Cooler Jobs Report but Fed Still Likely to Hike Rates July 26

Tai comments re: USMCA meetings | Glyphosate report | Food consumption ahead

USDA daily export sale: 180,000 metric tons of corn for delivery to Mexico. Of the total, 45,000 metric tons is for delivery during the 2022-2023 marketing year and 135,000 metric tons is for delivery during the 2023-2024 marketing year.

Sorghum, cotton and new-crop soybeans were the main export sales activity to China. USDA weekly Export Sales data for the week ended June 29 included activity for 2022-23 of net reductions of 1,296 metric tons of corn, net sales of 81,000 metric tons of sorghum and net sales of 61,677 running bales of upland cotton. Activity for 2023-24 included sales of 270,000 metric tons of soybeans and 76,144 running bales of upland cotton. Net sales of 112 metric tons of beef and 499 metric tons of pork for 2023 were also reported.

The U.S. economy added 209,00 jobs last month, according to Labor Department data released this morning, coming far short of economist estimates. That’s the least amount of jobs added in a month since December 2020. The unemployment rate ticked down slightly to 3.6%, meeting estimates of 3.6%. We have details and impacts in the Markets section.

Treasury Secretary Janet Yellen in China said competition with the U.S. is not a “winner-take-all” situation and that fair rules would benefit both over time. The Treasury secretary voiced concerns over export controls on two metals and said she’s “particularly troubled by punitive actions” in recent months. Yellen played down efforts by the U.S. to limit China’s access to sensitive technology — a particular irritant for Beijing, which has begun retaliating more forcefully — as narrowly targeted. She said such measures aren’t a reason to allow relations to deteriorate further. See more in China section.

The People’s Bank of China (PBOC) revealed a new Communist Party chief on July 1. Analysis and background info in China section.

PFAS, or “forever chemicals” that seep into the environment and can lead to adverse health outcomes, were recently found to be in 45% of U.S. tap water. PFAS have been used in everyday products from nonstick pans to firefighting foam since the 1940s and take a long time to break down. See details below.

Russia has continued to complain that the Black Sea Grain Initiative has not been fully implemented relative to provisions that were aimed at boosting Russian exports of fertilizers and grains. However, Interfax reported that head of the Russian Agriculture Ministry indicated the country exported a record 60 million tonnes of grain in 2022-23. For more info on this topic, see Russia & Ukraine section.

Sluggish U.S. agricultural exports resulted in record trade deficit for May. US agricultural exports declined 3.2% to $13.93 billion in May while imports increased by 4.1% to reach $16.95 billion, leaving a record trade gap of $3.02 billion for the month. The export result was the smallest since September 2022 when it was $13.62 billion. More in Markets section.

USDA expands specialty crop insurance options. USDA is extending insurance coverage options for specialty crops and Actual Production History (APH) crop programs by increasing the availability of enterprise units to crops. Previously, these were not accessible to all crops. More in Policy section.

USDA could use its biggest land stewardship programs — the Conservation Reserve, the Environmental Quality Incentives Program (EQIP), and the Conservation Stewardship Program (CSP) — to combat climate change, wrote University of Maryland professor Erik Lichtenberg in a think tank report. Details in the Policy section.

A report shows how mergers in the Farm Credit System have affected ag banks. Details below.

New report examines a future without glyphosate. Aimpoint Research, a global strategic intelligence firm, published a new report (link) titled "A Future Without Glyphosate," examining the repercussions that could emerge from the discontinuation of glyphosate, currently the most commonly utilized herbicide in the U.S. Details below.

OECD and FAO report: Despite long-standing trends showing an increase in meat consumption as countries' incomes rise, a shift seems to be occurring. More in Food section.

U.S. petroleum production is projected to hit record-breaking levels this year, contributing to the stability of energy prices despite efforts by Saudi Arabia and other major oil exporters to increase them. More in Markets section.

Electric vehicle (EV) dealers are starting to see an increase in unsold inventory. More in Energy section.

International leaders are making efforts to salvage an international deal that enables Ukrainian grain shipments by sea as the agreement is set to expire in less than two weeks. More info in Russia & Ukraine section.

An update on USMCA talks being held in Mexico is in the Trade Policy section, including an update on the U.S. GM corn issue with Mexico.  

The Army & Air Force Exchange Service, commonly known as the Exchange, ranks as the 54th-largest retailer in the United States. Some background info on this below.

Surprisingly, illegal border crossings at the United States' southern frontier have been on a downward trend. For reasons why, see below.

U.S. officials have given full approval to the Alzheimer’s drug Leqembi. The medicine has been shown to modestly slow the mind-robbing disease and its approval clears the way for Medicare and other insurance plans to begin covering the treatment.

Equities today: Global stock markets. The Dow opened around 125 points lower. In Asia, Japan -1.2%. Hong Kong -0.9%. China -0.3%. India -0.8%. In Europe, at midday, London -0.3%. Paris +0.5%. Frankfurt +0.5%.

     U.S. equities yesterday: Al three major indices registered losses in the wake of the stronger-than-expected private sector jobs update from ADP ahead of Friday's release of the broader Employment figures from the Department of Labor. The Dow ended down 366.38 points, 1.07%, at 33,922.26. The Nasdaq was down 112.61 points, 0.82%, at 13,679.04. The S&P 500 declined 35.23 points, 0.79%, at 4,411.59.

     Samsung has issued a profit warning as there's been a decrease in demand for their chips. This Korean tech heavyweight has estimated a dramatic 96% drop in earnings for the second quarter compared to the same period last year, highlighting the impacts of the continuing global fall in computer and smartphone sales. This downturn has reduced the need for memory chips. Despite the recent surge in spending on AI-related technologies, it has been unable to offset the general downturn in the semiconductor market. This serves as an indicator of the persistent weaknesses that exist within this sector.

     Ford reports strong sales. New vehicle purchases rose 10% in the April quarter, as truck demand roared back. But Ford’s shares fell yesterday because its electric cars sales declined in the same period, underperforming its biggest rival, Tesla.    

     Taiwan exports also fell more than expected, down 23.4%, and that’s adding to general anxiety about future global growth.

     4.1%: Average vacancy rate for industrial real estate in the U.S. in the second quarter, up from 3.5% in the first quarter and the highest level since mid-2021, according to Cushman & Wakefield.

Agriculture markets yesterday:

• Corn: December corn futures rallied 13 cents before closing at $5.06 1/2, near the intraday high.
• Soy complex: November soybeans fell 15 1/2 cents to $13.39 1/2, finishing nearer the session low. August meal fell $1.90 to $408.20. August soyoil fell 205 points to 62.98 cents.
• Wheat: December SRW wheat fell 13 3/4 cents to $6.76 1/2 and nearer the session low. December HRW wheat edged up 1/4 cent to $8.44 3/4 and near mid-range. December HRS wheat rose 1 1/4 cents to $8.64 3/4.
• Cotton: December cotton fell 35 points to 79.88 cents.
• Cattle: August live cattle fell $0.375 to $174.575 and nearer the session high. August feeder cattle dropped $2.245 to $242.275.  
• Hogs: Nearby hog futures set new summer highs but couldn’t sustain the gains Thursday. Expiring July hogs dipped $1.225 to $100.05, while August slipped 32.5 cents to $97.125. The lean hog index continued its summer surge early this week, with Monday’s rise of 37 cents to $95.68 officially confirmed.  
   

Ag markets today: Lower values prevailed in grain markets overnight. Corn finished the sessions down 3 to 4 3/4 cents. Soybeans were down 5 to 14 1/2 cents. SRW wheat was up 19 1/3 cents in July but down 6 3/4 to 10 1/2 cents in most other contracts. HRW wheat was down 15 1/2 to 17 1/2 cents. Front-month crude oil futures were up slightly, while the U.S. dollar index was around 440 points lower.

Market quotes of note:

• “The strength of the U.S. labor market is almost unbelievable, and this should further push out any concept of a possible recession in the U.S.,” said Scott Ladner, chief investment officer at Horizon Investments. “But it should also push out of the market any hopes of a Fed rate cut during 2023.”
   
• Mexico’s peso is likely to weaken after recent rally left it overvalued by 20%, according to Oxford Economics. “While we don’t rule out that nearshoring expectations and restrictive domestic policies will continue to bolster the peso, we think support will evaporate if market sentiment wavers or Mexico’s economic underperformance deepens,” economist Felipe Camargo wrote in a Thursday note. The Mexican peso has strengthened over 13% year to date.
   
• Job security. “I don’t think right now is a good time to do a lot of jumping around.” — Julius Maupins, a worker at a Veritiv packaging and paper warehouse and one of a growing number of Americans who are sticking with their current jobs.
   

Jobs report highlights:

• 209,000 jobs, below market forecast of 225,000; 30th consecutive month of gains in American payrolls.
• Lowest reading since December of 2020, but remaining more than twice the 70,000 to 100,000 needed per month to keep up with growth in the working-age population.
• Shows ADP data is not a reliable predictor of the broader Dept. of Labor data.
• Private sector added just 149,000 positions, well below estimates of 199,000. Meanwhile, gov’t payrolls rose by 60,000.
  
• 3.6% unemployment from a seven-month high of 3.7%.
• April and May revised down a combined 110,000, depicting somewhat weaker hiring in spring than believed and could signal a lower revisions of today’s job numbers ahead.
• Average hourly wage rose 0.4% on the month, topping 0.3% forecasts. Annual wage growth of 4.4% exceeded 4.2% forecasts. May's gain was revised up to 4.4% from 4.3%.
• Length of the workweek rose to 34.4 hours vs. 34.3 hours in May.
• Labor force participation rate, a measure of those working or actively seeking work as a share of the 16-and-up population, held at 62.6%.
• Futures pricing in over a 90% chance for a 25-bps hike this month after jobs data, which would take it to 5.25% to 5.5%. But the highest probabilities for remaining meetings in 2023 are for rates to hold at 5.25% to 5.5%.
• Two-year Treasury yield, sensitive to changes in investors’ interest-rate expectations, fell after the numbers were released, from 5% down to around 4.9%. That is roughly equivalent to about half of a typical rate move by the Fed.
   

U.S. trade deficit reached $69.0 billion in May due to a significant drop in import growth. While both imports and exports experienced a decrease, with imports sliding by 2.3% and exports slightly less at 0.8%, the outcome has been a modest change in the overall trade deficit. More specifically, the largest decline in imports was recorded in six months, reflecting a reduced domestic demand for goods.

     Nonetheless, net exports are projected to pose a hindrance on the GDP growth in the second quarter, according to some analysts. Current predictions from Wells Fargo estimate that net exports will cut around 1.4 percentage points from growth during this period, in line with previous expectations. Real imports likely dipped roughly 1% during the same quarter, while exports appear to have fallen by around 10%.

     A major factor influencing export weakness in May was a $2 billion drop in soybean exports which restrained overall export growth. This marks the most significant drop in any end-use category and resulted in the overall food & feed section falling the most drastically in over 40 years. Furthermore, autos and consumer goods exports, which increased by 7.4% and 3.9% respectively, mitigated this fall.

     On the import side in May, consumer goods decreased by 7.2%. Some of this reduction is linked to one-off sectors such as pharmaceutical preparations, which went down by $2.9 billion, and cell phones and other goods, falling by $1.1 billion. This decrease in imports illustrates a shift away from goods and towards services in the U.S. economy.

     Data for the first five months of 2023 showed U.S. imports of Chinese goods totaled nearly $169 billion, a 24% drop from $223 billion in the same period last year. In contrast, U.S. exports to China were slightly higher during the first five months at $62 billion. However, May exports to China were the lowest in more than two years at $10.7 billion.

     Upshot: The U.S. has traditionally had a services trade surplus, which has been progressively returning to normal, notes Wells Fargo. In fact, service exports increased for the 16th consecutive month, pushing the overall services surplus to $22.3 billion, and although it's still less than before the pandemic, it has risen for the fourth consecutive month.

Ag trade deficit widens in May. The U.S. exported $13.93 billion of ag trade goods during May against imports of $16.95 billion, resulting in a deficit of $3.02 billion. Through the first eight months of fiscal year (FY) 2023, U.S. ag exports totaled $128.49 billion against imports of $132.17 billion for a deficit of $3.68 billion, up from $660 million in April. USDA forecasts FY 2023 ag exports at $181.0 billion and imports at $198.0 billion, which would imply a deficit of $17.0 billion.

The Federal Reserve is trying to assess whether financial conditions are tight —a crucial question for policymakers as they aim to curb inflation by slowing economic growth. This is typically achieved through tactics such as increasing borrowing costs, weakening asset prices, or strengthening the dollar. Although previous metrics have suggested that financial conditions are not too restrictive, a recently introduced measure from economists at the Fed indicates that financial conditions are exceptionally tight. They are reported to be at a level last observed during the 2008 financial crisis, but have eased slightly since December. The authors carry out this analysis by measuring the impact of financial conditions on GDP growth, estimating that current conditions could lower GDP growth by approximately 0.75 percentage points in the forthcoming year. This is mainly due to increasing mortgage rates, corporate borrowing costs, and a stronger dollar. However, these factors are somewhat mitigated by the high values of stocks and housing, according to the new Fed index.

How mergers in the Farm Credit System have affected ag banks. Francisco Scott's research (link) delves into the impacts of mergers within the Farm Credit System (FCS) on the agricultural banking sphere in the United States. Throughout recent decades, the FCS, along with commercial banks, has been a key provider of agricultural loans. The increasing concentration of these entities through mergers since the 1990s, coupled with FCS gaining a substantial market share since the 2000s, has raised worries about their influence on the agricultural credit market.

     Upshot: Scott's study primarily found that while FCS mergers have mostly not significantly affected factors like the long-term aggregate interest income, efficiency, and farmers' real estate loans as a proportion of total loans for agricultural banks, they have had certain other impacts. Notably, FCS mergers likely led to a decrease in operational loans for agriculture as a percentage of total loans provided by agricultural banks. Plus, they possibly increased these banks' interest expenses from previously low levels. This implies that these merging activities may have resulted in alterations to some of the strategic portfolio decisions of agricultural banks within their individual markets. Despite these influences, the research concludes that their impact on the profitability of agricultural banks has been relatively marginal.

New report examines a future without glyphosate. Aimpoint Research, a global strategic intelligence firm, published a new report (link) titled "A Future Without Glyphosate," examining the repercussions that could emerge from the discontinuation of glyphosate, currently the most commonly utilized herbicide in the U.S. The report, commissioned by Bayer, stresses that while the American agricultural system and farmers will adapt over time, the immediate impacts to the economy, environment, and farmers will be extensive and costly.

     Colonel (retired) Mark Purdy, Aimpoint Research Chief Operations Officer, expressed that their study engaged diverse research methods to envisage a scenario without glyphosate. Meanwhile, Gregg Doud, Aimpoint Research Chief Economist, highlighted the significant economic cost and dramatic greenhouse gas emissions that would result in the herbicide's absence.

     Key findings from the study suggest that the unavailability of glyphosate would:

• Lead to more tilling and fewer cover crops, which could result in the release of up to 34 million tons of CO2, equivalent to the emission of approximately 6.8 million cars or nearly 36.5 million acres of forests.
• Cause a 2-2.5 times surge in input costs for farmers due to the limited supply and high prices of alternative products, affecting smaller farms disproportionally.
• Increase production costs by over $1.9 billion due to increased tillage.
• Add inflationary pressure to food prices over the long term for consumers.
• Reduce the global competitiveness of U.S. agriculture, especially corn.
• Eventually lead to the development of more alternatives, but this would require several years and substantial investments amidst regulatory uncertainty and a lull in crop protection innovation.

     More from the report:

• Since 2016, glyphosate use has helped achieve:
• • 13% reduction in water soil erosion
  • 16% reduction in wind soil erosion
  • 22% reduction in sediment loss
• Additionally, over that same period, glyphosate-enabled reduced tillage practices have yielded:
  • 1.2 million fewer tons of CO2 emissions
  • 32.495 million tons per year of additional CO2 captured by farmland soil
•  The total farm-level effect of more carbon capture and fewer carbon emissions from glyphosate use equals the effect of offsetting the yearly emissions from 5.95 million homes’ electricity use.
   

The Army & Air Force Exchange Service, commonly known as the Exchange, ranks as the 54th-largest retailer in the United States. Run by the government, it operates over 2,000 big-box stores, convenience stores, gas stations, and restaurants in U.S. military bases and over 30 other nations. Despite falling under the Department of Defense, it doesn't receive significant financial aid from the government.

     One of its unique advantages includes free rent, exemption from corporate taxes, and antitrust rules, all leading to healthy cash flow and solid credit ratings. The potential for a governmental bailout also enhances its financial stability.

     The customer base, however, has witnessed an 11% decrease over the decade. In 2012, Tom Shull, a former soldier with expertise in reviving struggling retailers, became the first civilian CEO of the Dallas-based Exchange. His measures, including store revitalization and customer base expansion, helped save the Exchange from near bankruptcy.

     Revenue has dropped by 17% since Shull's arrival, primarily due to the declining customer base and fierce competition from Amazon and big-box retailers. Shull opts to focus on maximizing profit from each sale. The profits are, however, not used for traditional shareholder benefits; instead, they are reinvested into the business or used to enhance the quality of life on military bases.

     In an article on this topic (link), Lauren Debter, a Forbes reporter, emphasizes the importance of this massive government-run operation for service members based in the U.S. and abroad. Through her visit to Fort Cavazos in Killeen, Texas, she provides insights into how Shull has transformed the Exchange from being close to bankruptcy to a competitive retailer.

Market perspectives:

     • Outside markets: The U.S. dollar index was weaker, with only the British pound slightly higher against the greenback. The yield on the 10-year US Treasury note was higher, remaining above 4% at around 4.06%, with a positive tone in global government bond yields. Crude oil futures were firmer, with U.S. crude around $72.05 per barrel and Brent around $76.80 per barrel. Gold and silver futures were higher ahead of the Employment report, with gold around $1,922 per troy ounce and silver around $22.90 per troy ounce.

     • U.S. petroleum production is projected to hit record-breaking levels this year, contributing to the stability of energy prices despite efforts by Saudi Arabia and other major oil exporters to increase them. From January through April, the U.S. has seen a 9% rise in crude oil output compared to last year, a surprising development given that oil futures were on a downward trend and the U.S. shale boom showed signs of peaking. This surge can be partly attributed to increased production efficiency, signaling a possible decrease in the power of the Organization of the Petroleum Exporting Countries' (OPEC) to control prices as worldwide output continues to expand.

     A significant factor contributing to this trend was that following the price crash in 2015, U.S. producers advanced their efficiency by returning 'back to the lab', implementing engineering-based gains and substantial staff and cost cuts, according to Vikas Dwivedi, a global oil-and-gas strategist at Macquarie Group.

     • Canadian wildfires were to blame for a power-equipment shutdown that led to a grid emergency in the northeastern U.S. on Wednesday night. Heat and smoke triggered an automated system that shut Hydro-Québec’s Phase-2 line, a key conduit for moving hydropower into New England. The outage pushed the six-state grid that stretches from Maine to Connecticut into a low-level emergency for about four hours. Spot electricity prices jumped briefly to more than $2,700 a megawatt-hour.

     • The Teamsters union has ramped up preparations for a potential strike after contract talks with the United Parcel Service (UPS) hit a stalemate. The inability to reach an agreement could have significant consequences for the economy given UPS's crucial role in international commerce, analysts note. The parties failed to reach an agreement after extended negotiations that went through the July 4 holiday. Each side accused the other of abandoning the negotiations; the Teamsters contend that UPS left the table claiming that it had not more to offer, while UPS argues that the union ceased negotiating even though there is nearly a month left before the current contract expires.

     The Teamsters, who represent 340,000 workers, accuse the multinational corporation of being reluctant to provide adequate compensation to American workers.

     However, UPS claims that it has not abandoned the discussions and urges the union to continue the negotiation process.

     The disruption adds to a series of labor conflicts affecting critical sectors of the country's transportation system. If the strike proceeds, it could severely affect commerce, as approximately 6% of the U.S.'s gross domestic product is transported each year by UPS. Last month, union members voted in favor of a possible strike if no satisfactory agreement is reached before their current contract expires on July 31. No further talks have been scheduled.

     Of note: The looming strike comes at a time when UPS is grappling with decreasing revenues after three years of rapid growth. Additionally, a brief walkout could have severe financial implications, as demonstrated by a 1997 strike by UPS workers that cost the company hundreds of millions of dollars in revenue.

     • Here we go again: Rhine River water levels are on track to fall to critically low levels again this summer, as extreme heat scorches parts of Europe, testing energy and transport networks. Low water last year contributed to a diesel shortage in southern Germany, with barges unable to ship the usual volumes inland. Concerns of supply crunch are again emerging — Austria’s OMV AG halted diesel supply from a storage facility in Munich, while separately a fire occurred at the Bayernoil complex in the region. Barges passing the Lower Rhine near the town of Duisburg, Germany — north of Cologne — are able to carry around 2,125 metric tons, slightly less than a full load of 2,500 tons, broker Riverlake Barging said in a report Wednesday. Those operating only in the Upper Rhine are also operating at reduced capacity. Vessel going to the Upper Rhine are now having to sail half full, operator Interstream Barging said Tuesday. Link to more details via Bloomberg.

     • NWS weather outlook: Showers and thunderstorms continue for the East Coast with locally heavy rainfall possible for the Northeast and Florida... ...Additional rounds of severe weather and flash flooding persist across the Central and Southern Plains Friday and into the Ohio/Tennessee Valleys Saturday... ...Hot weather continues for portions of the Southwest and interior Pacific Northwest.

Items in Pro Farmer's First Thing Today include:

     • Wheat leads overnight price declines
     • Cash cattle trade lower
     • Cash hog index jumps, pork slumps

— Ukraine asks to join CPTPP trade pact. New Zealand, which performs the legal depositary functions for the partnership, had received a formal accession request from Ukraine on May 5, a New Zealand foreign ministry spokesperson said. The next steps in the application process would be determined by all members of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), who are due to meet in the New Zealand city Auckland on July 16, the spokesperson said.

     Background: The CPTPP includes Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam, with Britain becoming the 12th member state. China, Taiwan, Ecuador, Costa Rica and Uruguay all also have requests pending to join.

— International leaders are making efforts to salvage an international deal that enables Ukrainian grain shipments by sea as the agreement is set to expire in less than two weeks. However, the pact, which has been extended thrice already, is on the verge of being ineffective due to slow vessel inspections, accusations of sabotage by Moscow, and opposition from Russian officials.

     The grain initiative, struck a year ago between the United Nations and Turkey following Russia's invasion, played a key role in exporting almost 33 million tons of grain from Ukraine, a major global grain producer, thus lowering global food prices and strengthening the sector. But now, as it's up for renewal, the backdrop is filled with Ukraine's counteroffensive aided by Western governments against Russian opposition.

     Russia argues there are no valid reasons to continue the agreement, highlighting five barriers to its own exports that it wants eliminated. However, letting the pact lapse could result in increased exporting costs for Ukrainian farmers and stifle what the U.N. terms a "global food security lifeline." There are concerns that Ukrainian grain production, already strained by the war, may reduce further for 2024 if no changes occur.

     The agreement also proved pivotal in reducing the grain stockpiles Ukraine built up when the invasion crippled seaborne trade. But the pace of reduction is slowing just as the new harvest begins.

     Officials from the EU and U.N. have considered concessions to a sanctioned Russian bank to rescue the agreement. Still, Russia rejected the compromise.

     If the pact collapses, a broader shift towards alternative Ukraine route options, such as the Danube River ports, rail, and road transit via the EU border, is expected. But these options present logistical costs for exporters, as transporting grains across longer distances on different-sized rail tracks increases costs.

     Some feel a silver lining might emerge if the deal fails, predicting that Black Sea shipments can speed up should inspections required by the agreement get eliminated. The Ukrainian government has set up a $547 million insurance fund to protect companies shipping to the Black Sea ports if the agreement fails. However, without the safety net of this international agreement, it is uncertain whether shipping companies would risk traversing a war zone.

— USDA is extending its insurance coverage options for specialty crops and Actual Production History (APH) crop programs. This will be executed through its Risk Management Agency (RMA) by increasing the availability of enterprise units to crops. Previously, these were not accessible to all crops, so this move gives agricultural producers more risk management options.

     Enterprise units allow producers to insure all acreage of an insured crop in a given county collectively, as opposed to insuring separate acreages individually. Due to the lesser risk associated with geographic diversification, enterprise units are enticing to producers because they offer lower insurance premiums. The larger the enterprise unit, the smaller the risk and the higher the discount.

     Marcia Bunger, Administrator for the Risk Management Agency, stated that this expansion intends to provide agricultural producers with flexible and effective risk management tools.

     This move boosts the RMA's ongoing efforts to enhance and broaden the insurance program for specialty crops, a mandate from the 2018 Farm Bill. This expansion also satisfies producers' requests for enterprise units for other APH crop insurance programs.

     Starting June 30, 2023, the initial set of targeted crops will have access to this new option. The RMA plans to progressively extend these benefits to dozens more specialty and other APH crop programs.

     From the 2024 crop year, enterprise units will be available for: alfalfa seed, cultivated wild rice, forage production, mint, onions, and potatoes. Notably, potatoes will have these enterprise units available in California from the 2025 crop year onwards.

— Report released on ag conservation programs and climate change. USDA could use its biggest land stewardship programs — the Conservation Reserve, the Environmental Quality Incentives Program (EQIP), and the Conservation Stewardship Program (CSP) — to combat climate change, wrote University of Maryland professor Erik Lichtenberg in a think tank report (link). But to make the programs as effective as possible, he said, Congress would have to reorient them, a risky move that could cut into their support.

     “Reforestation is the largest potential source of carbon sequestration and therefore climate change mitigation,” wrote Lichtenberg in the American Enterprise Institute’s Monthly Harvest report. However, the Conservation Reserve, for example, which pays landowners to take fragile land out of production for up to 15 years, is focused on the Great Plains and the Midwest. Revamping the program to promote carbon sequestration through planting trees is “politically fraught,” since it would shift the reserve to new regions. “Whether Congress has the will to make such a change is open to question,” wrote Lichtenberg.

     Congress has spelled out that half of EQIP spending go to livestock-related projects. States receive a portion of EQIP funds based on their agricultural activity and use the money to share the cost of new conservation practices with farmers. “Revisiting EQIP funding allocation rules should be on Congress’ agenda.”

     The CSP, the USDA’s first green payment program, “holds greater potential for climate change adaptation and mitigation,” said Lichtenberg. The USDA could, on its own, revise the ranking system that helps determine which projects receive assistance.

     “The programs in the farm bill’s conservation title can help U.S. agriculture deal with climate change,” Lichtenberg wrote. “Moreover, using these programs to deliver climate change adaptation and mitigation measures likely saves on administrative costs, since the systems to implement these programs are already in place and piggyback on delivery of other programs.”

— The People’s Bank of China (PBOC) revealed a new Communist Party chief on July 1. To the surprise of experts, the Chinese leaders appointed Pan Gongsheng, deputy governor of the PBOC, as a replacement for Yi Gang, the incumbent governor who has held the position for five years. This move is considered an attempt to reinvigorate China's sluggish economy.

     Despite his past removal from Chinese leader Xi Jinping's economic leadership team, Pan's appointment is largely due to his advanced foreign training and extensive economic background. He holds a doctorate in economics from the Renmin University of China and boasts of experience as a senior research fellow at Harvard University, following postdoctoral research at Cambridge University.

     Some China watchers signal this unexpected decision indicates a deeper economic crisis in China than initially believed. They assert that previous appointments, confidently made by Xi, demonstrated over-confidence in the economy and are now triggering major readjustments.

     Bottom line: Skepticism surrounds Pan's ability to bring about significant change as he confronts China's complex international situation and domestic economic growth challenges.

— Yellen calls out Beijing’s pressure on U.S. companies. On a four-day visit to China, Treasury Secretary Janet Yellen has some tough hurdles: taking a hard line on China’s often aggressive efforts to grow, while trying to moderate tensions between the two countries. Within the Biden administration, she’s known for advocating less combative stances toward China, including when it comes to limits on exports and investments. But in some of her first public remarks of the trip, Yellen took a hawkish stance, pushing back against what she said were unfair attacks by China on companies with foreign ties.

     “During meetings with my counterparts, I am communicating the concerns that I’ve heard from the U.S. business community — including China’s use of nonmarket tools like expanded subsidies for its state-owned enterprises and domestic firms, as well as barriers to market access for foreign firms,” Yellen told members of the American Chamber of Commerce in China at a round-table event. “I’ve been particularly troubled by punitive actions that have been taken against U.S. firms in recent months.” Representatives of Boeing, Bank of America and the agriculture giant Cargill were among those in attendance. Yellen said those actions, along with new Chinese measures to limit exports of some semiconductor-related minerals, justified the Biden administration’s efforts to build up non-Chinese supply chains.

     Yellen met with Chinese Premier Li Qiang in Beijing on Friday, defending American actions to protect its national security as the countries ratchet up trade controls on each other. “The United States will, in certain circumstances, need to pursue targeted actions to protect its national security,” Yellen said Friday, according to prepared remarks. “We should not allow any disagreement to lead to misunderstandings that unnecessarily worsen our bilateral economic and financial relationship.” Yellen added there are “important global challenges” where the U.S. and China need to “cooperate and show leadership.”

     Just this week, China imposed new restrictions on businesses wanting to export two metals used in the manufacturing of chips. And, the Wall Street Journal reported the U.S. was looking to curb Chinese access to cloud computing services.

— China’s sow herd contracts further in June. China’s sow herd declined 1.68% in June compared with the prior month, state-backed Shanghai Securities News reported. The pace of the decline is bigger than in prior months, suggesting that farmers are accelerating culling of sows to cut their losses.

— Tai comments on USMCA meetings. During a bilateral meeting on Thursday, U.S. Trade Representative (USTR) Katherine Tai discussed with Mexico's Secretary of Economy Tatiana Clouthier various issues concerning energy and biotech corn, as per a USTR readout. Tai highlighted concerns about the recent upsurge of steel and aluminum imports from Mexico into the U.S. Further, the regulatory uncertainties confronted by American electronic payment service providers operating in Mexico, and Mexico's telecommunications spectrum fee method were also issues that were discussed.

     Tai said that trade dispute settlement consultations over GM corn that the U.S. requested in June began with Mexico last week.

     Mexico’s Health Ministry on Monday published a draft proposal to modify the Official Mexican Standard (NOM) that governs products made from masa, or corn dough. The proposal is part of an overall federal government effort to stop Mexicans from eating white GMO corn imports, most of which comes from the United States. “The use of genetically modified corn as a raw material must be avoided in the making of the products covered by this Mexican Official Standard,” states the document, which was posted to an online platform of the National Commission for Regulatory Improvement (Conamer). Interested parties have 30 days to comment on the proposal, after which the government could publish a modified NOM in its official gazette that bans the use of GM corn in tortillas. The modified NOM would take effect 60 days after publication. The National Chamber of Industrialized Corn (Canami) said that the proposed measure “creates restrictions on international trade and members of the International Trade Organization must be notified.” Canami also said that the costs of laboratory tests to determine whether corn is GM or not aren’t being considered. The chamber said that those costs could cause their members to record net losses.

     White corn tariff. The Health Ministry’s publication of the draft proposal on the Conamer platform came just over a week after the federal government imposed a 50% tariff on white corn imports to limit human consumption of GM corn. The tariff, which ends access to white corn imports, is scheduled to remain in force until Dec. 31, 2023, after which Mexico intends to ban the importation of GM corn for human consumption. A ban on GM corn for animal feed is slated to come in at an unspecified later date, depending on supply.

     Despite the contentious nature of these topics, Tai remains hopeful of solutions. She affirmed to reporters that the U.S. has noted some progress in negotiations about energy with Mexico, expressing optimism that the dispute would eventually be resolved.

     In a second readout, USTR said Tai discussed the disputes over Mexico’s energy and biotech corn policies with Canadian Trade Minister Mary Ng. Tai also underscored the need for Canada to fully meet its USMCA commitments, including on home shopping, and urged Canada to refrain from imposing a digital services tax.

     Of note: The latest Commerce Department report shows the U.S. trade deficit with Mexico rose to a record $14.1 billion in May.

— Electric vehicle (EV) dealers are starting to see an increase in unsold inventory. In the first half of this year, automakers sold 557,330 EVs, a 50% increase from last year, but a slowdown from the previous growth rate of 71%. Promotions and reduced prices to stimulate demand have not completely alleviated this issue. According to Cox Automotive, the number of EVs remaining unsold or in-transit by the end of June was around 90,000, a substantial rise from the same period last year, equating to a 92-day supply of inventory. This is significantly higher than the 51-day supply of all vehicle types.

     Car manufacturers are closely monitoring these figures as they continue establishing new supply chains for EV production, spanning from raw materials to assembly plants. Despite the unsold inventory, the EV market share in the U.S. has indeed increased, moving from 5.4% last year to 7.2% in the first half of 2023.

— California to modify air pollution rules in deal with truck makers. California, in partnership with major truck manufacturers, will be redefining their air pollution rules to expedite the transition to electric trucking. The agreement states that these manufacturers will gradually phase out fossil fuel trucks by 2036.

     In return for this commitment, the Golden State will adopt the federal regulations for nitrogen oxides, known to cause respiratory health issues, which are less stringent than its own state regulations. This deal helps California avoid a potential legal confrontation with truck makers, who considered the state's previous regulations to be impractical and economically unviable.

     Bottom line: Entities in the trucking industry like the Truck and Engine Manufacturers Association, Daimler Truck North America, Ford Motor Company, General Motors Company, Stellantis N.V., and Volvo Group North America are part of the agreement. Governor Gavin Newsom lauded this initiative, viewing it as a significant step toward reducing air pollution while bolstering the economy.

— Global food prices have fallen to the lowest point in over two years, according to the U.N. Food and Agriculture Organization (FAO). The organization's Food Price Index (FPI) recorded 122.3 points in June 2023, showing a decrease of 1.4% from May, and a significant 23.4% drop from its record high in March 2022.

     The price fall has primarily been driven by a decline in the cost of all major cereals and most vegetable oils. Major contributing factors include a 2.1% drop in cereal prices due to Argentine and Brazilian harvests, better yield prospects in certain regions of the U.S, and a 3.4% decline in coarse grain prices. Wheat prices also decreased by 1.3% because of the commencement of harvests in the Northern Hemisphere and favorable conditions in the U.S., among other reasons.

     Vegetable oil prices fell by 2.4%, even though lower palm prices were somewhat offset by an increase in soyoil and rapeseed oil prices. Meanwhile, the cost of dairy and sugar went down in June, whereas the meat price index remained almost consistent.

     The June 2023 FPI is 3.4 points lower than that of the entire year 2021. Global food price inflation continues to slow down, although it remains persistent in some regions. Nonetheless, this trend presents a positive outlook, especially for countries that rely heavily on imports to feed their populations.

— Despite long-standing trends showing an increase in meat consumption as countries' incomes rise, a shift seems to be occurring. According to a world agricultural outlook report (link), in high-income nations like Western Europe and North America, per capita meat consumption is predicted to decrease in the coming decade. These nations, constituting roughly one-sixth of the global population, account for about one-third of the total meat consumed worldwide.

     More on the report: The Organization for Economic Cooperation and Development (OECD) and the U.N. Food and Agriculture Organization (FAO) indicate in their Agricultural Outlook 2023-32 report (link) that the trend of stagnation in meat consumption is noticeable in most wealthy countries. They predict poultry will supply 41% of meat protein in 2032, primarily due to consumers' increasing sensitivity towards animal welfare, environmental impacts, and health concerns wherein poultry has the smallest carbon footprint.

     Specifically, in the European Union, an ongoing shift from beef and pig meat to poultry is anticipated. Similarly, in North America and Oceania — which have historically preferred beef — a significant dip in per capita consumption is expected.

     Even though affluent consumers might consume lower amounts of meat, global meat demand remains strong, particularly in lower-income nations. The report expects a 2% per capita increase in global meat consumption over the upcoming ten years, brought on by rising incomes and population growth. Meat consumption, as per type and tonnage, is poised to increase 15% for poultry and sheep, 11% for pork, and 10% for beef.

     The analysts expect global meat consumption will continue to grow until 2075. However, factors like demographic trends, human health, animal welfare, and environmental concerns could negatively influence meat consumption in the long term, with world meat demand potentially starting to fall during the remainder of the century.

     The report forecasts global agricultural and food production to grow annually by an average of 1.1% through 2032, which is half of the growth rate observed in the decade before 2015. Furthermore, an increase in fertilizer prices by 10% could result in a 2% rise in food prices, disproportionately affecting the poor.

     Of note: The OECD and FAO call for investments in innovation, productivity gains, and reductions in production's carbon intensity to ensure food security, affordability, and sustainability long-term.

— Food delivery giants sue over New York City’s new minimum wage rule. DoorDash, Grubhub and Uber argue that the law, which requires drivers to be paid at least $18 an hour, would unfairly hurt their industry and lead to higher prices for consumers. The regulation, which goes into effect July 12, has drawn support and opposition from drivers themselves. Link for details.

— Indian tomato prices have jumped fivefold this year as hot, wet weather hits output. The essential ingredient in mainstay dishes is retailing at 120 rupees ($1.45) a kilogram in New Delhi, soaring above gasoline at 96 rupees a liter ($1.16).

— The U.S. Food and Drug Administration (FDA) has granted traditional full approval to the Alzheimer’s drug Leqembi, the first of its kind proven to slow the progression of the disease, developed by Eisai and Biogen. The approval comes alongside an announcement by the Centers for Medicare and Medicaid Services (CMS) that it plans to broaden access to the drug, potentially benefitting up to an estimated million people with early forms of Alzheimer’s.

     Previously, Leqembi received accelerated approval due to evidence that it could reduce the buildup of amyloid plaques in the brain, a significant factor in Alzheimer's disease. Despite its price tag of $26,500 per annum before insurance, its use had been limited due to CMS's coverage decisions.

     This drug will specifically benefit patients with early Alzheimer’s disease, meaning those with mild cognitive impairment or mild dementia confirmed to have amyloid plaques in their brains. However, those with more advanced stages of the disease might not benefit from the drug, due to potential increased safety risks.

     While Leqembi is not a cure, an 18-month clinical trial demonstrated that it could slow cognitive and functional declines by 27%. Its use comes with side effects and necessitates regular brain imaging for monitoring, with 13% of trial participants experiencing brain swelling or bleeding.

     Medicare will now provide broader coverage for Leqembi on the condition that medical professionals participate in real-world data collection to understand its effectiveness. Anticipation of increased patient referrals has led infusion centers to prepare for higher capacity. However, industry experts caution against expecting everyone estimated to have early Alzheimer’s to seek the medication immediately.

     Of note: If 10% of America's older adults use Leqembi annually, it could inflate Medicare spending by $17.8 billion, potentially leading to higher Medicare Part B premiums for all enrollees.
 

— Surprisingly, illegal border crossings at the United States' southern frontier have been on a downward trend despite a relaxation in border control policies post-pandemic. The average daily crossings have dipped to 3,360 since May 12, a significant drop from the previously recorded 10,000 before the cessation of Title 42 border control authorities. (In March 2022, that average was about 7,100.) These authorities allowed migrants to be more easily expelled based on public health.

     This reduction may be attributed to newly introduced policies aimed at discouraging illegal border crossings. Such initiatives encompass new legal routes for migrants from certain countries to live and work in the U.S., along with swift expulsions and restrictions on mobility within Mexico and safer methods to petition for asylum alongside the new legal entry routes that the Biden administration introduced for specific nationalities. A governmental app in Mexico, although experiencing some technical glitches, allows migrants to schedule appointments at an official U.S. border entry port. Around 30,000 individuals utilized this service in May, per government records. For migrants from Cuba, Haiti, Nicaragua, and Venezuela, provisions allow them to apply to live and work in the U.S. for a two-year period under a particular humanitarian parole. Besides, in April, the Biden administration announced that migrants from El Salvador, Guatemala, and Honduras would be qualified for a family reunification program supposed to start this month. This program allows certain immigrants wanting to join immediate family members to enter the U.S. and then apply for a permanent residency card (green card).

     Other reasons: Falko Ernst, a senior Mexico analyst for the International Crisis Group, notes that migrants in transit to the U.S. may find the risks of their current situation, especially in Mexico, so perilous that they opt to make the perilous illegal crossing over the southern border. Migrant populations, often in vulnerable conditions, are susceptible to exploitation by criminals and cartels. By staying stationary, they become easier prey for forced labor and sex trafficking, according to Mr. Ernst.

     However, despite the current downturn, authorities do not anticipate the situation to remain. As of June 14, more than 100,000 migrants were noted in northern Mexico, approximately eight hours from the U.S. border, and a larger number are said to be en route towards the region, according to an intelligence estimate the Biden administration gave in a recent court filing. And there are more along the route from Colombia, where journeys typically begin in the Western Hemisphere. This indicates that a potential spike in border crossings might occur in the future.

— Nearly half of U.S. tap water has PFAS. In a recent study by the U.S. Geological Survey (link), it was found that "forever chemicals,” technically known as PFAS (per- and polyfluoroalkyl substances), are present in approximately 45% of U.S. tap water. The research gathered samples from hundreds of sites countrywide, between 2016 and 2021. PFAS are persistent due to their robust carbon-fluorine bonds, which allows them to linger in the environment and contaminate drinking water.

     Urban areas are more susceptible, with a 75% probability of the chemicals being absent in rural areas, compared to a 25% probability in urban regions. PFAS can infiltrate water through different avenues, including industrial and disposal sites, as well as from firefighting foams used at airports and military bases.

     Many everyday materials, such as food packaging, non-stick pans, waterproof items, and personal care products, can contain PFAS. While all potential health impacts are not known due to the thousands of variants with potentially different effects, exposure to PFAS has been linked to fertility issues, high blood pressure in pregnant women, child developmental effects, and certain cancers. They can also compromise immune system efficacy.

     The U.S. government has been taking measures against PFAS pollution. In 2021, the Biden administration unveiled a plan for federal agencies to combat PFAS pollution, and in 2022, it announced the EPA would issue health advisories for certain PFAS. Notably, the EPA proposed limits on PFAS in drinking water to 4 parts per trillion. Several states have also worked on laws to limit the use of such chemicals.

— Cotton AWP moves higher. The Adjusted World Price (AWP) for cotton increased to 65.81 cents per pound today (July 7), the first upward movement in three weeks from the previous rate of 63.57 cents per pound. USDA declared the establishment of Special Import Quota #12. This quota, coming into effect on July 13, will apply to 39,605 bales of upland cotton. The supplies under this quota must be purchased no later than Oct. 10 and need to reach U.S. by Jan. 8, 2024.

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