Evening Report | March 10, 2023

Evening Report
Evening Report
(Pro Farmer)

Check our advice monitor on ProFarmer.com for updates to our marketing plan.

 

Your Pro Farmer newsletter is now available... USDA’s March Supply & Demand Report featured limited changes to its balance sheets, though the adjustments that were made were notable. USDA slashed its 2022-23 Argentine corn export forecast by 7 million metric tons (276 million bu.), but it also cut U.S. corn exports by 75 million bu., signaling the extended period of high prices has caused demand destruction. Meanwhile, Argentina’s production estimates continue to decline, with some forecasters calling for the smallest soybean crop since 1999. La Niña has ended and El Niño could develop by summer. However, a strong negative Pacific Decadal Oscillation has intensified as La Niña weakened, which can lead to warm, dry conditions during summer in the central United States. On the trade policy front, the U.S. and Mexico requested formal consultations with Mexico over its policies limiting imports of GMO corn and other products. Fed Chair Jerome Powell had a more hawkish tone in comments to Congress last week, which sparked a sharp market reaction, including a strong rally in the U.S. dollar and an inversion of the yield curve. We cover all of these items and much more in this week’s newsletter, which you can access here.

 

Fed expectations ease after jobs data... The U.S. economy added a stronger-than-expected 311,000 non-farm payrolls in February, but the unemployment rate rose to 3.6% and wage gains slowed.

Hawkish comments from Chair Jerome Powell earlier last week fueled expectations the Fed would hike interest rates 50 basis points at the March 21-22 meeting. The jobs data tempered those thoughts.

 

Assessing reference prices... Speaking at Commodity Classic this week in Orlando, Florida, Texas A&M University economist Bart Fischer estimated a 10% increase in reference prices would cost about $20 billion over 10 years. A 20% increase would cost more than $50 billion. But especially with corn and soybeans, farmers and others say even a big boost would not likely mean many if any payouts for most years. Said one observer: “Why would the ag sector take all those costs that the Congressional Budget Office score it at and not get much for it. Wouldn’t that funding be better elsewhere?”

In the House Ag Committee estimates letter this week, they noted: “The current policies were designed in the 2014 Farm Bill using 2012 cost of production data. Today, the combination of spiking input costs and outdated policy has rendered the commodity title ineffective. Consider the four crops that represent the largest acreage in the U.S.: corn, soybeans, wheat and cotton. The forecast season average farm price of each commodity would need to fall by roughly 23%, 30%, 21%, and 52%, respectively in 2023 to trigger any support under current law. If left unchanged, while production costs remain sticky, many producers would be bankrupt before Title I support provides assistance.”

Bottom line: A safety net should not be measured by how much payments are made when commodity prices are high. Rather it should be measured by whether it kicks in to help producers when prices decline. It’s similar to insurance. One doesn’t buy insurance to receive an indemnity. One buys insurance for protection.

 

Biden, von der Leyen talk EV credits... President Joe Biden and European Commission President Ursula von der Leyen held talks on Friday that may lead to negotiations on critical minerals used for electric vehicles (EVs) and government subsidies, U.S. officials said. Biden and von der Leyen met at the White House against a backdrop of European complaints that clean energy subsidies in the U.S. Inflation Reduction Act (IRA) and others will divert investment away from Europe and hurt their economies.

“We do hope to be able to come out of this meeting able to launch the negotiations on critical minerals... as well as the dialogue on subsidy transparency,” White House national security spokesman John Kirby said.

 

Source: White House in initial talking stage to push new trade agreements... A Biden administration contact says in the next few months the White House could finally ask Congress to renew Trade Promotion Authority (TPA), which allows trade agreements to be voted on with amendments.

Meanwhile, USDA Secretary Tom Vilsack says enforcing existing trade agreements is important for building public support for TPA and, eventually, new trade agreements. “We have to rebuild trust around the country in trade,” he told those attending the Pork Industry Forum in Orlando, Florida. “The way you do that is by enforcing the trade agreements you have,” he said, noting U.S. actions this week to begin consultations with Mexican officials on its biotech corn ban.

 

Brazil, Australia start ag trade talks... Brazil and Australia opened talks aimed at forging new agricultural trade agreements, Brazil’s ag ministry announced. While Brazil aims to export pork to Australia, it could start importing Australian wheat and barley under a potential future pact. Sophie Davis, Australia’s ambassador to Brazil, met Brazilian Ag Minister Carlos Favaro on Wednesday. Aside from liberalizing trade, the pair also discussed sustainable agriculture projects and opportunities for research cooperation in the field.

To implement an agricultural agreement, Brazil and Australia must first negotiate a reduction of bilateral trade tariffs at the World Trade Organization.

Abitrigo, a Brazilian trade group representing flour millers, said it also met Australian government representatives to share information on the Brazilian wheat market. The trade group said it was in favor of diversifying sources of wheat imports, adding this would be beneficial to Brazilian flour millers.

 

South American countries form group to tackle bird flu... Representatives of six South American countries — Argentina, Brazil, Bolivia, Chile, Paraguay and Uruguay — created a technical committee to address avian influenza outbreaks. The Southern Cone’s Permanent Veterinary Committee (CVP) is organizing efforts to create a regional response to bird flu. Several of the countries have reported bird flu cases and a statement creating the group said it appeared the virus was “here to stay.” Peru, Colombia and Ecuador also joined the meeting.

 

Don’t get too excited about House vote Thursday on WOTUS rule... The House voted 227-198 to overturn “waters of the United States” (WOTUS) protections under the Clean Water Act finalized by the Biden administration in December. The vote was driven by House Republicans that have long said the regulations are an environmental overreach and a burden to business. President Joe Biden has said he would veto the measure if it lands on his desk and the vote count shows not enough muster to override any veto. So, this is an “etch-a-sketch” news development that really awaits a coming Supreme Court ruling on the matter.

 

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