Evening Report | September 7, 2023

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Drought continues to spread across corn, soybean and cotton areas... As of Sept. 5, the U.S. Drought Monitor showed 51% of the U.S. was covered by abnormal dryness/drought, up one percentage point from the previous week. USDA estimated drought (D1 or higher) covered 49% of corn production areas (up four points) and 43% of soybeans (up three points). Drought expanded seven points to cover 44% of cotton areas. The Drought Monitor noted, “Heavy rainfall associated with Hurricane Idalia brought damaging winds and flooding centered along its path...  Most of the Nation, however, endured a hot and drier-than-normal week, including most areas of drought.”

For the Midwest, the Drought Monitor noted: “Excessively hot and dry weather dominated this Region last week, worsening an already-serious drought in the western half of this region. D2 and D3 conditions expanded markedly across Wisconsin, Minnesota, Iowa, and Missouri under conditions highly favorable for the rapid intensification of drought. The moisture budget over the eastern half of the Region is in far better shape, but areas of abnormal dryness expanded somewhat, and isolated small pockets of moderate drought began to emerge by the end of the week. Unsurprisingly, agriculture and surface moisture has been stressed by the drought.”

For the Plains, the Drought Monitor stated: “Conditions vary markedly from southeast to northwest here. Similar to western sections of the Midwest Region, Kansas and Nebraska in the southeastern High Plains region are largely covered by drought, including significant expanses of D2 to D3 conditions, with new or expanded D4 (exceptional drought) noted in a few locations. Farther west and north, conditions are much more favorable. To the north and west of central Nebraska, dryness and drought are restricted to the eastern and northern Dakotas, and southwestern Colorado. As in other parts of the Nation’s midsection, agricultural drought stress is palpable, and on the rise. Still, this region did not see the degree of deterioration observed in the Midwest Region, with significant worsening most notable in central and eastern Kansas.”

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China asks fertilizer producers to suspend urea shipments... China has asked some fertilizer producers to suspend urea exports after domestic prices jumped, Bloomberg reported. Some major Chinese fertilizer makers reportedly halted signing new export deals from early this month following a government mandate, according to people familiar with the matter.

The restrictions only apply to urea at this point.

China is the world’s top producer of urea and any significant decline in exports threatens to tighten supplies and push up global prices. Among the biggest export markets for the nation’s crop nutrient are India, South Korea, Myanmar and Australia.

Beef exports slump, pork shipments slow but remain strong... The U.S. exported 240.1 million lbs. of beef during July, the smallest monthly total since September 2020. Beef shipments declined 29.8 million lbs. (11.1%) from June and were 67.1 million lbs. (21.9%) less than July 2022. Through the first seven months of 2023, the U.S. exported 1.824 billion lbs. of beef, down 270.0 million lbs. (12.9%) from the same period last year, as shipments to the top three destinations – South Korea, Japan and China – all declined notably.

July pork exports totaled 504.7 million pounds. While that was down 79.2 million lbs. (13.6%) from June, shipments topped year-ago by 20.4 million lbs. (4.2%). Through July, the U.S. shipped 3.955 billion lbs. of pork, up 321.8 million lbs. (8.9%) from the same period last year. Of the top five destinations for U.S. pork, only Japan imported less pork than year-ago during the first seven months of 2023.

Vilsack urged to make investments in trade promotion and food assistance... Sens. Debbie Stabenow (D-Mich.) and John Boozman (R-Ark.) are urging USDA to use its authorities under the Commodity Credit Corporation (CCC) Charter Act to support opportunities for American farmers. In a letter to USDA Secretary Tom Vilsack, the two highlight the need to invest in trade promotion and in-kind international food assistance, both of which support American farmers and producers.

Comments: Use of CCC Charter Act could be one of the “creative” ways some farm-state lawmakers have signaled as a workaround to funding issues in a new farm bill.

Pork industry grapples with whiplash of shifting regulations... A New York Times article on Proposition 12 followed Pederson’s Natural Farms. It initially expected a prosperous period when California enforced a law banning certain pork products made from pigs raised in small gestation pens. The company received a surge in orders from California grocery stores and restaurants seeking compliant bacon and pork chops. However, California regulators delayed full enforcement of the law (Proposition 12) to the following year, leading to canceled orders and industry confusion. The pork industry, including Midwest hog farmers and major processors, has been disrupted by changing regulations. Congressional legislation may further complicate the situation.

Hog producers are grappling with low hog prices and high feed costs, causing losses. Some retailers in California are raising prices to cover the higher costs incurred by complying with the state’s stricter standards. Shortages and higher prices for bacon and pork chops are possible due to some farmers choosing not to sell in California.

Making the necessary changes for California compliance is expensive for hog farmers, and the economic benefits are uncertain. The future of the pork industry in California remains unclear, with questions about supply and pricing.

The pork industry has been fighting Proposition 12, and recent legislative acts seek to limit state-level agricultural regulations.  

Bottom line: The U.S. pork industry is navigating regulatory changes in California, with uncertainties surrounding compliance costs, supply and pricing. And there are uncertainties surrounding what other states may do regarding animal welfare laws.

Global goods trade faces ‘shallow recession’... Oxford Economics said global goods trade volumes declined at an approximate annual rate of 2% in the last quarter. The organization’s leading indicators also signaled the possibility of further weakness ahead, followed by a modest upturn at the end of 2023 and into early 2024.

Oxford Economics anticipates a “shallow trade recession,” projecting a 1.5% drop in trade volumes for this year before a 2.3% rebound in the following year. However, this outlook is less optimistic than a recent forecast made by the World Trade Organization. The analysis suggests global goods trade faces challenges in the near term but could see a gradual recovery in the coming years.

Renewable energy sector grapples with end-of-life challenges... As wind and solar energy projects continue to proliferate across the U.S., many states are confronting the critical issue of how to responsibly decommission or repower these projects when they reach the end of their operational life. In the absence of federal guidelines, a report from the law firm Lewis Roca reveals that over two-thirds of U.S. states have established requirements for decommissioning or renewing wind and solar projects at the end of their initial life cycles. However, these guidelines vary significantly from state to state, with some emphasizing upfront coverage of decommissioning costs and others outlining specific end-of-life standards for these renewable energy initiatives.