Russia Seen Moving to Eliminate Ukraine’s Ability to Move Grain by Water

Senate to vote Tuesday on amendment prohibiting certain countries from buying U.S. farmland

Ukraine President Volodymyr Zelenskyy renewed his call for “a fully-fledged sky shield” after Kremlin forces unleashed a missile barrage against Odesa. It was the largest in a string of almost daily strikes on the Black Sea port after Moscow pulled out of the U.N.-brokered grain export deal. Russia said its forces intercepted two Ukrainian drones over Moscow. More in Russia & Ukraine section, including analysis from Southern Ag Today about the implications of Russia’s nixing of the Black Sea Grain Pact.

Russia bombed ports on the Danube River overnight. The facilities were within about 2 miles of Romania. Ukraine hit military facilities in Moscow with drones. Grain trader and analyst Richard Crow asks: “Is the war getting broader and more severe? Russia seems to be moving to eliminate Ukraine’s ability to move grain by water.”

Ukrainian Defense Minister Oleskii Reznikov predicts the war in his country will be over by next summer. In an interview with CNN, Reznikov expressed confidence that Ukraine will “win this war” and be admitted to NATO next year as well.

Tesla is racing ahead of German automakers, selling more EVs in the first half than Volkswagen, BMW, Mercedes and Porsche combined. The Germans are struggling as software issues delay key models and contribute to waning sales in China.

The Senate is scheduled to vote on a significant amendment to the National Defense Authorization Act (NDAA) on Tuesday. The amendment is a new version of a bill originally proposed by Senators Mike Rounds from South Dakota and Jon Tester from Montana. The goal of this bill is to enhance the federal government’s oversight capability and, in certain circumstances, prevent entities from China, Russia, Iran, and North Korea from purchasing farmland in the United States.

There is a difference of opinion between CBO and Ag Committee contacts regarding the slowdown in getting Congressional Budget Office (CBO) scoring forecasts for new farm bill proposals. See the Policy section and The Week Ahead (link) for more on this issue.

In response to petitions from the dairy industry, USDA announced that it will hold a hearing on Aug. 23 to discuss potential revisions to the Federal Milk Marketing Order (FMMO) system that determines the price farmers receive for fresh milk. See Policy section for details.

According to a new report by USDA, agricultural imports from Latin America and the Caribbean (LAC) have increased significantly over the past 12 years after the Great Recession, with a compound annual growth rate of 6.9%. This growth is considerably higher than the global rate of 5.6%, and Mexico, in particular, has been a major contributor to this trend. More in Markets section.

President Joe Biden chose a female admiral, Lisa Franchetti, to lead the American navy. See Personnel section for details.

The effort by the Biden administration to reduce economic ties with China is proving challenging. See China section for specifics.

Despite a severe heat wave which is causing unprecedented electricity demand in various areas of the U.S., the nation’s power grid has, so far, successfully managed the surge. For reasons why, check the Energy section.

At the recent G20 summit in India, several countries led by Saudi Arabia blocked a proposition to lessen the use of fossil fuels, amid increasing global concern over climate change. Details below.

Seven Republican candidates for the presidential race have qualified for the debate slated for Aug. 23. Details in Politics & Elections section

Sen. Lindsey Graham (R-S.C.) predicted a months-long continuing resolution (CR), paired with an emergency supplemental spending bill to aid Ukraine, address U.S. military needs, provide international food aid, and respond to domestic natural disasters.

More than 35 million people in the U.S. are currently suffering due to an intense heatwave, with no respite expected for at least another week. This widespread heat has caused significant strains not only on individuals but also on businesses and the economy at large. It is estimated that ongoing high temperatures could potentially cost the U.S. economy up to $100 billion each year solely from reduced productivity. Industries such as agriculture and construction are especially affected because employees working outdoors are typically less efficient during hot weather. Also, the restaurant business, particularly those with outdoor seating, is suffering as well. The relentless heat has transformed bustling patios into largely deserted spaces, leading to a decline in sales that nears record lows seen during the pandemic.

Equities today: Asian and European stock markets were mixed in quieter overnight trading. U.S. Dow opened up around 50 points higher. In Asia, Japan +1.2%. Hong Kong -2.3%. China -0.1%. India -0.5%. In Europe, at midday, London -0.2%. Paris -0.5%. Frankfurt -0.1%.

Agriculture markets Friday:

• Corn: December corn futures fell 10 cents to $5.36 1/4, though prices still gained 22 1/2 cents on the week.
• Soy complex: November soybeans fell 2 1/4 cents to $14.08 1/4, nearer the session high and gained 37 1/2 cents on the week. August meal rose $2.30 to $442.80, a $19.00 increase week-over-week, while August soyoil rose 176 points to 69.40 cents, gaining 435 points on the week.
• Wheat: December SRW wheat fell 28 1/2 cents to $7.17 3/4 and near the session low. For the week, December SRW gained 37 cents. December HRW wheat dropped 14 cents to $8.66 3/4, near mid-range and for the week up 33 1/4 cents. December spring wheat fell 15 1/4 cents to $8.96 1/2 and gained 7 cents on the week.
• Cotton: December cotton rose 17 points to 84.48 cents, ending mid-range after posting the highest intraday level since early Feb. The contract gained a solid 326 points on the week.
• Cattle: Nearby August cattle slid 30 cents to $180.025, while August feeder futures rallied 82.5 cents to $245.925. Those closing prices represented weekly losses of 15 cents and 72.5 cents, respectively. Cash cattle trading accelerated Thursday, with the five-area average surging to $186.74.
• Hogs: August lean hog futures rose 5 cents to $100.675 and nearer the session low. Prices hit a four-month high early Friday. It was another good week for the lean hog futures bulls, gaining nearly $5.00 and including Friday’s technically bullish weekly high close that set the table for more price gains early this week.
  

Ag markets today: Corn, soybeans and wheat are trading near last week’s highs on heightened risks in the Black Sea that will continue to pressure Ukrainian grain exports. As of 7:30 a.m. ET, corn futures were trading 20-22 cents higher, soybeans were 16-22 cents higher, wheat was mostly 30-35 cents higher. Front-month crude oil futures were trading at a three-month high, and the U.S. dollar index was trading near unchanged this morning.

Market quotes of note:

• Fed watch: With expectations for July’s decision mostly in consensus at a 25 bp hike, investors will watch for any commentary Fed Chair Jerome Powell has to deliver on where the central bank will take rates from there. “If they continue to put their foot on the brake to try to slow the economy down, and they get language around that [this] week, that would be problematic” for markets, said David Smith, chief investment officer at Rockland Trust.
  
• The return of student loans payments in October will reduce consumer spending by as much as $9 billion each month, or more than $100 billion a year, according to a new report by Oxford Economics.
  
• “We need to trade with China, and at the same time we need to make critical strategic supply chains more secure. Easy in words, but not obvious in practical terms.” — Paolo Gentiloni, the European Commissioner for the Economy.
  

Eurozone private sector contracts. The HCOB Eurozone Composite PMI (Purchasing Managers’ Index) dropped to 48.9 in July, down from 49.9 in June, and below the anticipated figure of 49.7. This reading marks the largest contraction in business output since the previous November. The downturn primarily was attributed to significant declines in the manufacturing sector, which experienced its largest drop in over three years, as well as a continual loss of momentum in the services sector.

Business activity in Germany fell to its lowest level this year, with a score of 48.3 (above 50 represents growth) in the S&P Global flash composite purchasing managers’ index. German manufacturing slowed to pandemic levels and service growth dipped for the second month. France’s private-sector economy also shrank, with its PMI reading falling to 46.6.

Market perspectives:

• Outside markets: The U.S. dollar index was slightly higher, with the euro and British pound weaker against the greenback. The yield on the 10-year U.S. Treasury note fell, trading around 3.81%, with a negative tone in global government bond yields. Crude oil futures continue to move higher, with U.S. crude around $77.65 per barrel and Brent around $81.60 per barrel. Gold futures were up and silver was down, with gold around $1,967 per troy ounce and silver around $24.73 per troy ounce.

• The pound slid against the dollar as U.K. manufacturing and services grew at the slowest pace in six months.

• Russia notched a victory in the fight for influence over global oil markets, as its flagship grade of crude traded above a Western price cap for the first time.

• Latin America boost imports of U.S. corn. According to a new report (link) by USDA, agricultural imports from Latin America and the Caribbean (LAC) have increased significantly over the past 12 years after the Great Recession, with a compound annual growth rate of 6.9%. This growth is considerably higher than the global rate of 5.6%, and Mexico, in particular, has been a major contributor to this trend.

The report states that U.S. agricultural imports from Mexico grew faster than imports from nearly all other countries in the LAC, resulting in Mexico’s share in U.S. agricultural imports from the region rising from 44.1% to 58.2%. Consequently, Mexico ranks as the leading source of U.S. agricultural imports, and stands as the largest food and agriculture trade partner with the U.S., with two-way trade predicted to reach $74.7 billion in the fiscal year ending September 30.

The report highlights the growing importance of Mexico in U.S. food and agriculture trade since the 1994 initiation of the North American Free Trade Agreement (NAFTA). In the years after the Great Recession and before the pandemic, agricultural imports from the LAC made up about 37.9% of total U.S. agricultural imports, representing a 5-point increase. Mexico’s share of total imports was 22.2% in fiscal 2020, and is projected to reach 23.3% this year, based on USDA data.

The primary imports from the LAC were consumer-oriented products, making up $8 out of every $10 at the start of this decade, up from $7.20 at the end of the Great Recession. Mexico supplied the top five products including fresh berries, tequila, fresh avocados, beef and beef products, and beer.

There have been concerns raised about the availability of farm labor in the U.S compared to Mexico, which is especially relevant for labor-intensive.

• NWS weather outlook: There is a Slight Risk of severe thunderstorms over parts of the Northern/Central Plains on Tuesday... ...Excessive Heat Warnings and Heat Advisories are in effect for portions of the Great Basin, Southwest, Intermountain West, Great Plains and southern Florida... ...Canadian wildfire smoke continues to reduce air quality across the Upper Midwest.

Items in Pro Farmer’s First Thing Today include:

• Grains sharply higher overnight
• Russia blames Ukraine over drone attack in Moscow

— Russia is trying to “make it difficult” for Ukraine to export grain via the Danube River, Ukrainian Agriculture Minister Mykola Solskyi says in a Bloomberg Television interview (link). He says grain shipments have dropped by 30% since Russia ended the export deal.

Russian forces, through drone attacks, have damaged a grain hangar at an unnamed port along the Danube, as per Ukraine’s southern operational military command’s announcement on Facebook. The attacks are following the collapse of the Black Sea grain deal and Russia’s ensuing attacks on the Odesa port.

Ukraine is likely to rely more heavily on alternative export routes, such as the Danube river. In May, there was a marked increase in crop transportation along the Danube river, transporting 2.2 million tons, a rise of almost 900,000 tons from the end of the previous year. Grain exports via the river even surpassed those via the Black Sea corridor, due to intensified inspections slowing down freight departures.

Ukrainian ports such as Reni and Izmail on the Danube, at the Romanian border, have become pivotal for the country’s grain and oilseeds exports. Local traders like Nibulon and Kernel have been expanding their capacities to cope with the challenges from Russia’s sea blockade. However, the extent of the damage and the potential frequency of future attacks by Russia remain uncertain.

— Southern Ag Today looked at the implications of the Black Sea Grain Deal cancellation (link). Key findings:

• Ukraine’s agricultural exports: Ukraine, once the third-biggest global corn exporter, is projected to drop to fourth in the 2023-2024 period due to Russia’s decision to leave the Black Sea Grain deal. Ukrainian corn exports are expected to drop from 15% to 9.6% of global exports in the same period. On the wheat front, Ukraine’s exports, which ranked seventh globally, are projected to drop from 7.5% to 5.0% of global exports.
• Global corn and wheat stocks: Despite the fall in Ukraine’s exports, global ending stocks of corn are projected to rise due to a predicted record production in the U.S. Also, Russia’s wheat exports, currently the highest globally, are projected to increase slightly.
• Fertilizer market: Russia leads in Nitrogenous, Potash, and Phosphate fertilizer exports. Ukraine, which only has a minor share in Nitrogenous exports and even less in Phosphate and Potash exports, could be further constrained by the cancellation of the deal. Fertilizer prices saw an initial surge due to Russian supply shocks around the start of the conflict but are expected to remain unaffected by the cancellation of the deal.
• Market impact and volatility: The cancellation of the Grain deal didn’t significantly affect futures initially due to likely prior market anticipation of such a move. However, subsequent Russian aggression in launching a missile strike on the Port of Odesa has increased market volatility due to possible supply shocks, with prices of corn and wheat futures seeing some rise.
• Advice for producers: With the ongoing situation, producers should leverage the higher corn prices now, before they drop due to a weather risk premium. As for wheat, prices are expected to fall due to an increase in market supply during the harvest period, but a rebound is expected once the harvest supplies are absorbed into the market.

Upshot: The unfolding Russian-Ukrainian conflict, coupled with weather and crop conditions, will continue to influence the agricultural markets, increasing price volatility in the foreseeable future.

— The Congressional Budget Office (CBO) has responded to the Ag Committees’ demands for faster farm bill-related scores, stating that they are doing their best to meet the needs of the committees. This comes after lawmakers complained that delays in obtaining scores from the CBO were hindering their ability to draft an effective farm bill. CBO scores are utilized by lawmakers to determine the effects of proposed policy changes on the national deficit.

CBO Director Phillip Swagel said hiring new staff at this juncture is not feasible and is likely to further impede the agency’s progress due to the time it would take to train new hires. Swagel also revealed that the CBO is rearranging existing staff to better focus on the demands of the farm bill. To date, he stated that the CBO has provided over a thousand estimates specific to this year’s farm bill reauthorization, with hundreds more coming soon. But our sources have a different take on this assessment — see The Week Ahead (link) for what we found out.

Swagel also explained that usual staff members from the CBO’s Budget Analysis Division, who typically work on different topics, have been reassigned to farm bill analysis and providing food program estimates. The inability to discuss certain contentious parts of the bill, such as the nutrition and conservation titles, has been attributed to the delays in securing CBO forecasts.

— USDA dairy policy hearing. In response to petitions from the dairy industry, USDA announced that it will hold a hearing on Aug. 23 to discuss potential revisions to the Federal Milk Marketing Order (FMMO) system that determines the price farmers receive for fresh milk. The hearing, which will take place in the Indianapolis suburb of Carmel, Indiana, could potentially result in the first significant reform of milk marketing orders since 2000.

In a Federal Register notice (link), USDA’s Agricultural Marketing Service outlined six subjects for testimony, including suggestions to increase the “make” allowance accorded to processors to offset the expense of converting milk into products like cheese or butter. The American Dairy Coalition has praised the comprehensive nature of the hearing and indicated strong support for a change in the price setting formula for milk intended for retail sale. Specifically, the proposal to use the “higher of” rather than the current “average of” pricing method.

Following the hearing, the USDA will publish a recommendation that will be open for public feedback. After a period of comments, there will be a final decision. Following this, a referendum will be held for producers to vote on whether to accept the proposed changes.

The FMMO system, established in 1937, covers 11 regions that represent the majority of U.S. milk production, spanning most, but not all, of the 50 states. Witnesses at the hearing will be given an hour to provide testimony, and the USDA has identified 19 proposals to modify the marketing orders. Dairy farmers may provide testimony in person at any time during the hearing or give virtual testimony via Zoom on Fridays for 15 minutes each starting Sept. 1.

— USDA Secretary Tom Vilsack announced a series of investments last Friday, July 21, to support urban farming and enhance market access for local producers. Key initiatives include establishing 17 Urban Service Centers and ten new urban Farm Service Agency (FSA) county committees to offer critical services to urban growers.

The announcement also includes an allocation of nearly $11 million towards the Patrick Leahy Farm to School Program, which connects schools with local farms and food producers. An expansion of the Healthy Food Financing Initiative was also unveiled, aiming to increase access to nutritious food in underserved areas.

USDA also plans to roll out a new initiative, the Local and Regional Healthy Food Financing Partnerships, with an available funding of $30 million. This plan is designed to encourage and develop local and regional food systems.

The American Rescue Plan will contribute an additional $40 million to be invested in partnerships with community-based organizations. This will principally aim to improve assistance in terms of outreach, education, and technical help for urban producers.

In a future-oriented move, USDA has also communicated plans to identify ten more cities for the expansion of additional urban FSA county committees next year.

— President Joe Biden chose a female admiral, Lisa Franchetti, to lead the American navy. If confirmed by the Senate, Admiral Franchetti will become the first woman in the role and the first to join the joint chiefs of staff. She formerly led the navy in South Korea.

— Republican lawmakers are probing Ford’s partnership with a Chinese battery company for its new $3.5 billion plant in Michigan, scrutinizing issues around American jobs, technology sharing and links to forced labor.

— The effort by the Biden administration to reduce economic ties with China is proving challenging, the Wall Street Journal reports (link). The U.S. Treasury Secretary, Janet Yellen, during a recent trip to Vietnam highlighted the increase in trade between the U.S. and other countries as a sign of diversification. American trade with Vietnam has notably increased over the past five years, reaching an annual total of $140 billion.

However, it’s not easy to completely disconnect from China’s pivotal role in global supply chains. This situation is further complicated by the fact that potential alternative trading partners, such as Vietnam and South Korea, also have strong economic relations with China themselves. Moreover, production in these countries often involves Chinese corporations as well.

A key issue lies in the clean-energy technology sector where China plays a dominant role, particularly in the supply of solar panels. An investigation showed that Chinese companies avoided tariffs by rerouting their products through Vietnam and other Southeast Asian countries, indicating that they continue to hold an influential position in the market indirectly. This highlights the complex nature of global trade networks and the difficulty in reducing economic dependence on a specific country.

— Chinese leaders easing debt policy. The communist state’s Politburo, its top decision-making body led by President Xi Jinping, supports easing property policies and is going to attempt to boost the economy by supporting the real estate market. This comes after last week’s report of the World’s second largest economy slowing more than expected as demand continues to falter from the nations Zero Covid Policy. The meeting did not provide any indication of major fiscal or monetary loosening.

— U.S. power grid withstands the heat, so far. Despite a severe heat wave which is causing unprecedented electricity demand in various areas of the U.S., the nation’s power grid has, so far, successfully managed the surge. This is attributed to a mixture of fortunate circumstances and the advent of new energy sources, the Wall Street Journal reports . One key player in this achievement has been Texas, which has significantly increased its reliance on solar power. The introduction of numerous solar farms across the state has proved to be a robust solution against unplanned mechanical failures in some of the traditional coal and gas power plants. These solar installations have effectively compensated for any impeded energy production, aiding in the power grid’s resilience during this period of heightened demand.

— At the recent G20 summit in India, several countries led by Saudi Arabia blocked a proposition to lessen the use of fossil fuels, amid increasing global concern over climate change. The G20 countries released a document highlighting the varying views, with some nations promoting efforts to reduce fossil fuel use, particularly without emissions capture, while others prefer developing technology to capture greenhouse gas emissions.

Saudi Arabia, supported by several other unnamed nations, actively opposed the phasing out of fossil fuels. Historically, Russia and China have also consistently resisted such moves, including obstructing an agreement at a UN climate summit in Egypt last year.

G7 countries, however, have already agreed to expedite the phasing out of fossil fuels. Despite this, the recent meetings failed to develop a global renewable energy development goal. This impasse occurs as many regions worldwide are dealing with extreme weather, such as extensive heatwaves and flooding.

The EU is a significant proponent of transitioning away from fossil fuels, which constitute roughly three-quarters of all greenhouse gas emissions. However, the summit revealed sharp divisions over fossil fuel transition.

India’s Minister of Power, RK Singh, acknowledged the reduction of fossil fuel production as a significant sticking point. He expressed favorable views about the summit, despite these disagreements, as the majority of the G20 was in favor of the proposed measures. India has pledged to achieve net-zero emissions by 2070, while China aims to reach this by 2060. A report generated for India’s G20 presidency anticipated the energy transition’s global cost at $4 trillion annually and stressed the need for funding for developing countries.

Upshot: The unsuccessful attempts at reaching an agreement could increase pressure on the United Arab Emirates, which will host COP28 in December. The failure to reach consensus could also affect global efforts to reduce emissions enough to prevent temperatures from rising above 1.5C above pre-industrial levels, deemed a critical threshold by the Intergovernmental Panel on Climate Change. Currently, the world is on track for a temperature rise of between 2.4C and 2.6C by 2100.

— Seven Republican candidates for the presidential race have qualified for the debate slated for Aug. 23, according to polling data from Fox Business in Iowa and South Carolina. The candidates who meet the requirement of achieving 1% or higher in at least two separate national and state polls are Former President Donald Trump, Florida Governor Ron DeSantis, entrepreneur Vivek Ramaswamy, former Vice President Mike Pence, former South Carolina Governor Nikki Haley, South Carolina Senator Tim Scott and former New Jersey Governor Chris Christie. This polling threshold was set by the Republican National Committee. In order for the candidates to qualify for the debate, they also must meet fundraising criteria and commit to supporting the eventual Republican nominee. Though he has met the polling threshold, Mike Pence has stated that he has not yet achieved the required fundraising criterion.

— In the recent Spanish general election, the results came out tighter than expected. The center-right People’s Party, led by Alberto Núñez Feijóo, has come out as the largest party in parliament, as was widely predicted beforehand. It managed to push the ruling Socialists, fronted by Prime Minister Pedro Sánchez, into second place. However, despite the People’s Party’s alliance with the firm right-wing party Vox, they will still not have enough seats to form a governing majority in the parliament.

— House Republican leaders are haggling with conservatives over funding bills to find 218 votes in support. House leaders aim to pass two bills covering Agriculture-FDA and Military Construction-VA appropriations this week. The Appropriations Committee advanced those bills on party lines over complaints from Democrats about conservative policy measures and low funding levels. There are plenty of conservative amendments aiming to cut more funding from the Agriculture-FDA bill, or to add policy riders. Rep. Andy Biggs (R-Ariz.) offered measures to cut funding for Food for Peace grants, McGovern-Dole international food aid, USDA’s chief information officer and chief economist, the National Agricultural Statistical Service, the Commodity Futures Trading Corporation, and other programs and agencies. Rep. Marjorie Taylor Greene (R-Ga.) offered measures to block funds for puberty blockers for minors, hospital systems that provide gender-affirming care for minors, the development of any Covid-19 vaccine, and aid to Ukraine. She also has an amendment to expand the bill’s ban on the sale of U.S. agricultural land. Currently, the bill would ban sales to entities tied to China, North Korea, Iran, or Russia. Greene’s amendment would ban the sale of agricultural land to any foreign nation.

— Sen. Lindsey Graham (R-S.C.) predicted a months-long continuing resolution (CR), paired with an emergency supplemental spending bill to aid Ukraine, address U.S. military needs, provide international food aid, and respond to domestic natural disasters. “I just don’t see reconciling many bills with the House,” Graham said of the Sept. 30 funding deadline. “Maybe a few, maybe. I think you’ll have a CR plus a supplemental.”

WASDE | Crop Production | USDA weekly reports | Crop Progress | Food prices | Farm income | Export Sales weekly | ERP dashboard | California phase-out of gas-powered vehicles | RFS | IRA: Biofuels | IRA: Ag | Student loan forgiveness | Russia/Ukraine war, lessons learned | Russia/Ukraine war timeline | Election predictions: Split-ticket | Congress to-do list | SCOTUS on WOTUS | SCOTUS on Prop 12 pork | New farm bill primer | China outlook | Omnibus spending package | Gov’t payments to farmers by program | Farmer working capital | USDA ag outlook forum | Debt-limit/budget package |