Good morning!
Mostly firmer tone this morning... Soybean and wheat futures continued to recoup sharp losses from earlier this week during overnight trade, while buyer interest was limited in corn. As of 6:30 a.m. CT, corn futures are trading fractionally to 2 cents lower, soybeans are mostly 3 to 5 cents higher and wheat futures are steady to 3 cents higher. Front-month crude oil futures are modestly weaker and the U.S. dollar index is around 250 points lower this morning.
U.S. seeks backing for China sanctions if it provides weapons to Russia... U.S. officials are preparing a sanctions push with allies against Beijing if China supplies lethal weapons to Russia. President Joe Biden meets Germany’s Olaf Scholz today at the White House with the challenge of how to maintain weapons supplies to Ukraine and relations with China high on the agenda. China joined Russia in refusing to agree to a G20 statement condemning the conflict. Meanwhile, Politico reports European Commission President Ursula von der Leyen is crossing the Atlantic next week to meet Biden and Canadian Prime Minister Justin Trudeau to discuss topics such as critical raw materials to Biden’s Inflation Reduction Act and the specter of Chinese arms supplies to Russia. Meanwhile, The U.S. today will announce a new military aid package for Ukraine, worth roughly $400 million and comprised mainly of ammunition.
FAO food price index drops again in February... The UN Food and Agriculture Organization (FAO) global food price index dropped for the 11th straight month in February and was 18.7% below the March 2022 peak. The February decline was driven by a significant drop in the price of vegoils and dairy, along with small reductions in cereal grains and meat, which more than offset a steep rise in the price of sugar. Compared to year-ago, prices were up 1.4% for cereal grains and 13.1% for sugar, while they declined 1.7% for meat, 7.2% for dairy and 32.6% for vegoils.
Heatwave could trim India’s wheat crop... A heatwave in northern and central India at a time the crop is ripening is threatening the country’s wheat production for the second straight year. India last month estimated wheat production in 2023 could rebound to a record 112.2 MMT, but others are less optimistic due to the heatwave. “Higher temperatures in March can trim output by 4 MMT to 5 MMT. We are estimating production of around 106 MMT to 107 MMT,” said Pramod Kumar S, president of the Roller Flour Millers’ Federation of India. “We trimmed the estimate to 103 MMT from 109 MMT,” said a New Delhi-based dealer with a global trading firm, adding production could fall to around 100 MMT if temperatures remain above normal in March as forecast by the state weather department.
Iowa governor seeks Biden meeting on ethanol... Iowa Gov. Kim Reynolds (R) is requesting a meeting with Biden to make the case the U.S. should expedite a plan to boost ethanol gasoline sales in a few months, instead of the planned effective date in April 2024. Earlier this week, EPA proposed allowing year-round sales of E15 in eight Midwestern states, but not for the upcoming summer driving season, as was requested by governors of those states.
Freight rate from China to LA plunges... The cost of sending a freight container from China to Los Angeles fell to $1,238 this week. That was down from $15,600 this time last year, according to the Freightos Baltic Index. Rising inflation and high inventory levels are helping cause the ocean shipping industry’s biggest slump in years. That means idling ships, empty containers and canceled sailings.
Resolution to EV tax credit rift coming soon... Energy Secretary Jennifer Granholm said she sees a resolution coming “within a short period of time” to complaints from the European Union and the U.K. over the U.S.’ domestic requirements for electric vehicle subsidies. Granholm said the administration was working on how to uphold the intent of the electric vehicle tax credit in the Inflation Reduction Act without alienating U.S. allies.
Markets refocusing on longer inflation battle... The realization that problematic global inflation is likely to hang around longer than traders and investors initially expected, or hoped, has sapped risk appetite recently. A Wall Street Journal headline today reads: “The world economy is doing well; this is bad news for central bankers.”
Is the Fed too optimistic?... Federal Reserve officials in their most recent Summary of Economic Projections (SEP) forecast the unemployment rate would rise to 4.6% by the end of 2023 and inflation would fall to 2.1% by the end of 2025. Cleveland Fed economists think that’s too optimistic. “Our model projects that conditional on the SEP unemployment rate path and a rapid deceleration of core goods prices, core PCE inflation moderates to only 2.75% by the end of 2025: inflation will be higher for longer. A deep recession would be necessary to achieve the SEP’s projected inflation path,” Randal Verbrugge and Saeed Zaman write in a working paper.
Fed’s Bostic: ‘Slow and steady’ pace of rate hikes needed... Atlanta Fed President Raphael Bostic said, “Slow and steady is going to be the appropriate course of action,” with perhaps only two more quarter point increases needed before the Fed can pause. He noted that Fed rate increases “should bite through the spring... Going at a measured pace reduces the likelihood we overshoot” and damage the economy. Meanwhile, Fed Governor Christopher Waller said if payroll and inflation data cool after hot prints in January, “then I would endorse raising the target range for the federal funds rate a couple more times, to a projected terminal rate between 5.1% and 5.4%.”
PBOC will provide ‘forceful’ financial support for economy... China’s central bank will adjust monetary policy in a timely and appropriate manner. Cutting banks’ reserve requirements to release long-term liquidity will still be an effective tool to support the economy, top bank officials said. “PBOC will provide ‘forceful’ financial support for the stable and healthy development of the economy,’ People’s Bank of China Governor Yi Gang. China will not resort to “flood-like” stimulus. China also will step up international macro policy communication and coordination, Yi said.
Euro zone producer inflation at 17-month low... Euro zone producer price inflation slowed more than expected to 15% above year-ago in January, the lowest since August 2021 and below market expectations of 17.7%. On a monthly basis, producer prices fell 2.8% as a 9.4% decline in energy prices more than offset increases in all other goods. Without energy, producer prices rose 1.1% month-on-month, the most since May 2022.
Still waiting for active cash cattle trade... Cattle futures faced more pressure on Thursday as traders grew impatient waiting on active cash cattle trade. Cash sources still expect firmer cash trade to develop, though active followthrough selling in futures today could entice some feedlots to move animals at steady prices. April live cattle futures finished Thursday just 38 cents above last week’s average cash price.
Hog futures’ premium to cash continues to narrow... The CME lean hog index is up another 7 cents to $78.65 (as of March 1). April lean hog futures’ premium to the cash index narrowed to $5.20 as of Thursday’s close. That should limit near-term price pressure, but the path of least resistance is down and traders are showing no signs of wanting to actively buy futures.
Overnight demand news... Taiwan purchased 65,000 MT of corn that can be sourced from the U.S., Brazil, Argentina or South Africa.
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. CE: All Rice — NASS
- 2:00 p.m. Dairy Products — NASS
- 2:00 p.m. Peanut Prices — NASS
- 2:30 p.m. Commitments of Traders — CFTC