Evening Report: April 28, 2022

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U.S. GDP unexpectedly contracts... The U.S. gross domestic product (GDP) contracted at a 1.4% annualized rate in the first quarter, following a 6.9% increase at the end of last year, the Commerce Department’s preliminary estimate showed Thursday. The average projection in a Bloomberg survey of economists called for a 1% increase. The contraction was due to a jump in imports and a drop in exports, coupled with a slower buildup of businesses’ stockpiles. On a year-over-year basis, the economy grew 3.6%.
 

Ag production incentives part of Ukraine assistance request... President Joe Biden proposes spending $500 million to encourage U.S. farmers to increase production of crops such as soybeans and wheat to address global food shortages. This is part of the $33 billion Ukraine assistance request. The production incentives would include a temporary increase in marketing assistance loan rates and incentive payments through crop insurance to encourage farmers to double-crop wheat. The higher loan rates would apply to “wheat, edible oilseeds including soybeans, and rice to encourage greater supply availability for humanitarian needs or export,” the summary says. The supplemental request includes $1.6 billion earmarked for the U.S. Agency for International Development for emergency food aid and humanitarian assistance. The Agriculture Department would get another $100 million for the Food for Progress program and $20 million for the Bill Emerson Humanitarian Trust.

 

Vilsack transfers $263 million from CCC to APHIS due to bird flu... USDA Secretary Tom Vilsack transferred $263 million from Commodity Credit Corporation (CCC) funding to assist USDA’s Animal and Plant Health Inspection Service in response to highly pathogenic avian influenza (HPAI). The transfer allows APHIS to continue its work with state and local partners to quickly identify and address cases of HPAI in the United States. This follows a mid-March approval of $130 million in emergency funds. The Secretary is authorized to transfer funding from available resources to address emergency outbreaks of animal and plant pests and diseases. HPAI has been confirmed in 29 states, affecting more than 33 million domestic birds.


Midwest governors request year-round E15 sales... Eight Midwest governors have sent a letter to the EPA requesting E15 to be allowed year-round in their states. Under the Clean Air Act, governors have the authority to ask EPA to equalize the summer regulations for E10 and E15. E10 and E15 are currently regulated differently, allowing oil refiners to game the system by not supplying the proper gasoline to blend for summer E15. The governors are pursuing this route to enable year-round E15 sales permanently. The governors of Illinois, Iowa, Kansas, Nebraska, North Dakota, Minnesota, South Dakota and Wisconsin noted E15 sales would help lower gas prices. Combined, these eight states account for more than 10% of U.S. gasoline use – a market larger than California. According to the Renewable Fuels Association, the states involved are also home to 57% of the nation’s 2,512 stations currently selling E15.


Winter wheat drought area decreases... The amount of U.S. winter wheat considered in drought conditions dropped one point to 69% for the week ended April 26, according to the U.S. Drought Monitor. USDA said winter wheat drought was 12% “moderate,” 31% “severe,” 23% “extreme” and 2% “exceptional.” Last week, USDA rated winter wheat drought as 16% “moderate,” 30% “severe,” 21% “extreme” and 2% “exceptional.”

For HRW areas, the area considered abnormally dry/drought in Kansas increased five points to 79%. Oklahoma dropped three points to 77%. Texas’s abnormally dry/drought area decreased by two points to 94%. South Dakota had 86% of its land classified as abnormally dry/drought, a one-point decrease.

In SRW areas, Arkansas had a four-point drop to 17% of its area considered abnormally dry/drought. Illinois had 8% of its land classified as abnormally dry/drought, a two-point drop. North Carolina had 43% of its area classified as abnormally dry/drought, a one-point decrease.


Drought area for spring-planted crops declines... The percent of U.S. corn considered in drought dropped by six points to 23%. Iowa had 15% of the state in drought, a 13-point decrease. Illinois had an eight-point drop in the amount of its corn crop in drought to 0%. None of Minnesota’s corn area is in drought, a seven-point drop from last week. 

USDA said 15% of the soybean crop area is in drought, down four points from the previous week. Illinois had none of its soybean acres in drought, down four points from last week. Sixteen percent of Iowa’s soybean acres are in a drought, a ten-point decrease from last week. Minnesota had a six-point drop to none of its soybean in drought.

Spring wheat had a five-point decline in the amount of the crop in drought to 35%. North Dakota had 6% of its spring wheat area in drought, down eight points from the previous week. South Dakota decreased the amount of its spring wheat in drought by eight points to 50%.

The amount of cotton in drought remained steady at 55%. Texas had 93% of its cotton acres in drought, down four points from last week. Georgia had an eight-point increase in the amount of its cotton crop in drought to 32%.


Unilever changes oil in some recipes... As a shortage of sunflower oil ripples through the global food industry, Unilever said it had altered some of its recipes to substitute rapeseed oil, which could help it save money as input costs soar. Due to tight supplies of sunflower oil, food makers are moving to replace it with alternatives like rapeseed or soybean oil. Unilever counts edible oils as the “most significantly impacted commodity sector” it deals in. Sunflower oil is listed as an ingredient in several Unilever products. France is giving companies up to six months to update product labels to reflect recipe changes if they replace sunflower oil.


Ukraine reaches an agreement to export through Bulgaria... Ukraine and Bulgaria reached an agreement on transporting Ukrainian grain via the Bulgarian port of Varna, Ukrainian President Volodymyr Zelenskyy said after talks on Thursday with Bulgarian Prime Minister Kiril Petkov. He gave no timeline and provided no details of the volumes of grain to be shipped via Varna on the Black Sea.


Russia accused of stealing Ukrainian grain... Ukraine accused Russia on Thursday of stealing grain in the Kherson region, whose main city has been occupied by the Russian forces since the early days of the Russian invasion on Feb. 24, Reuters reported. In a separate statement, the Ukrainian Prosecutor General’s office said it had opened a criminal case into allegations that Russian soldiers, threatening violence, had on April 26 taken away 61 MT of wheat from an agricultural enterprise in the Zaporizhzhia region of southern Ukraine. The Ukraine government called on Russia to stop stealing grain, unblock Ukrainian ports, restore freedom of navigation and allow the passage of merchant ships. The Russian government said it had no information on the matter.


Ukraine wheat production cut, corn crop increased... SovEcon, a Black Sea region consulting firm, reduced its 2022 Ukrainian wheat production forecast by 500,000 MT to 23.1 MMT. In 2021, the country produced 32.1 MMT of wheat. The cut was mainly due to a 300,000-hectare reduction of likely harvested wheat area to 6.5 million hectares due to the large-scale Russian offensive in Southeastern Ukraine.

The firm increased its Ukraine corn production estimate by 1.4 MMT to 25.8 MMT. The country produced 42.1 MMT of corn last year. The corn area was increased by 200,000 hectares to 4.4 million hectares. Russian troops leaving key corn-growing regions in northern and central Ukrainian regions and ample precipitation are the main reasons for the increased corn production forecast.

 

Higher retail meat prices will test consumer demand...  U.S. consumer demand for retail meat remains exceptionally strong despite higher prices stemming from increased production costs and supply-chain limitations. However, once the full effects of producer price inflation finally hit retail meat cases, consumer demand for meat will be tested again, according to a new report from CoBank's Knowledge Exchange. The report expects retail meat prices will remain elevated throughout 2022. With combined cutout values of beef, pork and chicken climbing 22% year-over-year for the first quarter of 2022, consumers will see higher prices in the meat case. Higher overall inflation might significantly change consumers’ willingness to pay for red meat. If that turns out to be the case, the U.S. broiler industry may yet again be well-positioned for modest growth and strong margins.

For retailers in 2022, they might feature more value items like ground beef, hot dogs and sausage items. As grilling season enters full swing, retail meat departments’ focus will likely shift to profit margins over volume sales this year, increasing creativity in the meat case. Rather than vying for consumer dollars through aggressive price points, “no price” features will be an attractive solution for retailers.

 

OPEC+ likely to stick to existing deal, raise June output... OPEC+ is expected to stick to its current deal and agree to another slight output increase for June when it meets on May 5, Reuters reported. Under an agreement reached in July last year, the cartel is set to increase output targets by 432,000 barrels per day (bpd) every month until the end of September to unwind its remaining production cuts. Last month, it agreed to go ahead with the planned output increase for May. Major consumers have been pressing the group to boost output faster. However, the cartel has been struggling to produce at its agreed targets, a trend that is likely to continue. It produced 1.45 million bpd below its production targets in March.

 

Major Brazilian soybean grower to cut fertilizer use... One of Brazil’s largest farmers plans to reduce fertilizer use by a quarter next season, relying on more precise applications and soil testing to maintain crop yields, Bloomberg reported.  SLC Agricola SA, which cultivates an area bigger than Delaware with soybeans, corn and cotton, will probably use between 20% and 25% less fertilizer in 2022-23 without jeopardizing yields, according to company officials. Many farmers are considering cutting fertilizer usage due to higher prices and shortages. According to fertilizer industry sources, only about 15% of Brazil’s agriculture areas may sustain itself without fertilizers.

 

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