Evening Report | June 15, 2023

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Drought now covers more than half of corn, soybean areas... As of June 13, the Drought Monitor showed nearly 55% of the U.S. was covered by abnormal dryness/drought, unchanged from the previous week. But drought continues to expand across corn and soybean areas. USDA estimated drought covered 57% of corn production areas (up 12 points from last week), 51% of soybeans (up 12 points), 4% of spring wheat (down one point) and 18% of cotton areas (down one point).

For the Midwest, the Drought Monitor noted: “A storm system over the Midwest and Great Lakes over the weekend did little to halt widespread degradation of conditions across the Midwest. Although some locations did experience modest improvements, mainly in areas seeing in excess of 2 inches of rainfall, degradation to moderate drought (D1) and expansion of abnormal dryness (D0) is widespread across the Corn Belt, the Lower Peninsula of Michigan, and the Upper Midwest. High rates of evaporation from soils and vegetation over the past 1 to 2 months have resulted in large losses to soil moisture, with stream flows also dropping significantly across many of these same areas (falling below the 10th percentile of the historical distribution, particularly across the southern Great Lakes and the Corn Belt). There are many reports of browning and stressed vegetation, with several producers already resorting to supplemental feeding for their livestock due to reduced forage. Loss of yield remains a large concern for many.”

For the Plains, the Drought Monitor stated: “Although much of the High Plains region received above-normal precipitation this week, the region as a whole is a tale of 2 halves. Improvement to the drought depiction is warranted across western portions of the Central and Northern Plains, where 7-day precipitation totals exceeded 200 percent of average across most areas, adding to precipitation surpluses in recent weeks and improving long-term drought indicators. Conversely, deteriorating conditions are warranted across eastern parts of the High Plains region where heavy, convective rainfall was not enough to overcome predominantly near and above normal temperatures and high rates of evaporation from the soils and vegetation (known as evapotranspiration).”

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Extended weather favors western Corn Belt... The National Weather Service (NWS) extended forecast calls for increased chances of above-normal temps across most of the country aside from the western Corn Belt and Northern Plains during the July to September period. Those regions are expected to see “equal chances” for normal, above-normal and below-normal temps. The precip outlook calls for a bubble of above-normal rainfall over the Mid-South, much of the Plains and west-central areas of the western Corn Belt. Other areas of the Corn Belt are expected to have “equal chances” for precip, aside from northern Wisconsin and most of Michigan, which are likely to be dry.

The seasonal drought outlook calls for improvement or removal of drought across much of the western Corn Belt through September, while drought is expected to develop or persist over the eastern half of Iowa, northeastern Missouri and across the eastern Corn Belt.

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Record NOPA May soybean crush... The National Oilseed Processors Association (NOPA) crushed a May record 177.9 million bu. of soybeans last month. Crush increased 4.7 million bu. (2.7%) from April and was 6.8 million bu. (4.0%) above year-ago.

NOPA data implies a full May crush of about 190 million bushels. At that level, crush would need to outpace last year by less than 1% over the final three months of 2022-23 to hit USDA’s forecast. We forecast crush at 2.225 billion bu., 5 million bu. above USDA’s estimate.

House Ag appropriations measure... House appropriators battled over abortion, equity and rural priorities as they amended and advanced the fiscal year (FY) 2024 spending bill for USDA and related agencies Wednesday. The Appropriations Committee voted 34-27 along party lines to report out the bill that would provide $25.3 billion in discretionary funding. The base allocation for the draft bill is $17.8 billion, boosted by nearly $8 billion in rescissions to get to the full discretionary amount. Because of the rescissions, the topline is slightly higher than the $25.1 billion enacted in FY 2022. The FY 2023 appropriation is $25.5 billion. Republican appropriators said the caps agreed upon for discretionary nondefense funding set at FY 2023 levels for FY 2024 are only a ceiling, and that their goal was to write bills to 2022 levels.

The Food and Drug Administration (FDA) is set to receive $6.6 billion in total funding, while the Commodity Futures Trading Commission would receive $345 million. There were heated debates on funding cuts and policy decisions. Republicans sought to block FDA’s decision to remove a requirement for health care providers to dispense the abortion drug mifepristone in person. Democrats, on the other hand, argued this move as an attempt to restrict access to abortion.

The committee rejected an amendment that would preserve funding for rural electric cooperatives and for debt relief to farmers and ranchers with direct loans from USDA or loans from private lenders guaranteed by the department.

Reactions were mixed, with Republicans defending the decisions and Democrats criticizing them for negatively affecting rural communities and minority producers.

Proposition 12 update... Following are updates to California’s Prop 12 law based on our research and comments from industry sources.

• Proposition 12 has led to significant changes in the pig production industry. U.S. producers are currently losing around $40 per pig.
• Strict enforcement of Prop 12 isn’t occurring at the moment, and pork already in the pipeline won’t face penalties. However, starting Jan 1, 2024, third-party inspection and certifications will be required, along with yearly renewals. Distributors must register with the California Department of Food and Agriculture by July 1, 2023.
• As a result of Prop 12, only 8% of U.S. sow housing can currently meet the new standard, which is inadequate to fulfill California’s pork demand. Producers have identified a decrease in conception rates on compliant farms as a major issue, with one solution being to double the amount of food provided to sows during the first 30 days of gestation, but this comes with added expense.
• Major processors believe they will gradually meet California’s pork demand, which is approximately 13% of total U.S. pork consumption. However, the types of pork products consumed in the state, such as bacon and ribs, might shift towards more hams and loins.

EATS Act introduced to counter Prop 12... In response to California’s Proposition 12, Sen. Roger Marshall (R-Kan.) introduced the Ending Agricultural Trade Suppression (EATS) Act today. This bill aims to prevent states from enacting laws that impact agricultural production in other states. The law attracted co-sponsors including Republican Senators Chuck Grassley, Joni Ernst, John Cornyn, Tom Cotton, Deb Fischer, Kevin Cramer, Eric Schmitt, and Ted Budd.

California’s Proposition 12 requires pork sold in the state to be produced under specific conditions, which has caused concerns for pork-producing states, with potential nationwide implications on food costs and producers' ability to comply. Proponents of the EATS Act argue that such regulations unfairly burden other states and their agricultural industries, while opponents claim that the Act would undermine states' rights and give multinational conglomerates an unfair advantage.

Despite the support for the EATS Act, some believe the bill is unlikely to pass Congress, as some food companies and retailers are already advocating for better living conditions for animals. The pork industry itself is divided, with several companies having adopted the California standards and reducing the use of gestation crates. The National Pork Producers Council and other agricultural organizations have supported the EATS Act, hoping to protect farmers and ranchers from burdensome regulations.

USDA considering higher standards for meat marketed as ‘humanely raised’ or antibiotic-free... This effort aims to respond to criticism that these claims are often exaggerated to justify higher prices. USDA’s Food Safety and Inspection Service (FSIS) is under pressure to tighten oversight of marketing claims on packaged food, as consumers often pay a premium for such products based on perceived benefits such as health, environmental impact, or animal welfare.

Recent studies from animal welfare groups and science journals reveal that USDA’s rules for allowing such claims may be too lax. A report from the Animal Welfare Institute found USDA could not substantiate animal-raising claims on many meat products that carried related labels. Similar investigations found issues with incomplete or inaccurate label applications and antibiotics in meat that was labeled antibiotic-free.

In response, USDA wants to reduce fraudulent claims and plans to revise guidelines for companies providing documentation about animal-raising claims. The agency is strongly encouraging the use of third-party certification to verify these claims. Additionally, FSIS and USDA’s Agricultural Research Service plan to assess antibiotic residues in cattle and revise labeling requirements based on the results.

OMB still reviewing EPA’s RFS levels... EPA's final ruling on the Renewable Fuel Standard is still under review at the Office of Management and Budget (OMB), even though all of the 35 scheduled meetings have concluded. EPA has a deadline of finalizing the rules by June 21, which was established after reaching an agreement with Growth Energy on an extension. The specific date for the release of these finalized rules is not yet known, but it is anticipated to be shortly after the OMB review is finished, as has been the pattern previously.

U.S. continues duties on imports of biodiesel from Argentina, Indonesia... The U.S. International Trade Administration (ITA) has issued a notice in the Federal Register announcing its decision to continue the antidumping duty (AD) and countervailing duty (CVD) orders on biodiesel imports from Argentina and Indonesia. This decision comes after the conclusion that revoking these orders would likely result in material injury to the U.S. biodiesel industry due to the continuation or recurrence of unfair trade practices and subsidies. On June 8, the U.S. International Trade Commission (USITC) released a determination that supported these concerns, finding there was indeed material injury caused by the imports. The orders were made effective on the same day and are to remain in place for five years. The USITC began a five-year review of the duties, which were first implemented on Jan. 4 and April 26, 2018.

USDA makes technical correction to ERP Phase 2... USDA is updating its Emergency Relief Program (ERP) Phase 2 to provide a method for valuing losses and accessing program benefits to eligible producers of certain crops, including grapes grown and used by the same producer for wine production or forage that is grown, stored and fed to livestock, that do not generate revenue directly from the sale of the crop. These updates ensure that ERP benefits are more reflective of these producers’ actual crop losses resulting from 2020 and 2021 natural disaster events. USDA’s Farm Service Agency (FSA) will begin accepting ERP Phase 2 applications from eligible wine grape and forage producers once this technical correction to the program is published in the Federal Register and becomes effective, which it anticipates will be on Friday, June 16. The deadline to submit applications for ERP Phase 2 is July 14. 

ECB continues to raise interest rates... The European Central Bank raised interest rates to their highest level in 22 years, warning inflation is far from vanquished. ECB’s decision to raise its benchmark deposit rate by a quarter-point to 3.5% comes as it grapples with both an apparent wage-price spiral and a stagnant economy.