Evening Report | October 11, 2023

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Traders' expectations for Thursday's USDA reports... USDA will release its Crop Production and Supply & Demand Reports on Thursday. USDA’s 2023-24 domestic balance sheets will reflect Sept. 1 stocks and the final 2023 wheat crop estimate, along with any changes to this year’s corn and soybean crop forecasts. Traders expect USDA to modestly trim its corn and soybean production estimates from last month. Key will be what USDA does with its new-crop usage projections to account for the supply changes. The following pre-report estimates are from Reuters; Bloomberg for cotton:

Pilot program for climate-smart ag practices... Virginia Tech University was awarded an $80 million grant from USDA to initiate the Alliance to Advance Climate-Smart Agriculture, a program aimed at encouraging farmers to adopt climate-smart practices that reduce greenhouse gas emissions. The College of Agriculture and Life Sciences at Virginia Tech will distribute over $57 million of the grant to farmers as part of a pilot program to test the feasibility of this initiative on a national scale. The program will initially run for three years in Virginia, Arkansas, Minnesota and North Dakota, with the potential to reduce agricultural emissions by 55% and total U.S. emissions by 8% after a decade if expanded nationally.

Farmers will be paid $100 per acre or animal unit for voluntarily implementing climate-smart practices, which is expected to improve both environmental outcomes and their bottom lines. The program will initially involve 4,500 agricultural operations, representing up to 500,000 acres, and if scaled up nationally, up to 80% of agricultural producers could enroll. This initiative aims to combat climate change while boosting agricultural productivity to meet the growing global food demand.

Navigator CO2 Ventures withdraws pipeline application... Navigator CO2 Ventures has taken the step of voluntarily withdrawing its application for a section of its carbon capture pipeline in Illinois, citing the need to reevaluate the $3.5 billion project’s route, according to the Des Moines Register. The move comes amid increasing uncertainty surrounding the future of carbon capture pipelines, with Navigator being one of three companies proposing pipelines with routes across Iowa, where regulatory challenges have arisen in other states.

Navigator, headquartered in Omaha, Nebraska, had already received permission to suspend its pursuit of a permit in Iowa pending a decision on its application with the Illinois Commerce Commission. Illinois is a crucial state for the project, as it is where the pipeline would sequester liquefied carbon dioxide emissions from ethanol and agricultural industrial plants deep underground.

In a motion filed, Navigator expressed its desire to withdraw its Illinois application without prejudice, with the intention to reconsider the permitting process “if appropriate” once a comprehensive evaluation is completed. The motion requests the suspension of upcoming procedural schedules and hearings until the Commerce Commission reaches a decision on the request.

While Navigator did not directly address the project’s future, the company stated its actions align with recent filings in neighboring jurisdictions. The company will take the necessary time to reassess the project’s route and application, which also includes proposed sections in South Dakota, Nebraska and Minnesota.

The proposed carbon capture pipelines by companies like Navigator, Summit Carbon Solutions and Wolf Carbon Solutions are seen as critical to reducing ethanol’s carbon footprint and sustaining the industry. They could also qualify for significant federal tax credits aimed at incentivizing lower carbon emissions to combat global warming.

Bottom line: The decision by Navigator to withdraw its Illinois application adds to the growing challenges and uncertainties surrounding carbon capture pipeline projects across multiple states. Opponents of these projects continue to voice their concerns about their environmental and property rights impact, emphasizing their opposition to the development of such pipelines.

Dairy industry remains divided on milk pricing reform amid public hearing... National Milk Producers Federation (NMPF) officials expressed hope for including additional milk pricing provisions in the upcoming farm bill, as discussions continue during the ongoing public hearing to update Federal Milk Marketing Orders (FMMOs). The hearing, taking place over six weeks in Carmel, Indiana, involves testimony and discussions on 22 milk pricing reform proposals from various dairy and agriculture sector groups.

Of note:

• NMPF and the International Dairy Foods Association (IDFA) are at odds over milk pricing reform during a public hearing to update Federal Milk Marketing Orders (FMMOs).
• NMPF supports shifting back to a formula based on the “higher of” rates paid for Class III and Class IV milk, while IDFA proposes a hybrid approach to the Class I Mover.
• The split between producers and processors persists, with processors opposing anything that would lower producer prices.
• NMPF aims to balance price changes for the benefit of U.S. dairy farmers, but also recognizes the importance of risk management.
• The farm bill’s impact on make allowances is being considered, with efforts to require USDA to conduct mandatory plant cost studies every two years.
• The Dairy Margin Coverage (DMC) safety net program is set to lapse at the end of the year, but it’s unlikely that Congress will fail to act before this happens.

U.S. producer prices rise more than expected... U.S. producer prices increased more than expected in September amid higher costs for energy products, but core inflation at the factory gate continued to moderate. The producer price index increased 2.2% annually during September, up from a 2.0% increase the previous month. The so-called core PPI, which strips out food, energy and trade services components, increased 2.8% from year-ago, down from a 2.9% rise in August.

Consumer price data for September will be released on Thursday.

FOMC minutes: Uncertainties led to pause in rate hikes... “A vast majority of participants continued to judge the future path of the economy as highly uncertain,” stated the minutes from the Sept. 19-20 Federal Open Market Committee (FOMC) meeting. That uncertainty included difficulties estimating the state of financial markets, potential oil price shocks and the impact of labor union strikes on the economy, among other factors. Data volatility and revisions to prior statistical releases posed one set of problems in assessing the economy, the minutes said, as did determining underlying parameters like the neutral rate of interest, the impact of rising “real” rates being bid up by markets, and the degree to which tighter credit would ultimately curb business borrowing and spending. Those factors were seen as “supporting the case for proceeding carefully in determining the extent of additional policy firming that may be appropriate,” the minutes noted. While Fed officials remain aligned on there being “work to do” in order to bring down inflation, the minutes showed increased concern about the risks of going too far with rate increases and slowing activity so much it causes companies to lay off large numbers of workers. Fed officials must now decide if inflation will continue to fall without further monetary policy action or if additional rate hikes will be needed.