have called for abandoning the current version of the bill due to its budgetary implications.
The week ahead in Washington... Kamala Harris is expected to announce her choice for a running mate on Tuesday in Philadelphia. The House and Senate are on their August summer recess. Several Fed speakers will be in focus this week after last Friday’s jobs data tipped the scales in favor of a 50-point cut to interest rates in September. Ag trade data for June will be released on Tuesday, which is likely to show a continued building of the deficit between exports and imports.
PBOC asks banks to report daily long-term treasury holdings... The People’s Bank of China (PBOC) asked some financial institutions to report daily changes in their long-term treasury bond positions and balances, four people familiar with the matter told Reuters. PBOC didn’t clarify why it requested the daily report, though the bond market rally hit unprecedented levels.
China’s Evergrande EV units to enter bankruptcy... The electric vehicle arm of embattled property developer China Evergrande Group said Monday that two subsidiaries have started bankruptcy procedures. Any such bankruptcy and reorganization could impact ongoing talks between liquidators of the parent company.
Euro zone PMI declines less than previously indicated in July... HCOB’s composite purchasing managers index compiled by S&P Global fell to 50.2 in July from June’s 50.9 reading. This was the weakest reading since February. A significant contraction in factory output and a subdued growth in services activity led to a loss of momentum in expansion. Meanwhile, euro zone producer prices fell 3.2% from year-ago in June, the 14th straight month of annual producer deflation.
Risk of more selling in cattle futures... Cattle futures faced heavy pressure from long liquidation late last week. With economic concerns building, there’s risk of the selloff extending, despite futures being well below the cash market. Cash fundamentals are often ignored when macroeconomic concerns build.
Cash hog index extends rally... The CME lean hog index is up another 11 cents to $93.64 as of Aug. 1, extending the string of gains to 15 consecutive days. August lean hog futures, which expire Aug. 14 and are settled against the index two days later, finished Friday at a $1.44 discount to today’s quote. The pork cutout fell $1.55 on Friday amid pressure on all cuts.
Weekend demand news... Indonesia purchased 320,000 MT of rice – 185,000 MT from Vietnam and 135,000 MT from Myanmar. Jordan tendered to buy 120,000 MT of optional origin milling wheat.
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
· 10:00 a.m. Export Inspections — AMS
· 2:00 p.m. Dairy Products — NASS
· 3:00 p.m. Crop Progress — NASS