Evening Report | September 22, 2023

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Your Pro Farmer newsletter is now available... Corn and soybean harvest continues to roll along at quicker-than-normal clips given the early end to the growing season in many areas amid hot and dry conditions. The extended forecast suggests harvest will remain rapid in northern areas of the Corn Belt, though expected above-normal rains in October could slow efforts in other areas. Still, it looks like 2023 will be a rapid harvest season. The early influx of new-crop corn and soybean supplies is putting heavy pressure on basis. But falling water levels are also influencing the cash market. As water levels drop, barge rates are rising. With Midwest river levels forecast to potentially reach record-low levels during October, basis is likely to face more near-term pressure – and new-crop exports will remain sluggish. The markets will need bullish surprises in USDA’s Sept. 29 Quarterly Grain Stocks Report to forge early seasonal lows. On the economic front, the Fed paused its monetary tightening, though it indicated rates will remain high for an extended period. In Washington, it appears the government is headed for a shutdown on Oct. 1 as lawmakers can’t agree on even a stopgap spending measure. We take an in-depth look at what will and won’t happen if there’s a temporary shutdown. We cover all of these items and much more in this week’s newsletter, which you can access here.

Cattle on Feed Report: Feedlot inventory continues to shrink... USDA estimated there were 11.094 million head of cattle in large feedlots (1,000-plus head) as of Sept. 1, down 248,000 head (2.2%) from year-ago but 71,000 head more than the average pre-report estimate implied. Placements fell 5.1%, while marketings dropped 6.0% from year-ago levels during August.

Placements dropped from year-ago in all of the weight categories, with lightweights (under 600 lbs.) down 2.3%, 6-weights down 4.7%, 7-weights down 2.2%, 8-weights down 7.9%, 9-weights down 9.3% and heavyweights (1,000-plus lbs.) down 5.3%. Placements fell 50,000 head in Colorado, 60,000 head in Nebraska and 22,000 head in “other states,” while Kansas and Texas placed 15,000 head and 10,000 head more cattle into feedlots, respectively, than August 2022.

All three of the categories came in a little on the negative side of the average pre-report estimates. But the report data is far from bearish as it showed a decline in feedlot inventories for a 12^th consecutive month – a trend that will continue given shrinking U.S. calf supplies.

Lawmakers won’t shut up, but they can shut down... When lawmakers return on Sept. 26, they will have just five days to reach a continuing resolution to keep the government temporarily funded or there will be a shutdown.  The Office of Management and Budget has instructed agencies to update their shutdown contingency plans. It will convene a call with agency leaders one week before a funding lapse if Congress has not taken action. Key government reports would be impacted.

A government shutdown on Oct. 1 could temporarily halt the release of the September jobs report, September CPI data, and third-quarter GDP estimates, all scheduled for release in October.

USDA’s NASS told us that phone surveys for the Oct. 12 Crop Production Report are scheduled to run Sept. 29 to Oct. 4. Unless a deal is reached by then, NASS will ask enumerators to make as many contacts as possible on Sept. 29-30. If a shutdown occurs, all data collection will halt at midnight on Sept. 30.

Whether NASS could release the report as scheduled all depends on how long a shutdown lasts, and more importantly how much data NASS can collect prior to Oct. 1. They must have enough data to set accurate estimates.

USDA activities that would continue during a shutdown:

• Meat, poultry, and processed egg inspections.
• Grain and other commodity inspection, weighing, grading and IT support services funded by user fees.
• Inspections for import and export activities to prevent the introduction/dissemination of pests into/out of the U.S.
• Forest Service law enforcement, emergency and natural disaster response, and national defense preparedness.
• Care for animals, plants and associated infrastructure to preserve agricultural research.
• Monthly SNAP benefits to eligible households.
• Most other domestic nutrition assistance programs can continue to operate at the state and local level with any funding and commodity resources that remain available.
• Natural Resources Conservation Service offices will remain open to support conservation technical and financial assistance.
• Payments for producers that have already certified production with the Farm Service Agency.
• Agricultural export credit and other agricultural trade development and monitoring activities.
• USDA’s Market News Service.

USDA activities that would not continue:

• FSA county offices would close.
• Provision of new rural development loans and grants for housing, community facilities, utilities and businesses.
• Recreation sites across the U.S. National Forest System, unless they are operated by external parties under a recreational special use permit, will be closed.
• NASS statistics, the WASDE Report and other agricultural economic and statistical reports and projections.
• Assistance for controlling plant and animal pests/diseases unless funded by cooperators or non-appropriated sources.
• Research facilities except for the care for animals, plants and associated infrastructure to preserve ag research.
• Provision of new grants or processing of payments for existing grants to support research, education and extension.
• ERS reports, staff analysis and projections. The ERS website would be taken offline.

USTR meeting with Mexico omits mention of GMO corn dispute... In a recent meeting between U.S. Trade Representative (USTR) official Jayme White and Mexican Undersecretary of Economy for Foreign Trade Alejandro Encinas, several trade issues were discussed, but notably absent was any reference to the GMO corn dispute. USTR raised concerns about Mexico’s energy policy, steel and aluminum shipments to the U.S., and enforcement of fisheries-related environmental laws under the U.S./Mexico Canada Agreement.

Russian wheat export tax inches lower... Russia’s wheat export tax for Sept. 27-Oct. 3 will be 4,527.5 rubles ($47.21) per metric ton based on an indicative price of $243.30. That’s down from a rate of 4,528.7 rubles per metric ton the previous week.

WSJ: Fed hopes for unprecedented slow rate-cutting cycle amid economic uncertainty... The Federal Reserve is aiming for an unconventional approach as it anticipates not just a soft landing for the economy but the slowest rate-cutting cycle in its history, the Wall Street Journal (WSJ) reports. Fed officials plan to implement smaller rate cuts next year than investors had expected, and then extend these reductions over the course of the following three years. This strategy is driven by the belief that inflation will decelerate even in the absence of significant job losses. While this scenario may seem ideal for the central bank, the WSJ article notes historical trends indicate it might not be successful. Typically, interest-rate cycles conclude with swift rate cuts, and the Fed’s projection of an extended series of rate reductions would deviate from past patterns.

UAW update... United Auto Workers (UAW) announced no additional strikes against Ford as they undertook 38 more strikes in 20 states via extension of targeted strikes against General Motors and Stellantis. UAW President Shawn Fain had previously issued a warning that the strike would broaden unless significant progress was made in negotiations. In response to the strike, politicians from both parties have entered the discussion, with many advocating for a middle-ground compromise. This compromise aims to secure pay increases in the range of 25% to 30% over the course of the proposed four-year contract. The outcome of these negotiations will have significant implications for both the auto industry and the workforce involved.