Good morning!
Grains see limited volatility overnight on light volume… Corn, soybeans and wheat traded near unchanged most of the night. As of 6:30 a.m. CT, corn futures are mostly fractionally lower, soybeans are around a penny lower and wheat futures are around two cents higher. Front-month crude oil futures are facing selling pressure for the second straight session alongside the U.S. dollar index, which is around 200 points lower and near five-month lows.
Russia to boost fertilizer output… Russia is set to increase fertilizer output by 10% in 2024, bringing production and exports back to 2021 levels, the Russian Fertilizers Producers Association said on Wednesday. Russian fertilizers exports encountered problems following Western sanctions on the nation following their 2022 invasion of Ukraine. While those sanctions remain in place and Russian fertilizer will not find the Western market, an influx of fertilizer should help tame world prices.
USDA confirms HPAI in 709,000 bird California egg layer flock… USDA’s Animal and Plant Health Inspection Service (APHIS) confirmed highly pathogenic avian influenza (HPAI) in a Merced County, California, commercial table egg layer flock with 709,000 birds. APHIS shows 16 commercial flocks and two backyard flocks being infected in California totaling nearly 4.4 million birds.
U.S. buys 3 million barrels of oil for strategic reserve… The Biden administration finalized contracts to purchase three million barrels of oil to replenish the Strategic Petroleum Reserve (SPR) after the largest sale in history last year. The oil was bought for an average of $77.31 a barrel, below the average price of $95 a barrel in 2022. The U.S. conducted sales last year, including a record one of 180 million barrels, to stabilize oil prices following Russia’s invasion of Ukraine.
Rate cut bets could be overly optimistic… A two-month bond rally in bond prices and expectations of at least six rate cuts over the coming year have driven equities within 1% of all-time highs. The U.S. dollar index has been under heavy selling pressure as well. While the situation is currently bullish, Swissquote analyst Ipek Ozkardeskaya warns of overly optimistic expectations for rate cuts and that the Fed is unlikely to cut at the pace Fed fund futures currently expect. Once more realistic expectations are realized, a downturn in the equity market would be likely, especially considering overbought conditions.
Tensions increase between Taiwan and China ahead of election… China’s defense ministry accused Taiwan’s government of “hyping up” a military threat from China for electoral gain ahead of elections on the island on Jan. 13. Shortly after the accusations, Taiwan’s defense ministry reported further military activity in the Taiwan strait, saying it had detected 12 military aircraft flying across the median line of the strait.
China’s defense ministry lashed out at U.S… A week after resuming high level talks, Chinese military officials accused the U.S. of having a Cold War mindset surrounding its Asia-Pacific deployments, stoking confrontation. China also accused the U.S. of meddling with Taiwan, including sending arms to the nation, which China calls a “very dangerous gamble.” Beijing expects the U.S. to take concrete actions on the basis of equality and respect in order to continue to develop a relationship between the two nations’ militaries.
U.S.-led Red Sea security effort faces resistance and political divisions... The initiative in the Red Sea aimed at safeguarding shipping routes from Houthi rebel attacks has gained support from several nations, with the administration officially naming 12 countries as participants, even though they mentioned the involvement of 20 nations. However, reports from Reuters indicate that some countries, such as Italy and Spain, have openly distanced themselves from the initiative. Additionally, Saudi Arabia and the United Arab Emirates have expressed disinterest in joining the effort. This reluctance among countries, both to participate and to publicly acknowledge their involvement, reflects the political divisions arising from the conflict in Gaza. It’s worth noting that the Houthi rebels claim that they have only targeted ships destined for Israel.
U.S. beer shipments projected to hit 25-year low… Changing consumer preferences towards nonalcoholic options and canned cocktails curtailed beer shipments in 2023. Younger adults are drinking less alcohol overall and favor spirits over beer and a Bud Light boycott has had a significant impact on the domestic beer industry. Despite declining shipments, dollar sales of beer have risen, according to Anheuser-Busch InBev, the largest brewer in the United States.
Brazil soybean and corn exports fall below forecasts in December… Brazil soybean exports are expected to have reached 3.48 MMT in December, down from an expected 3.5 MMT last week. Corn exports are expected to have fallen to 6.96 MMT from an expected 7.17 MMT. Meanwhile, wheat exports are estimated to have risen sharply, though not much wheat was shipped.
Cash cattle trade yet to take place… Live cattle futures failed to follow through on early week strength as the market awaits signals of continued strength in the cash market. Cash cattle trade has yet to take place this week, breeding uncertainty about the outlook. Cattle prices are likely to come under pressure next week as contracted supplies become available at the turn of the calendar.
Uptick in CME lean hog index… After falling to a fresh seasonal low yesterday, the CME lean hog index rose 12 cents to $65.71 today. Traders will be hesitant to believe that a seasonal low is in place, especially considering the downturn seen last week following a bounce in the index. Negotiations included fewer hogs than normal as well, opening the door for weakness once movement picks back up.
Overnight demand news... Egypt tendered to buy an unspecified amount of wheat from multiple sources.
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Today’s reports
· 9:30 a.m. Weekly Ethanol Production — EIA
· 2:00 p.m. Livestock and Meat Domestic Data — ERS