First Thing Today: China’s Big Plans for Ethanol to Hike Its Corn Needs

Good morning!

Firmer tone overnight... Corn futures enjoyed gains overnight and as of 6:35 a.m. CT most contracts are 2 to 3 cents higher. Soybean futures also favored the upside overnight and are currently up 5 cents. Wheat futures are 3 cents higher, while spring wheat is fractionally lower. The U.S. dollar index is posting modest losses, while crude oil futures are higher.

Export sales report expectations...

North Korea is threatening to “sink” Japan with nuclear weapons... North Korea threatened to use a nuclear weapon against Japan and turn the U.S. into “ashes and darkness” for passing fresh United Nations sanctions earlier this week. “Japan is no longer needed to exist near us,” the state-run Korean Central News Agency said today, citing a statement by the Korea Asia-Pacific Peace Committee. “The four islands of the archipelago should be sunken into the sea by the nuclear bomb of Juche,” it said, a reference to the regime’s ideology of self-reliance. Japanese Chief Cabinet Secretary Yoshihide Suga called the comments “extremely provocative.” Treasury Secretary Steven Mnuchin warned the U.S. may impose additional sanctions on China -- potentially cutting off access to the U.S. financial system -- if it doesn’t follow through on a fresh round of United Nations restrictions against North Korea.

China’s big plans for the ethanol industry hike its corn needs... China’s plans to roll out the use of gasoline containing 10% ethanol (E10) by the year 2020 could help the country to work through its 200 MMT corn stockpile in in just four years, according to Reuters calculations. It estimates that as much as 15 MMT of ethanol may be needed annually to meet this new source of demand, meaning that as many as 36 new ethanol plants may be needed. These factories would need 45 MMT of feed corn each year. Currently, 10 new ethanol plants in the northeast Corn Belt are planned, with many of them expected to be operational next year, according to JC Intelligence. It adds that this this should boost ethanol capacity by 3 MMT.

Strategy Grains lowers EU wheat export forecast... The European Union will likely export 23.1 MMT of soft wheat in 2017-18, says Strategy Grains, which is down 1.3 MMT from its previous forecast and 900,000 MT under year-ago levels. The consultancy explains that rain compromised the quality of Germany’s crop, plus the region is facing stepped-up export competition from Russia and Ukraine. The lower export forecast comes despite a 1.5 MMT increase in its soft wheat production peg for the bloc to 142.5 MMT.

Argentine exchange still calling for higher corn and wheat plantings in 2017-18... The Rosario Grains Exchange expects Argentine farmers to plant 6.2 million hectares to corn and 5.4 million hectares to wheat in 2017-18, which would be an increase from corn and wheat plantings of 5.85 million hectares and 5.3 million hectares, respectively, in 2016-17. But the exchange’s wheat plantings estimate was down slightly from its previous estimate as excessive moisture has caused problems.

Traders watching Egypt’s decision on poppy-tainted wheat cargoes closely... The poppy seeds detected in two wheat shipments from France and Romania to Egypt are “not very dangerous,” Egypt’s Ag Minister Abdel Moneim Al-Banna told Reuters. He says both shipments will be sieved before the country decides whether to allow them into the country. The French supplier argued that poppy in the shipment was a harmless variety not used in opium production that is common in wheat fields. Meanwhile, suppliers are monitoring the situation closely and say they may boycott the Egyptian market if the shipments are ultimately rejected. With last year’s wheat fungus debacle still fresh in their minds, they say the country’s excessive inspections make doing business with Egypt risky.

Trump, Democrats shape agreement to protect ‘Dreamers’... President Donald Trump and congressional Democrats closed in on a deal to give legal status to undocumented immigrants who were brought to the U.S. as children. The president’s move is partly out of frustration with GOP lawmakers, rather than a bid to shift to the center.

Tax reform timeline... Trump made clear Wednesday in tweets that he wants Congress to begin work now on major tax reform. Republican leaders are now giving themselves until mid-October to come up with tax-cutting legislation and a fiscal 2018 budget resolution -- GOP leaders, who are hoping to overhaul the nation’s tax code by year’s end, signaled they will release a more detailed framework for the high-priority initiative the week of Sept. 25.

Trump administration infrastructure plans waiting on tax overhaul... More-detailed plans on infrastructure legislation are being readied by the White House for Congress to use in putting together such a package, but an administration official told Politico the package will not come until after there is progress on tax overhaul. “Our position is to be ready to go when the president decides to transition” to infrastructure, the official said. Congress will take the lead in the effort, the official said, noting lawmakers have asked for more specific on how the administration envisions bringing state and private money into the mix. “We’ll do the principles, they’ll do the drafting,” the official said. Savings via cuts to other programs is where the $200 billion in federal money will come from for the infrastructure effort.

Americans’ grocery shopping habits have changed... Rather than going to a single store once a week, most U.S. consumers now buy their groceries in several ways, multiple times a week and from a number of different places, a new survey by the International Council of Shopping Centers shows. It also shows consumers still pick their groceries up at brick and mortar stores, even if they have made their purchases online. Ninety-nine percent of adults buy all or some of their groceries in person because they want the food immediately, want to choose their own meat, dairy, produce, etc., or they want to see their product options in person, according tot he survey. But Millenials, in particular, choose a more varied path in terms of how, where and when they shop.

More hopes for a cash cattle low... Futures are signaling more optimism about the potential for the cash market to put in a low this week, with the October contract nearly $2.60 above last week’s average cash price near $105. Friday’s online Fed Cattle Exchange auction saw cattle trade at prices near steady with week-ago, but sales volume was again light. So far, there have been just a few sales in Kansas and Iowa around $105.

Futures still have a pretty big cash market drop factored into prices... Weight data showing marketings are backing up on farms despite aggressive kill runs signals that more cash market declines are likely ahead, especially with farmers more likely to get busy with harvest in the weeks ahead. But futures already have a fairly big cash drop factored in -- the October contract was $7.80 1/2 below the cash hog index as of Wednesday’s close.

Overnight demand news... Jordan made no purchase in its international tender to buy 100,000 MT of milling wheat, but it has issued another tender to purchase the same amount of hard milling wheat from optional origins. An Israeli group of private buyers purchased at least 30,000 MT of corn, likely from the Black Sea region. Japan bought 55,645 MT of food-quality wheat from the U.S., as well as 50,142 MT from Canada and 33,595 MT from Australia.

Today’s reports:

• 7:30 a.m., Drought Monitor -- USDA/NWS
• 7:30 a.m., Weekly Export Sales-- FAS
• 11:00 a.m., Cotton & Wool Outlook: September 2017-- ERS
• 11:00 a.m., Meat Price Spreads-- ERS
• 11:00 a.m., Oil Crops Outlook: September 2017-- ERS
• 2:00 p.m., Feed Outlook: September 2017-- ERS
• 2:00 p.m., Wheat Outlook: September 2017-- ERS
• 2:00 p.m., Livestock Historical Track Records-- NASS
• 2:00 p.m., Turkey Hatchery-- NASS