Good morning!
Wheat continues to surge... May contracts for all three wheat markets topped $11 overnight, though HRS futures have since retreated below that level. As of 6:30 a.m. CT, May SRW wheat is 68 cents higher, May HRW wheat is 43 cents higher, May HRS wheat is 19 cents higher, corn is 2 to 6 cents higher and soybeans are mostly 7 to 11 cents higher. Front-month U.S. crude oil futures are around $2.50 higher after earlier rising nearly $6.00. The U.S. dollar index is around 150 points higher this morning.
Russia/Ukraine update... Russian and Ukrainian negotiators meet in Belarus today for peace talks as the war enters its second week. Ukrainian officials said 2,000 civilians have died in the Russian invasion, as Moscow bombarded residential areas. Russian authorities denied targeting non-combatants. The capture of the port of Kherson, a city of some 300,000 people, marked the expanding reach of Russian forces across the south. It is the home to a port on both the Black Sea and Dnieper river. Kherson’s mayor said the city would now be in the hands of a Russian military administration. Russian forces in the south are attempting to shut off Ukraine’s access to the Black Sea. Mariupol in the east is still surrounded, while an amphibious assault on Odessa could come as soon as today, according to U.S. officials. The front line in Kharkiv, Ukraine’s second-largest city some 30 miles from the border, has held. Russian troops are trying to make their way to the capital, Kyiv, seeking to oust Ukraine’s elected government. More than 1 million people have fled Ukraine following Russia’s invasion, in the swiftest refugee exodus this century, the United Nations said.
Long-term war anticipated... U.S. officials think it could take an invading Russian military four to six weeks to achieve a “tactical seizure” of Ukraine. That includes one week to surround the capital city of Kyiv, and another 30 days of violence and threats before it falls, according to CBS News. U.S. lawmakers were given those estimates at a briefing earlier in Washington. More broadly, Western officials are expecting something more like a 10-year battle for the entire country, with most Ukrainians spending nearly all of that time in insurgency mode. “Given the durability of the Ukrainian resistance and its long history of pushing Russia back, the U.S. and Western powers do not believe that this will be a short war,” CBS reported. Indeed, “Lawmakers at the Capitol were told Monday it is likely to last 10, 15 or 20 years — and that ultimately, Russia will lose.”
Crude oil tops $116... U.S. crude prices surged over $116 overnight for the first time since 2008, as refiners balked at buying Russian oil, reducing the global energy supply. An estimated two million barrels per day of Russian oil exports — and possibly more soon — are not finding any buyers, despite Western sanctions not directly targeting Russia’s oil and gas exports. Since Russia’s invasion of Ukraine, investors are worried that a prolonged elevation in oil prices could precede a combination of slowing growth and higher inflation, known as stagflation.
It may not be as easy to increase U.S. oil production as many think... Like many industries during the pandemic, oil producers are struggling with a shortage of workers. They’re also having trouble sourcing some of the equipment they would need to ramp up production, including pipes and specialized sand used in fracking to extract shale oil. Another reason: Investors seem to be reluctant to invest in fossil fuel stocks as major U.S. oil stocks have lagged the broader market for most of the last two years. Even if someone starts drilling oil wells today, the increased supply might be six months, 12 months, even years away. U.S. oil production is just under 12 million barrels a day, 8% lower than in 2019.
Euro zone producer prices surge... The euro zone producer price index jumped 30.6% versus year-ago in January after rising 26.3% in December. The huge increase was mainly a result of an 11.6% monthly and 85.6% annual increase in oil and gas prices. Euro zone factory gate and consumer inflation are both record-high, increasing odds the European Central Bank will need to raise interest rates.
More supply chain strains in China... The isolation of Russia from the international order will cause increased supply chain problems for an already strained China. Foreign Policy reports that shipping delays and port problems due to the pandemic had shifted a surprising amount of trade to land routes through Russia, a heavy part of the Belt and Road Initiative. With those routes now off the table, that trade will return to the ports and add to an overburdened system. Meanwhile, China is increasing its commitments to purchasing wheat and energy from Russia, indicating a willingness to aid the Russian economy and a disdain for Western-led sanctions. Sinosure, the state insurance company for foreign trade, has received inquiries about how firms will be affected.
Weekly Export Sales Report out this morning… For the week ended Feb. 24, traders expect:
| 2021-22 expectations (in MT) | 2021-22 last week | 2022-23 expectations (in MT) | 2022-23 last week |
Corn | 600,000-1,200,000 | 1,040,946 | 0-400,000 | 117,376 |
Wheat | 200,000-650,000 | 516,926 | 50,000-275,000 | 169,218 |
Soybeans | 600,000-1,050,000 | 1,232,513 | 600,000-1,300,000 | 866,500 |
Soymeal | 100,000-250,000 | 231,854 | 0-150,000 | 0 |
Soyoil | 5,000-30,000 | 35,470 | 0-30,000 | 0 |
Univ. of Illinois economist thinks CRP should be tapped for more plantings... The Biden administration may have to open the Conservation Reserve Program (CRP) to cropping this year because of grain shortages that could result from the Russian invasion of Ukraine. “I am convinced it is going to be the biggest supply shock to global grain markets in my lifetime,” University of Illinois economist Scott Irwin says in tweets. He believes the world “desperately needs additional acres for grain production in 2022… The only policy lever that I can think of in the hands of the U.S. gov’t is to open up the Conservation Reserve Program for cropping on a one-year emergency basis.” U.S. government and congressional sources give the suggestion low odds of being acted on, especially at this juncture. Said one observer, “Let market prices determine plantings rather than thinking the government can fix everything.”
India to import less palm oil, China slightly more... India’s palm oil imports in 2021-22 are forecast at 7.6 MMT, down from 8.9 MMT in 2020-21, according to the head of the Indian Vegetable Oil Producers’ Association, as tight supplies and record prices slow use. China’s palm oil imports this year are expected to total 6.7 MMT, up from 6.6 MMT in the previous year, according to the chief representative for the Malaysian Palm Oil Council in China.
Day two of Powell’s testimony... In over three hours of testimony yesterday, Fed Chair Jerome Powell was peppered with questions about prices from lawmakers with constituents worried by the rising cost of living. Powell suggested that if inflation doesn’t start to ease, the central bank may have to get tough. “I am inclined to propose and support a 25 basis-point rate hike” later this month, Powell told the House Financial Services Committee. “To the extent that inflation comes in higher or is more persistently high than that, then we would be prepared to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings.” As for the Russian invasion of Ukraine, Powell told lawmakers: “We will proceed carefully as we learn more about the implications of the Ukraine war on the economy.” Powell will appear before the Senate Banking Committee at 9 a.m. CT today.
Light cash cattle sales at lower prices... Cash sources reported light cash cattle trade at $140 to $141 in the Southern Plains and $225 in the northern market on Wednesday. Those prices would be down $2 to $3 from last week. Some feedlots sold amid continued selling in front-month cattle futures, though most are still holding out for steady or firmer prices.
April hogs still hold big premium to cash index... April hogs finished Wednesday at a $6.46 premium to today’s CME lean hog index quote (as of March 1). That reflects traders’ expectations the cash index will continue to rise. Historically, it’s common for hog prices to reach an intermediate peak in mid-February, then trade mostly sideways to lower into early April.
Overnight demand news... Taiwan purchased 130,000 MT of U.S. and/or Argentine corn. South Korea purchased 207,000 MT of optional origin corn but rejected offers for 65,000 MT of feed wheat. Jordan tendered to buy 120,000 MT of milling wheat after passing on a similar tender on Wednesday.
Today’s reports
- 7:30 a.m. Weekly Export Sales — FAS
- 2:00 p.m. CE: All Rice — NASS
- 2:00 p.m. U.S. and Canadian Cattle and Sheep — NASS
- 2:00 p.m. U.S. and Canadian Hogs — NASS