Evening Report: Jan. 13, 2022
Click here for weekly export sales/commitments charts and here for report details.
Check our advice monitor on ProFarmer.com for updates to our marketing plan.
Another firm slashes Brazil’s soy crop... Agroconsult reduced its Brazilian soybean crop estimate by 10.1 MMT from its prior forecast to 134 MMT, based on an average yield of 55 60-kilo bags per hectare, which would be the lowest since 2015-16. The Brazil-based consultancy says yields are expected to be down as much as 26% in Parana and other areas like Mato Grosso do Sul and Rio Grande do Sul. Mato Grosso is predicted to have higher yields.
Agroconsult also reduced its soybean export forecast for Brazil by 2 MMT to under 90 MMT. Brazilian soybean exports are expected to start earlier than usual due to the quick planting pace and early harvest in central areas of the country.
The firm reduced Brazil’s firm corn crop by 16% to 24.5 MMT. It projected Brazil’s total corn production at 119.4 MMT.
Producer price index growth slows... The U.S. producer price index (PPI) increased 0.2% in December, though that was the smallest gain since November, and resulted in an annual increase to 9.7%, according to the Department of Labor. In November, the PPI was up 1.0% for the month and 9.8% for year-on-year total.
Wholesale services prices rose 0.5%, accounting for the increase in PPI. Goods prices fell 0.4% after advancing 1.1% the prior month. Wholesale food and energy prices held down the goods number as goods excluding those rose 0.5%, compared to a 0.8% gain in November.
Biden cites inflation ‘progress’ despite consumer prices near 40-year high... President Joe Biden said his administration is “making progress” in battling cost-of-living increases, pointing to slower gains last month in energy and food prices, even as headline consumer inflation reached its highest level in almost four decades. The Department of Labor report on the consumer price index “shows a meaningful reduction in headline inflation over last month, with gas prices and food prices falling,” Biden said in a statement. “At the same time, this report underscores that we still have more work to do.” The consumer price index (CPI) climbed 7% in 2021, the largest 12-month gain since June 1982, according to Labor Department data.
Brian Deese, the director of the White House’s National Economic Council, said Wednesday inflation has lingered in part because the unemployment rate fell more quickly than expected and the pandemic has continued to affect the global economy and the supply chain. Asked what the administration got wrong in calling inflation “transitory,” Deese said, “If we look at the situation earlier in the year, a number of projections and forecasts have come differently than we anticipated… I think that the nomenclature aside, we find ourselves in a position now where we are looking forward and most forecasters are projecting that the price increases will moderate,” he added, aligning the administration with forecasts that inflation will ease over the course of this year.
Over the course of the year, food, energy and shelter costs all rose on average by more than 8%. Those three categories constitute 50% of the average household budget, said Douglas Holtz-Eakin, a GOP policy analyst who has served as director of the nonpartisan Congressional Budget Office. “That’s their substantive problem,” Holtz-Eakin said of the Biden administration. “This is unheard of for 40 years.”
“The danger is we’re starting to see a dynamic of wage-price spiral in which rising wages lead to rising prices, which lead to rising prices, which lead to rising wages,” said Larry Summers, who served in senior positions in the Clinton and Obama administrations but has been critical of Biden’s $1.9 trillion stimulus package. “The crucial macroeconomic insight from the experience of the 1960s and 1970s is that an overheated economy leads to not just high inflation but accelerating inflation,” Summers added. “We currently have an overheated economy, and there’s not much reason to think anytime soon it’s going to cool off.”
St. Louis Fed President James Bullard said the U.S. central bank will need to move more aggressive on raising interest rates this year as it seeks to stem surging inflation. Bullard has been one of the most vocal about the Fed pulling back from the extraordinary levels of support provided during the pandemic and tightening monetary policy.
Supply chain snags, labor shortages and rising inflation stressing food production and distribution... Result: high prices and some products hard to find. Biggest reason for the surging food prices is lack of labor, say food industry contacts. That is leading to wage inflation, which will be permanent, and knock-on effects for the supply chain. Some year-over-year changes in food prices include:
- Beef/veal: Up 18.6%
- Pork: Up 15.1%
- Fish: Up 8.4%
- Chicken: Up 10.4%
- Bakery products: Up 4.8%
But inflation is more than just the rise in food prices. Last year’s surge in car prices was a byproduct of component shortages that hit automakers globally. New and old motor vehicles, with a weight of more than 8% in the CPI, jumped a record 20.9% last month.
IGC makes big changes to global crops... The International Grains Council (IGC) raised 2021-22 global wheat production by 4 MMT to a record 781 MMT. On Wednesday, USDA increased its world wheat crop forecast to 778.6 MMT. IGC said its preliminary projection calls for another record global wheat crop in 2022-23, though it didn’t provide an official forecast.
Reflecting heat and drought in South America, IGC slashed its global soybean crop by 12 MMT to 368 MMT and its corn crop by 5 MMT to 1.207 MMT. IGC’s forecast matched USDA on the global corn crop but was 4.6 MMT lower on soybean production.
Kansas, Texas drought conditions worsen... The area of winter wheat in drought conditions increased four percentage points from to 69%, according to this week’s U.S. Drought Monitor. USDA said 29% of the winter area is in moderate drought, 22% in severe drought, 16% in extreme drought and 2% in exceptional drought. In the previous week, USDA reported 24% of the winter wheat area is in moderate drought, 22% in severe drought, 17% in extreme drought and 2% in exceptional drought.
Most of the drier conditions came in HRW areas. Kansas had a six-percentage-point increase with the amount of land considered abnormally dry/drought, up to 81%. Texas reported 97% of its area is covered by abnormally dry/drought conditions, up four percentage points from the previous week. South Dakota had a one-point improvement to 78% of its area is considered abnormally dry/drought. The amount of area considered abnormally dry/drought in Oklahoma, Colorado, Montana and Nebraska is unchanged from the previous week.
SRW areas reported some improvement. Arkansas had an 18-point improvement, with 43% of its area reported abnormally dry/drought. North Carolina had 93% of its area considered abnormally dry/drought, down four percentage points. Illinois had a two-point increase to its area considered abnormally dry/drought to 14%. Missouri has 37% of its area abnormally dry/drought, a one-point improvement on the week.
La Niña conditions likely to continue into spring... La Niña conditions are likely to continue during the Northern Hemisphere spring. The La Niña weather pattern has a 67% chance of persisting from March to May before transitioning to ENSO-neutral (51% chance), according to the National Weather Service’s Climate Prediction Center (CPC).
This translates into a higher chance of below-normal temps from January to April across the northern High Plains, northern Rockies and Pacific Northwest. There is a higher chance of above-normal temps across the Southern Plains during the spring and early summer.
A higher chance of below-normal precip is predicted for the south tier of the continental U.S. from January to April. Above-normal precip is forecast from the Great Lakes, Ohio and Tennessee Valleys, Pacific Northwest and northern Rockies/
Earlier this week, Japan’s weather bureau said the La Niña phenomenon is continuing and that there is an 80% chance it will prevail through the end of the Northern Hemisphere winter and an 80% chance the event will end during spring.
Trucker vaccine mandate likely to still cause supply chain issues... Canada has dropped the requirement that Canadian truckers returning to the country be vaccinated. However, starting on Saturday, foreign truck drivers are still required to be vaccinated. Unvaccinated Canadians will also be denied entry into the country.
Starting on Jan. 22, the U.S. will require foreign truck drivers to show vaccination proof to enter the country.
According to the Canadian Trucking Alliance (CTA), this means there could still be supply chain issues.
CTA estimates 10% to 20% or 12,000 to 22,000 Canadian truck drivers, and 40%, or 16,000 U.S. truck drivers traveling into Canada, would be sidelined by mandates. Truckers haul more than two-thirds of the $521 billion in goods traded annually between Canada and the United States.
Some Democrats want new leader atop Ag Committee with farm bill ahead... Politico reports a growing number of House Democrats are quietly wanting to replace House Agriculture Committee Chair David Scott (D-Ga.) as the panel gets set to start the process of drafting a new farm bill. The article notes some have raised questions about his health but perhaps more importantly about his mental capacity to handle the massive piece of legislation. Some speculated he will not be replaced, but those in charge of the various subcommittees would play a larger role.
Politico also indicated some lawmakers have expressed their concerns to House leadership. But that was tamped down via a statement from the office of House Speaker Nancy Pelosi (D-Calif.). “The Speaker has confidence in Chairman Scott’s leadership,” Drew Hammill, Pelosi’s deputy chief of staff, said in a statement. “No such concerns have been raised by Members with our office.”
Scott also pushed back on the talk, telling Politico that those suggesting replacing him as chair just wanted to be chairs of the panel. “These are people that want this position,” Scott said.
This could add another dynamic into the coming farm bill debate, one that is not expected to be finished prior to the November elections and may take a lot longer to complete with the prospect that Republicans could retake control of at least the House in the November balloting. This is why a growing number of observers predict a one- or two-year extension of the current farm bill.
Microsoft invests $50 million in biofuel jet fuel plants... LanzaJet announced Microsoft is investing $50 million in its sustainable aviation fuel biorefinery in Georgia to produce jet fuel next year. Based in Chicago, LanzaJet has nearly complete on-site engineering for the Freedom Pines Biorefinery. They expect to start producing 10 million gallons of sustainable aviation fuel (SAF) and renewable diesel per year from sustainable ethanol, including from waste-based feedstocks, in 2023. Other investors in the company include Suncor Energy Inc., British Airways and Shell.
Brazil's BRF, Saudi fund set up poultry joint venture... Brazilian chicken and pork processor BRF signed a non-binding memorandum of understanding with Saudi Arabia’s sovereign fund to create a joint venture to make poultry products in the Middle Eastern country. BRF will hold a 70% stake in the joint venture, while Saudi Arabia’s Public Investment Fund (PIF) will have the remaining 30%. The joint venture will require a $350 million investment if it materializes. BRF is a quiet period before its shareholders vote to move forward on the joint venture on Monday.
The move underscores BRF’s strategy to keep a relevant share of the so-called halal food market. Brazil is the world’s biggest halal meat supplier. Saudi Arabia is Brazil’s fourth-biggest chicken customer. It imported 353,500 MT of Brazilian poultry last year, a 24.4% drop, according to trade data compiled by meat industry group ABPA.
