Evening Report | July 7, 2023

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Your Pro Farmer newsletter is now available... The drought footprint has modestly receded as rains have become more frequent across the central U.S., though many locations are still in need of moisture. USDA estimated 67% of U.S. corn areas and 60% of soybeans faced some level of drought and its “poor” to “very poor” ratings for both crops were the third highest ever for the beginning of July behind only 2012 and 1988. While weather will remain the primary focus for traders, USDA’s updated balance sheets in the July 12 Supply & Demand Report will reflect adjustments to old-crop demand forecasts based on June 1 stocks. There will be major changes on the new-crop balance sheets to reflect the surprising planted acreage figures, which will result in a big jump in new-crop ending stocks for corn and a significant decline for soybeans. USDA will also issue its first all-wheat crop estimate, including the initial survey-based forecasts for other spring wheat and durum. We have our updated old- and new-crop balance sheets on News page 4. On the economic front, all signs point to additional Fed interest rate hikes to tame inflation after the pause in June. We cover all of these items and much more in this week’s newsletter, which you can access here.

UN calls for priority on global food security as Black Sea deal deadline looms... United Nations officials continue to press for an extension of the Black Sea grain deal as the July 17 looms. They hope to sit down with all parties involved in the deal next week in Istanbul, Turkey, in hopes of an extension, with the UN’s Martin Griffiths saying the agreement “isn’t something you chuck away.” UN Secretary-General Antonio Guterres noted the safe Black Sea export of food and fertilizer from Ukrainian ports and facilitating Russia’s exports play an “indispensable role” in global food security. However, Griffiths warned if the deal expires it would be unlikely Western countries would cooperate with the UN to facilitate Russian grain and fertilizer shipments.

Jobs data does nothing to change attitudes about likely July rate hike... The U.S. economy added 209,000 non-farm payrolls in June, down from 306,000 in May. The unemployment rate ticked down to 3.6%. Average hourly earnings increased 4.4% over the past year. Fed fund futures reflected more than 90% odds of a 25-basis-point interest rate hike later this month, though reduced chances of further increases later this year.

Russia raises wheat export tax... Russia’s wheat export tax for July 12-18 will be 2,989.6 rubles ($32.71) per metric ton based on an indicative price of $239.20. That’s up from a rate of 2,609.6 rubles per metric ton the previous week.

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. 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.”

CSP, USDA’s first green payment program, “holds greater potential for climate change adaptation and mitigation,” said Lichtenberg. 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.”

USDA extending insurance coverage options for specialty crops, 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 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.

As of June 30, the initial set of targeted crops had access to this new option. 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.

Per-capita meat consumption expected to drop in wealthier countries... 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, 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.

The Organization for Economic Cooperation and Development (OECD) and the UN Food and Agriculture Organization (FAO) indicate in their Agricultural Outlook 2023-32 report 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 pork 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 10 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 will 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: 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.