Evening Report | October 13, 2023

Check our advice monitor on ProFarmer.com for updates to our marketing plan.

Livestock producers: Extend corn, soymeal feed coverage... Corn and soybean meal futures are signaling seasonal lows are in place following USDA’s reports. We advise livestock producers to cover all corn-for-feed and soymeal needs in the cash market through October. Be prepared to extend further coverage if the markets indicate sustained price rallies.

Your Pro Farmer newsletter is now available... Markets had a bullish reaction to USDA’s October crop reports as it cut the corn and soybean crop estimates more than anticipated, which resulted in lower-than-expected 2023-24 ending stocks. It now appears the harvest lows are in place for those markets, though export demand remains a concern and could limit sustained price advances. The wheat ending stocks forecast came in higher than anticipated, but wheat followed the other markets to the upside. Cotton got the most bullish data as the U.S. crop and ending stocks were cut more than expected, while USDA made sharp downward revisions to global ending stocks back to 2000-01, though the market didn’t respond. Geopolitical tensions increased as Hamas attacked Israel, though market response was relatively muted, as traders are used to conflict in the Middle East. This market situation could change quickly if other countries like Iran, Syria or the U.S. would become involved. On the economic front, the International Monetary Fund left its forecast for global GDP growth in 2023 unchanged at 3.0%, though that would be down from 3.5% growth last year. IMF expects world economic growth to slow to 2.9% next year. Meanwhile, U.S. inflation is proving to be sticky, which could increase odds the Fed will raise interest rates again before year-end. We cover all of these items and much more in this week’s newsletter, which you can access here.

Israel/Hamas war stokes global slowdown fears... Finance officials at the International Monetary Fund’s (IMF) annual meeting in Marrakesh, Morocco, say they’re increasingly worried about consequences for the global economy. “Geopolitical risk has become the most significant risk for growth, for development and for common prosperity,” Bruno Le Maire, France’s finance minister, said. So far, the consensus, shared by Treasury Secretary Janet Yellen, is that the war’s economic impact will be contained. But the effects of a widening conflict — particularly a spike in energy prices — are weighing heavily on policymakers. “We are very closely monitoring how the situation evolves, how it is affecting especially oil markets,” said Kristalina Georgieva, the IMF’s managing director.

Clarifying reference prices: A critical element in the farm bill debate... A Southern Ag Today article provides insights into the complexities of reference prices and their significance in the context of the farm bill debate. It explains how reference prices, specifically Effective Reference Prices (ERPs), affect the farm safety net and outlines key points to consider.

The 2018 Farm Bill brought cotton back into the farm safety net, maintaining the statutory reference prices (SRPs) from the 2014 Farm Bill. However, it introduced Effective Reference Prices (ERPs) due to House Republican negotiators’ insistence. ERPs can replace SRPs if certain conditions are met, potentially increasing to 115% of the SRP.

The Southern Ag Today item notes a recent article by FarmDoc highlighted the Congressional Budget Office (CBO) projects ERPs higher than SRPs for nine of the 19 program crops, covering over 90% of all base acres in the United States. This could lead to higher Reference Prices without requiring Congress to take additional action. While the FarmDoc article expressed surprise at the ERP’s lack of attention, the Southern Ag Today authors write, “We have been covering it since Southern Ag Today's inception. The article appears to question the need for higher SRPs, a request from many state and national commodity organizations.”

Southern Ag Today notes that first, ERPs are projected to affect certain crops but not others like cotton, rice and peanuts. While the author referenced in the prior FarmDoc article on the topic acknowledged this, the Southern Ag Today authors said “it was wrongly used as a reason not to adjust SRPs for these crops. Increased SRPs are justified due to production costs and potential lower prices.”

Second, ERPs offer more protection for some crops, but this protection diminishes if prices fall in the future, the Southern Ag Today analysis adds. The authors say the focus should be on how the farm safety net handles unforeseen market fluctuations. They add that an analysis of 64 crop farms revealed that 33 of them would face a significant likelihood of a cash shortfall in the event of a price decrease, indicating the current safety net may not suffice.

Bottom line, according to the Southern Ag Today authors: The farm bill debate should serve all U.S. growers, not just one region. To ensure meaningful support in times of economic downturn, relying solely on existing ERPs or modest SRP increases may not be enough. The federal farm safety net should adapt to the higher cost environment in which producers operate. The substance of the farm bill is paramount, considering the significant investments American producers make.

Of note: The Southern Ag Today article underscores the complexity of reference prices in the farm bill debate and the need for a comprehensive and regionally balanced approach to ensure the effectiveness of the farm safety net.

Iowa joins pork producers in legal challenge against Massachusetts pork sale restrictions... Iowa has entered the legal fray by challenging a recently enacted Massachusetts law that prohibits the sale of pork not meeting specific hog-confinement standards, according to the Iowa Capital Dispatch. This legal action comes as part of an ongoing dispute involving pork producers, including Triumph Foods, who have sued the Massachusetts attorney general over the Prevention of Farm Animal Cruelty Act.

Key Points:

• Massachusetts’ Prevention of Farm Animal Cruelty Act restricts the sale and transportation of pork within the state, imposing strict hog-confinement standards.
• The law goes beyond California’s similar legislation by also banning the transport of non-compliant pork through Massachusetts to other states.
• The law aims to prevent animal cruelty and improve food safety but has faced opposition from pork producers, who argue that the confinement standards are inconsistent with industry practices and could impose costly burdens.
• Iowa, the leading pork producer and exporter in the U.S., filed an amicus brief supporting the pork producers’ challenge. The brief emphasizes the potential negative economic impact on the state’s pork industry.
• The amicus brief argues the Massachusetts law sets a dangerous precedent by allowing states to disrupt markets based on political agendas and asserts that the law violates the U.S. Constitution’s commerce clause and import-export clause.
• Lawyers for Massachusetts contend that some of these legal arguments have been rejected in previous court cases, including a Supreme Court ruling involving California's similar legislation.

Bottom line: The legal battle centers on whether states have the authority to enact laws affecting interstate commerce, potentially impacting the pork industry and the sale of pork products across state lines.

USDA extends MLP deadline... USDA extended the application deadline for the Milk Loss Program (MLP) to Monday, Oct. 30, allowing more time for eligible dairy farmers to apply for much-needed, weather-related disaster recovery assistance. The original MLP deadline was Oct. 16.

Global diesel shortage looms... Refineries worldwide are facing challenges in meeting the rising demand for diesel, exacerbated by disruptions in global oil flows caused by OPEC+ output reductions and the conflict in Ukraine. According to Wood Mackenzie Ltd., the proportion of diesel in global refinery production is expected to decrease by 1.5% during this quarter compared to the same period a year earlier. This reduction equates to approximately 1.2 million barrels per day, a quantity roughly equivalent to the combined diesel output of Germany and the United Kingdom. A shortage of diesel could pose significant challenges as demand increases in preparation for the upcoming northern winter.

Perspective: Distillate inventories in the U.S., Europe and Singapore have increased month-on-month in September, although the U.S. is 21 million barrels below the seasonal average and Europe is 25 million barrels below the seasonal average as diesel cracks outperform all other products. 

Consumer sentiment declines in October.... Consumer sentiment declined about 7% in October following two consecutive months of little change, according to the preliminary reading from the University of Michigan’s Surveys of Consumers. The reading was still 5.2% above year-ago.

Surveys of Consumers Director Joanne Hsu said: “Assessments of personal finances declined about 15%, primarily on a substantial increase in concerns over inflation, and one-year expected business conditions plunged about 19%. However, long-run expected business conditions are little changed, suggesting that consumers believe the current worsening in economic conditions will not persist. Nearly all demographic groups posted setbacks in sentiment, reflecting the continued weight of high prices. Year-ahead inflation expectations rose from 3.2% last month to 3.8% this month. The current reading is the highest since May 2023. Long-run inflation expectations edged up from 2.8% last month to 3.0% this month.”