Evening Report | July 18, 2023

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Soybean producers: Increase old- and new-crop cash sales, hedgers exit short-dated calls... The November $14.00 short-dated calls we purchased on 25% of 2023-crop expire July 21. Hedgers should claim the remaining premium in those calls. Our exit was 11 1/2 cents for a 25 1/2-cent loss. Increase new-crop sales by 10% to get to 45% forward sold for harvest delivery. Cash-only marketers should sell another 15% of expected new-crop production to get to 40% forward sold. We also advise hedgers and cash-only marketers to sell another 10% of 2022-crop to get to 90% sold in the cash market.

Ukraine cargo insurance policy suspended after grain deal ends... A cargo insurance facility has suspended coverage for Ukraine grain shipments via the Black Sea after Russia exited the grain deal on Monday, broker Marsh said.

“It is currently on pause,” said David Roe, head of UK cargo at Marsh, which acted as the facility’s broker. “It is suspended effectively due to the agreement not being extended. Without the corridor being in place, there is a greater degree of uncertainty attached to the risk.”

“There is every expectation that there will continue to be cover, but it might be at a price that is difficult,” Marcus Baker, Marsh’s global head of marine and cargo, said separately. “The safety and wellbeing of crew has to be a paramount consideration for every shipowner. If you looked at the situation now compared to three or four weeks ago, the whole region is likely to be a riskier area,” Baker said.

Beijing tells Kerry to be ‘pragmatic and positive’ toward China... U.S. climate envoy John Kerry has been advised by China’s foreign policy chief Wang Yi to approach Sino/U.S. relations “pragmatically and positively,” especially in their joint efforts to combat climate change. This guidance came during Kerry’s visit to China amidst extreme heatwaves that both nations are currently experiencing.

Kerry's visit signals a possible de-escalation in tensions between the two countries; Wang expressed China’s readiness for enhanced dialogue with the U.S. and eagerness to address global climate change together. Importantly, Wang noted the climate change collaboration between the two countries has significant future potential, but it could not be detached from the broader Sino/U.S. relations.

Echoing these sentiments, Kerry expressed Washington’s commitment to the one-China policy and expressed hopefulness in strengthened cooperation on shared global challenges such as climate change. He further stated that President Joe Biden is committed to stabilizing U.S./China relations and looking for ways to improve the dynamism between the two countries.

During his visit, Kerry pushed China, the world’s largest carbon producer, to cut emissions, particularly from coal and methane. He applauded China’s renewable energy initiatives while pressing it to halt the construction of coal power plants. 

China is aiming to become carbon neutral by 2060 and is increasing its solar and wind power programs to reach this objective. However, it also wants the U.S. to take on greater responsibilities regarding climate change and not inhibit China's endeavors by imposing sanctions on its solar panels.

Perspective from Trivium China: “The U.S. won’t meet its climate financing commitments because Congress won’t approve the funds. And the U.S. may very well pull out of Paris (again) if a Republican becomes president in 2025. Politics in the U.S. won’t allow for better relations with China. Chinese leaders know this, and so are preparing for long-term struggle with the U.S., no matter how many nice sentiments Kerry and other U.S. officials express.”

USAID will provide additional $250 million in ag funding for Ukraine... The agency’s head, Samantha Power, was in Odesa, Ukraine, today to announce the new funding. This brings the U.S. government’s total investment in the AGRI-Ukraine initiative to $350 million. AGRI-Ukraine has reached more than 30% of Ukraine’s farmers with seeds, fertilizer, agricultural and financial services and storage, according to the agency.

Brazil farmers to increase soybean plantings in 2023-24...Brazilian farmers are expected to plant 4.48 million hectares (109.9 million acres) with soybeans in the 2023-24 cycle, a 0.48% increase from the previous year, according to Patria Argonegocios' first projection of the new crop. Total soy production is estimated at 155.8 MMT, or 1.6% above the previous season. Plantings normally begin in September in key areas including Mato Grosso, the country's top grain producer. 

Brazil grain exports at record levels, yet July shipments to drop...Brazil is poised to export a record 18.3 MMT of soybeans, soymeal, corn and wheat in July, even as soybean shipment projections fell last week, according to revised data from exporters association, Anec. The previous record for July was set in 2020 for the four commodities when 14.8 MMT were exported. The estimate puts Brazil on track to ship 106.1 MMT of grain and soy during the first seven months of the year, which is also unprecedented. That is in spite of Anec lowering its estimated July export volume for soybeans to 8.8 MMT form 10.4 MMT last week. 

EPA facing regulatory countdown for amendments to revised WOTUS rule... EPA has submitted a package of amendments on its definition of “Waters of the U.S.” (WOTUS) rule to the Office of Management and Budget (OMB) for review, although the specifics of these changes have not been disclosed. This action follows a restriction placed on EPA’s power to regulate wetlands by the U.S. Supreme Court.

Additionally, EPA has won a reprieve to postpone its appeal against an injunction that stopped the enforcement of the WOTUS rule in 24 states, as guided by a verdict from the Eight Circuit Court of Appeals. The rule’s enforcement has also been halted in Texas and Idaho. Through a court filing, EPA has proposed that its amended rule could focus the issues of the case more effectively, enabling those involved in the lawsuit to respond to the revised rule without engaging in unwarranted litigation.

EPA is expected to release the new rule by Sept. 1, with a deadline from the court to offer a progress report on the matter by Sept. 15.

ERP 2 payments near $2.4 billion... The Emergency Relief Program (ERP) Phase 2 payments reached $2.38 million for 1,377 beneficiaries so far. A significant portion of this amount, $2.03 million, has been allocated for revenues for other crops, while $0.93 million has been earmarked for specialty and high-value crops. The total amount paid out under ERP, combining both Phase 1 and Phase 2 stood at $7.44 billion.

House farm bill update. The House Agriculture Committee will soon release a draft bill addressing the structure of the digital asset market, its Chairman, G.T. Thompson (R-Pa.), said during a breakfast session with reporters. Created in collaboration with the House Financial Services Committee, the bill intends to clarify the regulatory landscape following the court ruling in favor of Ripple Labs. Thompson argued the ruling proved current Securities and Exchange Commission authority is inadequate for regulating digital assets, thereby necessitating the legislation. The bill also aims to position the U.S. as a key location for digital asset markets.

This development does not affect the progress of the farm bill, with Thompson planning to carry out parallel work on both projects.

Regarding the farm bill, it is expected to be drafted for a markup in mid-September. It might be considered by the House before some provisions of the current farm law expire on September 30, though demands for floor time are substantial, and the deadline is tight.

The farm bill will unlikely include further work requirements for the Supplemental Nutrition Assistance Program (SNAP) beyond those stated in the recently approved debt ceiling bill. Thompson envisions SNAP as a workforce development program and prefers using incentives to shape participants' shopping habits.

Despite the farm bill's challenges, Thompson aims to achieve as many approving votes as possible from both parties. Furthermore, he's ensuring new representatives are familiar with the bill's complexities before the vote, to avoid misunderstandings and flare-ups on the House floor.

Thompson, along with other members, is also seeking additional funding sources for the bill, but that will likely be the biggest farm bill hurdle that may trip up lawmakers. 

Of note: Thompson said he plans a mid-September markup of a draft farm bill once text is ready after August recess. Thompson said he and Senate Agriculture Chairwoman Debbie Stabenow (D-Mich.) have asked the Congressional Budget Office to increase staff to provide them speedier cost estimates.

Thompson also said that the timeline could be met in getting the bill done by the end of September if the Senate would follow the House schedule. “There would be no need for an extension if the Senate would get their [farm bill version] done in the same timeframe I'm talking about,” he observed.

Goldman: Stop worrying about inverted yield curve... Goldman Sachs Group Inc. has a different message on yield curve inversion and recession: stop worrying about it. “We don’t share the widespread concern about yield curve inversion,” Jan Hatzius, the bank’s chief economist, wrote in a note Monday. Hatzius stands in opposition to most investors who point out the curve inversion has an almost impeccable track record of foretelling economic downturns. According to Hatzius, as inflation cools, a “plausible path” is opened for the Fed to ease up on interest rates without triggering a recession.

U.S. banking regulators planning to unveil extensive reformation of capital rules next week... The new draft will require large lenders to adhere to more rigorous standards for residential mortgages and certain business loans than currently set by international benchmarks. The intent is to curtail big banks’ competitive edge over smaller institutions. The Federal Reserve is pushing for equivalent treatment of comparable residential loans across banks of different sizes. However, the banking industry is likely to argue against the proposal, viewing it as an unnecessarily burdensome effort to exceed, or “gold plate,” standard global requirements.