Good morning!
Modest corrective buying overnight... Corn and soybeans firmed amid mild corrective buying during a lightly traded overnight session. Wheat traded mostly firmer. As of 6:30 a.m. CT, corn futures are trading 1 to 2 cents higher, soybeans are 1 to 3 cents higher, SRW wheat futures are 1 to 2 cents lower, while HRW and HRS wheat are both 4 to 6 cents higher. Front-month crude oil futures are around $1 higher and the U.S. dollar index is about 675 points lower.
Consultant again lowers Argentine soybean crop forecast... South American crop consultant Dr. Michael Cordonnier cut his Argentine soybean crop estimate for a fourth consecutive week, this time by 2 MMT to 45 MMT, amid “problematic” weather. Cordonnier kept his Argentine corn crop estimate at 47 MMT after a “temporary reprieve” from weekend rains and lower temps. He has a neutral to lower bias for both crops. Cordonnier kept his Brazilian crop estimates at 151 MMT for soybeans and 125.5 MMT for corn but noted “developing dryness in southern Brazil is becoming a concern.”
Text of omnibus spending package released... Text of the $1.7 trillion omnibus spending package was released early Tuesday morning. The Senate will vote first and intends to pass the measure before Thursday, leaving the House no time to demand changes before the Christmas holiday. Some ag-related provisions in the measure include: $40.6 billion for drought, hurricanes, flooding, wildfire, natural disasters and other matters — $3.7 billion in disaster aid for farmers to cover 2022 crop and livestock losses; $250 million in aid to rice producers and $100 million to cotton merchandisers to make up for losses related to the pandemic or supply chain disruptions. USDA previously provided $80 million in aid to textile mills and other cotton users. For rice, USDA would determine payment rates based on yield history and acreage; $1.92 billion for farm programs, which is $55 million above the fiscal year 2022 enacted level. This includes $61 million to resolve ownership and succession of farmland issues, also known as heirs’ property issues. This funding will continue support for various farm, conservation, and emergency loan programs, and help American farmers and ranchers. It will also meet estimates of demand for farm loan programs; Funds two programs that provide foreign food aid. These include the Food for Peace Program (PL 480), which is funded at $1.8 billion, and the McGovern-Dole International Food for Education Program, which is funded at $248 million, for an increase of $11 million over fiscal year 2022. Some carbon-market-related provisions were included. We’ll have more in Evening Report. Click here for more details of the measure.
Some ag sector items not in the omnibus spending package... There was nothing for the proposed farmworker labor reforms from Sen. Michael Bennet (D-Colo.) and others; Also left out: Legislation to reform cattle markets or appoint a special investigator at USDA to investigate possible anti-competitive behavior in the meatpacking sector. A slate of expired and expiring tax provisions is not included in the omnibus spending package after lawmakers failed to come to an agreement on expanding the child tax credit and some key business tax breaks. Tax breaks favored by industry, including one for research and development, and more favorable tax rules for interest expenses and capital expenditures, were not included. Another 28 temporary tax benefits that have already expired or will at year end, known as extenders, also failed to make the legislation.
China scrambling amid Covid surge... China is scrambling to strengthen its healthcare system as Covid-19 spreads through the country. Officials in several cities are building “fever clinics” at hospitals to treat patients. Five Covid-related deaths were reported on Tuesday, but the true figure is likely to be far higher. State media said the country should return to “normalcy” within a few months.
Bernstein: Fed policy aligns with Biden’s push for ‘steady, stable growth’... In an interview for CNBC’s Squawk Box, Jared Bernstein, a member of the White House Council of Economic Advisers, was asked about the impact of the Fed’s policies on the job market. Bernstein said, “We know history is just absolutely littered with economies that have been brought to their knees by compromising the independence of the central bank. I do think that the model that the Fed is kind of following ... slower GDP growth — that’s the transition to steady, stable growth that President Biden talked about months ago — that leads into slower job growth, which we’ve seen. We did have a strong 260,000 job gain in November, but that was hundreds of thousands below the previous November. ... I think if you look along that trajectory, you can see the data flow supportive of that transitional model.”
BOJ surprisingly adjusts bond yield cap... The Bank of Japan (BOJ) shocked markets on Tuesday with an unexpected adjustment to its bond-yield controls by allowing long-term interest rates to rise further, a move that seeks to alleviate some of the costs of prolonged monetary stimulus. Explaining that this is an attempt to breathe life into the bond market, BOJ decided to allow the 10-year bond yield to move within a 0.50 percentage point band both above and below the target of 0%, against the previous range of 0.25 points. But the central bank stuck to its yield target and said it would sharply increase bond buying, a sign that the move was a fine-tuning of the current ultra-loose monetary policy rather than the withdrawal of stimulus. BOJ Chair Haruhiko Kuroda said the move seeks to eliminate distortions in the shape of the yield curve and ensure the benefits of the its stimulus program are targeted at markets and companies.
China keeps benchmark rates unchanged... The People’s Bank of China (PBOC) kept its loan prime rates (LPRs), the benchmark lending rates, unchanged for the fourth consecutive month. The one-year LPR was kept at 3.65%, while the five-year LPR was unchanged at 4.30%.
World Bank cuts China’s growth outlook... The World Bank has cut its China growth outlook for this year and next, citing impacts of the loosening of strict Covid-19 policy and persistent property sector weakness. World Bank expects China’s economy to grow 2.7% in 2022, before recovering to 4.3% in 2023 as it reopens following the worst of the pandemic. In September, it forecast China’s growth at 2.8% this year and 4.5% next year. “China’s growth outlook is subject to significant risks, stemming from the uncertain trajectory of the pandemic, of how policies evolve in response to the Covid-19 situation, and the behavioral responses of households and businesses,” the bank said in its report. “Persistent stress in the real estate sector could have wider macroeconomic and financial spillovers.” China also faces highly uncertain global growth prospects and heightened geopolitical tensions.
USDA aid payments move slightly higher... Payments under the Emergency Relief Program (ERP) rose to $7.25 billion as of Dec. 18, up from $7.22 billion the prior week. While payments for specialty crops remained largely the same at $1.06 billion, payments for non-specialty crops increased to $6.19 billion from $6.17 billion the prior week. Total payments under the Coronavirus Food Assistance Program 2 (CFAP 2) were at $19.16 billion as of Dec. 18 with original CFAP 2 payments edging up to $14.33 billion ($14.32 billion prior). CFAP 1 payouts were largely unchanged.
Gas prices continue to drop... The national average price for regular gasoline dropped to $3.12 a gallon today, according to AAA. Gas prices haven’t been this low since July 2021. After moving steadily higher last year, pump prices spiked early in 2022 following Russia’s Feb. 24 invasion of Ukraine, and the national average topped out at a record of $5.02 a gallon in June. But prices have since cooled off and the decline has accelerated in recent weeks. Twenty-one states now have averages below $3 a gallon.
Packers continue to reduce cattle slaughters... Packers slaughtered an estimated 629,000 head of cattle last week and the figures will be lower this week and next as plants take extended downtime around Christmas and New Year’s Day. Packers will attempt to boost cutting margins around the holiday-shortened schedules, though cash prices are likely to hold around steady with last week’s $155.69 average since feedlots are well positioned to not have to move a lot of cattle if prices drop much.
Cash hog fundamentals weaken... The national direct cash hog price dropped 79 cents on Monday, with the Iowa/Minnesota market down $1.98. The CME lean hog index is down 71 cents to $80.84 (as of Dec. 16), the lowest level since Jan. 27, signaling the cash market has not yet put in a seasonal low. February lean hog futures ended Monday at a $4.86 premium to today’s cash index quote, which likely limits the upside in front-month futures until traders sense a seasonal low.
Overnight demand news... Taiwan tendered to buy 56,000 MT of U.S. milling wheat. Japan is seeking 144,441 MT of milling wheat in its weekly tender.
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
- 2:00 p.m. Coffee: World Markets and Trade — FAS
- 2:00 p.m. Dairy: World Markets and Trade — FAS
- 2:00 p.m. Chickens and Eggs — NASS