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
In Today's Digital Newspaper
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.
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.
MARKET FOCUS
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%.
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.
RUSSIA/UKRAINE
— 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. 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. 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.
PERSONNEL
— 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.
CHINA UPDATE
— 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. 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.
ENERGY & CLIMATE CHANGE
— 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.
POLITICS & ELECTIONS
— 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.
