Evening Report | November 3, 2022

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UN chief pushing for grain export deal extension... UN Secretary-General Antonio Guterres said on Thursday he is pressing Russia and Ukraine to extend the deal allowing Ukrainian grain exports from Black Sea ports beyond the Nov. 19 deadline. He also wants more Russian exports of grains and fertilizers. “I appeal to all parties to concentrate efforts in two areas. First, renewal and full implementation of the Black Sea Initiative. Second, removing the remaining obstacles to the exports of Russian food and fertilizer,” Guterres said. A senior UN official said on Thursday the global body was prioritizing efforts to export stranded Russian fertilizers from European ports.

“Over the past few days, I believe the world has come to understand and appreciate the importance of the Black Sea Grain Initiative,” Guterres said. “For stemming the food crisis. For easing prices and pressures on people around the world. For reducing the risks of hunger, poverty and instability. High fertilizer prices are already affecting farmers around the world. We cannot allow global fertilizer accessibility problems to morph into a global food shortage.”

Russian President Vladimir Putin is expected use the grain deal as leverage during the Nov. 15-16 G20 summit in Bali. But there’s debate over how much leverage Putin really holds. Some feel Ukrainian grain exports would continue even if Russia doesn’t extend the deal, while others feel it would be difficult to get underwriters to insure shipments if its not extended.

Drought intensity builds in Kansas... As of Nov. 2, 85% of the U.S. was experiencing abnormal dryness/drought, according to the U.S. Drought Monitor, up one percentage point from last week. USDA estimates the drought footprint covers 74% of winter wheat acres (unchanged from last week). “Extreme” or “exceptional” drought now covers 59% of Kansas, including virtually all of the southern half of the state and many of the western counties.  

In HRW areas, dryness/drought covers 83% of Colorado (up 1 point), 100% of Kansas (unchanged), 90% of Montana (unchanged), 100% of Nebraska (unchanged), 100% of Oklahoma (unchanged), 100% of South Dakota (unchanged) and 92% of Texas (down 1 point).

In SRW areas, dryness/drought covers 93% of Missouri (down 7 points), 79% of Illinois (down 11 points), 98% of Indiana (down 2 points), 86% of Ohio (up 13 points), 40% of Michigan (down 1 point), 99% of Kentucky (unchanged) and 98% of Tennessee (up 7 points).

The Seasonal Drought Outlook calls for drought to persist across most of the Southern and Central Plains through January, though some improvement is expected in southeastern Kansas and far northeastern Oklahoma. Drought conditions are likely to improve or be removed across Missouri and northern SRW wheat areas during the next three months.

Click here for more details and to view related maps.

IHS Markit raises corn, soybean crop estimates.... IHS Markit raised its U.S. corn crop estimate to 13.981 billion bu. on a yield of 172.9 bu. per acre, up from its October forecasts of 13.893 billion bu. and 171.2 bu. per acre. The firm increased its soybean crop estimate to 4.360 billion bu. on a yield of 50.3 bu. per acre, up from its October forecasts of 4.327 billion bu. and 49.9 bu. per acre.

Exchange again cuts Argentine wheat crop estimate... The Buenos Aires Grain Exchange cut its 2022-23 wheat crop estimate by 1.2 MMT to 14 MMT. The exchange cited late-season frosts after a prolonged drought for the reduction.

Report: Small refineries pay more for U.S. RFS mandates... Small oil refineries pay more than larger competitors to fulfill U.S. mandates to blend biofuels into gasoline and diesel, congressional investigators have found, a conclusion that could intensify calls to ease the requirements in the name of lowering fuel prices. The findings are contained in a draft of a report from the Government Accountability Office (GAO), which was published today. “We found that smaller buyers pay more, and smaller sellers receive less, when buying or selling RINs compared to larger buyers and sellers,” according to the draft report.

GAO said its analysis alone doesn’t show there is “disproportionate economic hardship for small refineries.” The group’s recommendations include calling on EPA to identify and communicate what information refineries need to submit to show they shoulder an excessive burden.

In an Oct. 13 letter to GAO included in the report, EPA said several of the investigation’s initial conclusions were “erroneous and/or unsupported… GAO’s analysis of renewable identification number trades suffers from several fundamental flaws. Each of these flaws calls into question the relevance of GAO’s analysis.”

Click here to view the GAO report.

OECD: Countries using carbon pricing more for reducing greenhouse gas emissions... The introduction and expansion of carbon pricing efforts covered 40% of greenhouse gas (GHG) emissions in 71 countries responsible for 80% of GHG emissions in 2021, up from 32% in 2018, according to a report from the Organization for Economic Cooperation and Development (OECD).

Countries could raise about 2.2% of GDP if they set carbon prices at 120 euros ($118) per metric ton of carbon dioxide by then end of the decade, but OECD said that would need to linked with other policies to “overcome barriers to the transition to net-zero.”

“Progressively increasing carbon prices while phasing out fossil fuel subsidies can help countries to implement more ambitious, effective and efficient climate policy,” according to the report. But OECD also warned that subsidies to help consumers with rising energy costs such as those linked to the Russian war on Ukraine could actually reduce the carbon price and boost GHG emissions.

There is no federal carbon pricing system in place in the U.S. even though there are some private-sector efforts. OECD said 10% of the U.S. electricity sector was covered by carbon pricing in 2021, up from 7% in 2018. Efforts to implement a government-run nationwide carbon pricing scheme have not gained traction to date.

Ag trade deficit grows in September... The U.S. exported $13.6 billion of ag goods in September against imports of $15.9 billion, which resulted in a deficit of nearly $2.3 billion. That was up from a deficit of $1.4 billion in August. September marked the end of the fiscal year. For FY 2022, the U.S. exported $196.4 billion of ag goods and imported $194.0 billion for a surplus of $2.4 billion. In August, USDA forecast FY 2022 ag imports at $196.0 billion and imports at $192.0 billion.

U.S. trade deficit hits three-month high... The U.S. trade gap widened to a three-month high of $73.3 billion in September from a downwardly revised $65.7 billion deficit in August. It reflects an increase in the goods deficit of $6.6 billion to $92.7 billion and a decrease in the services surplus of $1.0 billion to $19.5 billion. Total imports rose 1.5% to $331.3 billion, prompted by purchases of semiconductors, civilian aircraft, telecommunications equipment, cell phones, pharmaceutical preparations, travel and transport services. Imports fell for fuel, crude and other petroleum products. Meanwhile, exports declined 1.1% to $258 billion, led by lower sales of crude oil, nonmonetary gold and soybeans while shipments went up for telecommunications equipment, semiconductors and services, including travel and financial. The trade deficit increased with the EU and Mexico but narrowed with China.

Wheat exports help widen Canada’s trade surplus... Canada’s exports rose in September, largely driven by better wheat volumes and prices, Statistics Canada reported. The country’s trade surplus widened to C$1.14 billion ($827.4 million) in September, up from a downwardly revised C$550 million surplus in August. Exports rose 1.3% in September and were up 1.7% on a volume basis, though prices fell for the fourth consecutive month, Stats Canada said. Wheat led the gains, as the war in Ukraine has increased demand for Canadian exports. Canada’s imports rose 0.4% but were down 0.8% in volume terms.

BOE raises interest rates the most in 33 years... The Bank of England (BOE) raised its interest rates 75 basis points, pushing the key lending rate to 3%. The rate increase is BOE’s eighth in a row and the biggest since 1989. BOE warned of a “very challenging” outlook for the economy as it looks to stave off inflation that is expected to hit a 40-year high of around 11% this quarter.

“Further increases in Bank Rate may be required for a sustainable return of inflation to target, albeit to a peak lower than priced into financial markets,” the BOE said. “The Committee continues to judge that, if the outlook suggests more persistent inflationary pressures, it will respond forcefully, as necessary.”

Seaboard buys Maschhoffs hog operation... Seaboard Corp. acquired hog inventory and certain hog farms in the central US from The Maschhoffs LLC for $58 million in cash considerations. The purchase allocated $9 million to inventories, $45 million for property, plant and equipment, and $4 million to goodwill. According to the company, the assembled workforce and the benefits of acquiring an existing operation represent goodwill. The acquisition increases Seaboard’s sow inventory, “resulting in less reliance on third-party hog suppliers.”