Good morning!
Grains weaker overnight, steady beans… Corn and wheat saw follow-through selling overnight despite a strong close yesterday. Soybean futures have traded on both sides of unchanged overnight. As of 6:30 a.m. CT, corn futures are trading about 7 cents lower, soybeans are steady to 3 cents higher, winter wheat futures are 11-18 cents lower and spring wheat is 5-7 cents lower. Front month crude oil futures are trading about a dollar lower while the U.S. dollar index is around 210 points lower.
Senate easily passes restrictions on U.S. farmland purchases… The Senate on Tuesday easily cleared an amendment to the National Defense Authorization Act barring investors from China, Russia, Iran, and North Korea from purchasing U.S. farmland. The measure, approved with a 91-7 majority, also necessitates a review from the Committee on Foreign Investment in the U.S (CFIUS) on overseas land purchases exceeding $5 million or 320 acres from investors from any other country. The vote revealed bipartisan support, with only seven senators, six Democrats and one Republican, opposing it.
Federal Reserve set to raise interest rates… The Fed is expected to raise interest rates 25 BPS to the highest level in 22 years to a 5.25% to 5.5% range, the eleventh increase since the start of last year. The press conference 30 minutes after the 1:00 p.m. CT interest rate decision will provide insight into how the Fed will move forward. The expectation is that the Fed will maintain a “wait and see” approach with a statement that hints at possible “additional policy firming,” though interest rate futures expect no additional hikes the rest of the year.
GOP-led House is struggling with government appropriation bills… Conservative members of the House Freedom Caucus are demanding a more conservative approach to the appropriations process as House leaders aim to pass the first two spending bills for the year, including the measure for USDA/FDA. Some, like Rep. Bob Good (R-Va.), have even suggested entertaining the possibility of a government shutdown. The Freedom Caucus members are against padding top-line spending with old, redirected funds, arguing that this tactic inflates spending limits.
Russia-Africa Summit set to take place July 27… The Russian government is hosting African countries in St. Petersburg in an effort to enhance partnership across key areas such as politics, security, economy, technology and culture. While Russian grain deliveries and military aid are anticipated outcomes of the summit, it is not expected that this event will trigger a significant shift of African nations towards Russia. Strong variations in responses from individual African states are anticipated.
Biden subsidies leading to global competition…The Biden administration is heavily investing in local manufacturing through subsidies, as part of significant actions such as the Inflation Reduction Act (IRA/Climate Bill) that was implemented last year. This approach to industrial policy has ignited worldwide competition that is leading to tensions among alliances and putting considerable strain on financial budgets, according to Bloomberg. Notably, these policies are directing an unheard-of amount of public funds into privately-owned corporations, which has been drawing a lot of attention and debate about its effects.
IMF sees food prices rising up to 15%... The recent conclusion of the Black Sea grain deal is expected to pressure food prices higher. The International Monetary Fund’s (IMF) chief economist said the deal was “very instrumental in making sure that there will be ample grain supply to the world in the last year.” The IMF expects a 10% to 15% increase in grain prices.
USDA expects food price inflation for 2023 to be slightly lower… at 5.8% compared to the previous projection of 5.9%. The grocery store price inflation forecast has been significantly reduced by a whole percentage point to 4.9%. Food price inflation for 2024 is expected to considerably decrease compared to 2023, with an expected rise of 2.4%. Restaurant prices are predicted to increase slightly less than before now at 7.5% as compared to the previous 7.7%. For 2024, a 6.1% rise in restaurant prices is anticipated.
Eurozone lending slows… Bank lending to households in the Eurozone increased by 1.7% over the last year, the lowest growth rate since May 2016. The weakness can be attributed to the continued slowdown in demand for credit as a result of the policy tightening by the European Central Bank in an effort to tame inflation. Lending to companies grew by 3%, the slowest growth rate since November 2021.
Checkoff battle in House… An amendment to the House USDA/FDA bill proposed by Rep. Victoria Spartz (R-Ind.) to limit taxpayer dollars going to checkoff boards has sparked a dispute between her and four commodity trade groups. The opposing parties (The National Cattlemen’s Beef Association, American Soybean Association, National Pork Producers Council, and National Milk Producers Federation) released a joint statement criticizing the amendment, which they label as needless given that no taxpayer dollars are used in checkoffs promotion activities. These are financed by mandatory farmer payments. They argue that Spartz’s amendment undermines programs vital to industry, like the Beef Checkoff, which supports nutritional and food safety research, boosts consumer demand, and keeps farms and ranches operational.
USDA’s July 25 Cold Storage Report… stated the June 30 total for U.S. beef stocks at 411.9 million pounds, implying consumer demand for beef remained robust last month.
While domestic cattle slaughter and beef production declined substantially from year-ago levels, the indicated 13.8 million pound reduction in beef stocks exceeded last year’s 9.3 million-pound drop, as well as the five-year average decline of 5.7 million pounds. The latest total is 105 million pounds below the year-ago total and 29 million under the five-year average. It also represents the lowest total since August 2019.
Ending June pork stockpiles tumbled 42 million pounds from May to 490.2 million pounds. The decline compares to year-ago and five-year average June reductions of 4.0 million and 20.3 million pounds, respectively. This latest total represents a 35 million-pound drop below the 5-year average. The low total and large monthly reduction highlight the vigorous consumer demand apparently driving the ongoing hog market rally.
June 30 broiler stocks at 861.4 million pounds marked a 27-million pound increase from May and an 87.2 million pound rise from one year ago.
Pork prices mixed… Pork cutout values fell sharply led be a decrease in belly prices, which have recently been leading the charge higher. Meanwhile, hogs continue to press higher, extending the rally in the cash index. As of July 24, the index is up another 70 cents to $105.26.
Packer margins in the red… Packers are seen losing $81 per head according to Drovers, expanding the packer’s loss from $10 per head last week. Wholesale prices rose slightly yesterday with Choice rising just 6 cents. When compared to early trade this week rising $2.34 from last week’s average, margins are going to slip further in the red, limiting packer demand for cattle.
Russia has resumed sending oil to North Korea… Russia has started sending oil to the communist nation for the first time since 2020. Russia has been sending grains to North Korea for some time now. U.S. government officials suspect North Korea is sending back munitions as payment, though North Korean officials are denying the accusations.
Australian inflation drops below expectations… The Australian inflation rate dropped to 6.0% year-on-year in the second quarter of 2023, the lowest figure since the third quarter of 2022. Inflation was driven lower by the cost of goods despite services inflation accelerating, led by insurance costs rising 14.2%. The U.S. has also seen increased costs of insurance as it lags the overall inflation of goods seen in the last two years.
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Today’s reports
· 9:30 a.m. Weekly Ethanol Production — EIA
· 2:00 p.m. Broiler Hatchery — NASS
· 2:00 p.m. Peanut Stocks and Processing — NASS