Good morning!
Heavy price pressure after extended weekend... Grain and soy complex futures are under pressure coming out of the holiday weekend, led lower by sharp losses in soyoil. As of 6:30 a.m. CT, corn futures are trading 15 to 22 cents lower, soybeans are 19 to 24 cents lower and wheat futures are 9 to 13 cents lower. Front-month U.S. crude oil futures are around $1.50 higher and the U.S. dollar index is more than 400 points lower this morning.
WSJ survey: Recession probability soars as inflation worsens... Economists surveyed by the Wall Street Journal (WSJ) put the probability of the economy being in recession sometime in the next 12 months at 44%, up from 28% in April and 18% in January. WSJ notes: “Since the Journal began asking the question in mid-2005, a 44% recession probability is seldom seen outside of an actual recession. In December 2007, the month that the 2007-to-2009 recession began, economists assigned a 38% probability. In February 2020, when the last recession began, they assigned a 26% probability.” The latest survey’s results showed a marked increase in economists’ forecast for inflation, which they see ending the year at 7%, up from 5.5% in the April survey. On average, economists forecast unemployment will rise from 3.6% in May to an average of 3.7% at the end of 2022 and 4.2% at the end of 2023. On average, they see inflation-adjusted GDP rising 1.3% in the fourth quarter of this year, down from 2.6% in the April survey.
Fed official: Risk of recession rising... Federal Reserve Bank of Cleveland President Loretta Mester said the risk of a recession in the U.S. economy is increasing, and that it will take several years to return to the central bank’s 2% inflation goal. Treasury Secretary Janet Yellen said Sunday that “unacceptably high” prices are likely to stick with consumers through 2022 and that she expects the U.S. economy to slow down, “But I don’t think a recession is at all inevitable.” Meanwhile, an economic model maintained by Federal Reserve Bank of New York economists suggests the chance of achieving a “soft landing” for the U.S. economy is just 10%. “According to the model, the probability of a soft landing — defined as four-quarter GDP growth staying positive over the next ten quarters — is only about 10%,” the economists wrote in a blog post published Friday on the bank’s website. “Conversely, the chances of a hard landing — defined to include at least one quarter in the next ten in which four-quarter GDP growth dips below -1%, as occurred during the 1990 recession — are about 80%.” In the blog post, the New York Fed economists noted the “model forecast is not an official New York Fed forecast, but only an input to the Research staff’s overall forecasting process.”
Washington Post: Americans are starting to pull back on travel and restaurants... In a worrisome sign for the economy, U.S. consumers are beginning to rethink their spending on services. A WaPo article says more Americans are beginning to hold off on booking flights, getting haircuts, building backyard pools and replacing old, leaky roofs — in some of the new signs the consumer engine of U.S. economic growth could be losing steam.
Biden: Decision on gas tax holiday may come this week... The Biden administration is increasingly searching for ways to spare the public from higher prices at the pump, which began to climb last year and surged after Russia invaded Ukraine in February. President Joe Biden said Monday he will decide by the end of the week whether he would support a federal gasoline tax holiday, possibly saving U.S. consumers as much as 18.4 cents a gallon. Gas prices nationwide are averaging just under $5 a gallon, according to AAA. Taxes on gasoline and diesel fuel help to pay for highways. But Yellen on Monday noted “consumers are really hurting from higher gas prices” and remained open to a gas tax holiday. Meanwhile, White House officials exploring sending Americans rebate cards to offset gas costs ran into another problem — the chips shortage, which meant the U.S. couldn’t physically produce enough cards to make the plan work even if lawmakers tried to do it, per sources.
China’s May corn imports from Ukraine plunged... China imported only 126,727 MT of corn from Ukraine in May, down sharply from 695,585 MT in April and 1.26 MMT last year. China imported 1.9 MMT of corn from the U.S. in May, virtually the same amount as last year. In the first five months of this year, China imported 6.4 MMT of corn from the U.S., down from 6.7 MMT during the same period last year. China’s corn imports in May from all origins fell 34.1% from a year ago, while shipments in January-May were down 2.9%.
Indonesia issues more palm oil export permits... Indonesia had issued permits to export 867,682 MT of palm oil products under its Domestic Market Obligation (DMO) program as of Monday. Separately, the government issued export permits for 535,998 MT of palm oil products under the export acceleration program where a quota of 1.16 MMT was allocated. Meanwhile, Indonesia set its July crude palm oil reference price at $1,615.83 per MT, down from the current $1,700.12 per MT. The July reference price would place the export levy and export tax at a maximum $200 per MT and $288 per MT, respectively.
The week ahead in Washington... Lawmakers are stepping up action this holiday-shortened week ahead of their next extended break for the July Fourth recess. House focus is on appropriations bills while the Senate Ag panel will vote on and likely pass two cattle-related measures. The House Ag Committee will hold another farm bill-related hearing, this one on dairy programs. Meanwhile, Fed Chairman Jerome Powell appears twice this week before congressional panels. Behind-the-scenes work continues on a possible new reconciliation measure that aims to fight inflation, rein in the deficit and revive parts of President Joe Biden’s stalled economic agenda.
China’s pork imports plunged in May... China imported 130,000 MT of pork during May, down 10,000 MT (7.1%) from April and 65.7% less than last year. Through the first five months of this year, China’s pork imports at 680,000 MT fell 65.2% compared with the same period last year.
Firmer cash cattle expectations... After last week’s strong gains in cash cattle prices, traders expect a firmer tone again this week. The supply of market-ready cattle was already tight and recent heat-related death losses further trims the immediate supply of cattle. Despite those bullish factors, nearby live cattle futures continue to trade at discounts to the cash market.
July hogs back above cash index... Strong gains last Friday pushed the lead contract above the cash index, which is a little weaker today. August hogs continue to hold a mild discount to the cash index. It’s unlikely traders will put too much weather premium into July hogs as they remain rather cautious.
Weekend demand news... Saudi Arabia purchased 300,000 MT of wheat from unspecified origins. Algeria tendered to buy a nominal 50,000 MT of optional origin milling wheat. Japan is seeking 168,330 MT of wheat in its weekly tender. Bangladesh tendered to buy 50,000 MT of optional origin milling wheat. Tunisia tendered to buy 75,000 MT of soft wheat and 50,000 MT of feed barley – both optional origin, excluding the Black Sea region.
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
- 10:00 a.m. Fruit and Tree Nuts Data — ERS
- 10:00 a.m. Vegetables and Pulses Data — ERS
- 2:00 p.m. Milk Production — NASS
- 3:00 p.m. Crop Progress — NASS