Evening Report | August 4, 2023
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Your Pro Farmer newsletter is now available... Corn and soybean futures faced heavy selling pressure as temps moderated and forecasts called for improved rainfall chances across many areas of the Corn Belt through the 10-day window. August isn’t typically a bullish month for corn and soybeans unless there’s a weather event. USDA will issue its first survey-based corn and soybean crop estimates on Aug. 11. Based on USDA’s crop ratings and our Crop Condition Index, yields should be cut from the August projections. Wheat futures also faced pressure despite Russia and Ukraine both attacking the other’s grain infrastructure at ports. While there are heightened geopolitical concerns in the Black Sea region, grain futures have struggled to find any sustained buying from those events. On the ag policy front, odds of an extension of the current farm bill are high. In our News page 4 feature this week we take an in-depth look at issues and hurdles to getting new farm bill legislation completed. We cover all of these items and much more in this week’s newsletter, which you can access here.
Update on U.S./Mexico GMO corn dispute... The U.S. rejected Mexico’s proposal to jointly research the health effects of genetically modified (GM) corn, according to Reuters and Mexico media. Mexico’s move to decrease dependence on GM corn imports and focus more on national food self-sufficiency has caused friction between the two countries.
The two countries failed to reach an agreement during a meeting with USDA Secretary Tom Vilsack, according to Mexico’s Deputy Agriculture Minister, Victor Suárez, who criticized Washington’s refusal to agree to impact studies on animal and human health, insinuating the U.S. treats its scientific claims as infallible – more ideology than science. “They did not want to establish a period in which the two parties agree to carry out impact studies on animal health and human health,” Suárez said. “Their science is the word of God. That is not science, that is ideology.”
As tensions intensify, it appears the countries are moving closer to a formal trade dispute over Mexico’s decision to stop importing GM corn for human consumption by 2024, with plans to eventually also cut down on GM corn imports for animal feed. Mexico believes that GM corn negatively impacts native biodiversity and could have potential implications on human health.
The U.S. argues that Mexico’s GM ban breaches the U.S.-Mexico-Canada Trade Agreement (USMCA) and could harm U.S. farmers. Mexico suggests the immediate impact on trade will be minimal because the country is self-reliant in producing non-GM white corn, a staple food ingredient. They have also proposed to expedite the ban on GM corn in tortillas, potentially applying within two months.
USMCA trade dispute consultations continue, and Canada also announced its intention to join the dispute process. Mexican Economy Minister, Raquel Buenrostro, has met with U.S. and Canadian trade representatives, however, they reached no resolution on Mexico's GM corn ban.
If the dispute is not resolved within 75 days from the consultation’s start (Aug. 16), the U.S. can elevate the matter to a dispute settlement panel. If the panel rules against Mexico, the country could be forced to modify its policy or incur substantial tariffs.
Russia says JPMorgan stops processing grain payments... Russia said U.S. bank JPMorgan had this week stopped processing payments for the Russian Agricultural Bank. The Russian Agricultural Bank to the SWIFT international payments system. It was cut off by the European Union in June of last year. As a workaround in an attempt to get Russia to extend and then rejoin the Black Sea grain deal, JPMorgan had been processing some Russian grain export payments with reassurances from Washington. However, that cooperation stopped this week, Russia’s foreign ministry said.
“The direct channel between the Russian Agricultural Bank and JPMorgan, which the West and the United Nations tried to present as a working alternative to SWIFT, was closed on Aug. 2,” foreign ministry spokesperson Maria Zakharova was quoted by Russian media as saying.
India might cut or abolish wheat import tax... India is considering cutting or abolishing import taxes on wheat, Food Secretary Sanjeev Chopra said, as the country struggles to contain price rises. Chopra said there is no plan to import wheat from Russia or engage in a government-to-government deal.
In June, India imposed a limit on the amount of wheat stocks traders can hold, for the first time in 15 years, in an attempt to lower domestic prices.
Russia raises wheat export price... Russia’s wheat export tax for Aug. 9-15 will be 2,918.1 rubles ($30.16) per metric ton based on an indicative price of $231.50. That’s up from a rate of 2,681.8 rubles per metric ton the previous week.
Base acres a big debate for new farm bill... Senate Agriculture Committee Republicans and staff released an analysis earlier this week regarding the push by some for a mandatory base acre update. But the GOP analysis correctly argues it would complicate the passage of the next farm bill and unfairly disadvantage some farmers. Key is a mandatory approach pushed by some, something farmers and ranchers rarely like.
Proponents of mandating base acreage updating, like U.S. corn growers, argue it would reflect their recent planting trends, potentially leading to higher program payments.
But the Senate GOP analysis suggests the proposed update could have negative consequences for most farmers, decreasing payments for those growing crops like rice, cotton and peanuts prevalent in the South, while favoring farmers in the Plains and Midwest regions.
Facts and figures show why the mandatory approach is dead in the water. The new analysis estimates that 16 states in the Plains and Midwest could see higher farm safety net program payments of about $1.1 billion due to a mandatory update. Conversely, it projects losses of approximately $3.0 billion in payments in another 34 states, mainly in the South.
Veteran farm policy analysts are not surprised about the findings, having done such analysis before via prior farm bill debates.
Bottom line: A potential alternative to mandatory updates is to permit voluntary ones, allowing farmers to choose whether to update their base acres according to recent plantings. But this could increase overall farm safety net program spending. The latest analysis concludes Congress should focus on measures that provide overall benefits to farmers, instead of “hand-picking winners and losers in agriculture.”
Upshot: Some type of voluntary update is possible whenever the new farm bill is completed. This is especially the case for new and beginning farmers.
Regulation of GM meat being debated... Future regulation of genetically modified bacon, steak and fish is the subject of a debate in Washington, with the White House deciding whether it should fall under the jurisdiction of the Food and Drug Administration (FDA) or USDA, according to the Wall Street Journal.
Food companies favor gene-edited cattle and fish since they can grow larger and more quickly and are more adaptable to environmental changes and disease. These companies want USDA oversight due to its speed and cost-effectiveness compared to FDA.
However, consumer and environmental groups prefer FDA regulation due to its expertise in complex scientific matters and concerns over potential collusion between USDA and the industry.
FDA has primarily controlled the sector so far, approving five products and tagging 45 genetically modified animals as low risk. The market for these animals is forecasted to rise from $4.2 billion in 2020 to $6.4 billion by 2027. Companies argue that as this technology matures and genetically engineered animals become more common, oversight should shift to the USDA, which already governs gene-edited plants. They find FDA’s oversight process to be long and costly.
FDA and its supporters insist that the agency already has the necessary legal authority and expertise to mitigate possible dangers. They argue for careful supervision, citing the instance of genetically engineered cows, which unexpectedly carried antibiotic-resistant genes. Those advocating for FDA claim the agency is trying to be more efficient and has drafted guidelines awaiting White House approval. They also express concern about USDA’s closeness to the industry, thereby affecting proper regulation.
USDA has tried to win oversight before, the WSJ article notes, with the Trump administration planning to hand over this sector's regulation, but without success. The Biden administration's recent budget proposal, however, favors USDA with budget allocated for the development of expertise to regulate gene-edited animals.
Jobs data signals rate hikes may be done... The U.S. economy created 187,000 jobs in July, below market expectations of 200,000 but up modestly from the downwardly revised 185,000 total for June. The unemployment rate edged down to 3.5%. Wage inflation rose 4.4% over the past year.
Markets reduced odds of additional interest rate hikes by the Fed amid the cooling jobs market. Fed fund futures priced in no more than a 30% chance of another rate hike by year’s end, down from about a 35% chance before the report.
