Evening Report | October 19, 2023

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Extended weather outlook calls for improved rainfall over Southern Plains... The 90-day forecast from the National Weather Service signals increased chances of above-normal precipitation across the eastern half of Kansas, along with most of Texas and Oklahoma through January. Below-normal precip is expected during the 90-day period for northwestern HRW and white winter wheat production areas. Temperatures are expected to trend drier than normal over the roughly northern two-thirds of the country, with the southern third, including most of the Southern Plains, expected to see “equal chances” for normal, above-normal and below-normal temps through January.

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About half of U.S. winter wheat areas covered by drought... As of Oct. 17, the U.S. Drought Monitor showed 58% of the U.S. was covered by abnormal dryness/drought. USDA estimated 48% of U.S. winter wheat areas were covered by drought, down one percentage point from the previous week and far less than 70% last year at this time.  

In HRW areas, dryness/drought covered 83% of Kansas (20% D3 or D4), 39% of Colorado (virtually none of the wheat-heavy eastern part of the state), 73% of Oklahoma (13% D3, no D4), 89% of Texas (27% D3 or D4), 61% of Nebraska (11% D3 or D4), 17% of South Dakota (no D3 or D4) and 44% of Montana (1% D3, no D4).

In SRW areas, dryness/drought covered 85% of Missouri (10% D3, no D4), 67% of Illinois (no D3 or D4), 92% of Indiana (no D3 or D4), 97% of Ohio (no D3 or D4), 39% of Michigan (no D3 or D4), 74% of Kentucky (no D3 or D4) and 100% of Tennessee (no D3 or D4).

The Seasonal Drought Outlook calls for improvement or removal of drought across most of the winter wheat states in the southern half of the country through January.

IGC cuts global corn and soybean crop forecasts, raises world wheat production... The International Grains Council (IGC) cut its forecast for 2023-24 global corn production by 3 MMT to 1.219 billion MT. That would still be up 57 MMT (4.9%) from last year.

IGC cut its 2023-24 global soybean production forecast by 3 MMT to 393 MMT, though that would still be up 26 MMT (7.1%) from last year.

IGC raised its 2023-24 world wheat crop outlook by 2 MMT to 785 MMT, though that would still be down 18 MMT (2.2%) from last year.

China’s pursuit of food security: Soybean self-sufficiency pushes against global trade realities... China is making efforts to boost its soybean production to reduce reliance on imports, particularly from the United States and Brazil, the Financial Times reports. China imports more than 80% of its soybeans to meet the demand for animal feed, primarily in the pork industry.

Despite initiatives to increase domestic soybean production, challenges such as higher production costs and lower yields compared to foreign suppliers persist. The drive for food security, however, remains a top priority for the Chinese government, especially considering recent global events and climate-related concerns. Experts suggest that while China is making strides in domestic production, market forces and the country’s fragmented agricultural sector present challenges to achieving full self-sufficiency.

Powell: Fed ‘proceeding carefully’... Chair Jerome Powell said the Federal Reserve is “proceeding carefully” on monetary policy decisions following a spike in Treasury yields that have helped tighten financial conditions “significantly,” though he acknowledged ongoing economic growth could warrant further monetary policy tightening. Powell stressed the need for patience to see the effects of the Fed’s aggressive monetary tightening, while noting inflation was “still too high.”

Powell told the Economic Club of New York: “One of the reasons why we have slowed down significantly this year is to give monetary policy time to work. We have to use our eyes, and a little bit of risk management, and patience in slowing down the pace to make sure that we are seeing the full effects.”

States explore mileage tax as solution to bridge federal highway funding gap... The primary federal account responsible for funding highways and transit projects may face depletion by 2028 unless Congress addresses longstanding issues with the gas tax. According to Chad Shirley, an analyst for the Congressional Budget Office (CBO), the short-term influx of funds from the 2021 infrastructure law is projected to run out in five years. This situation will force Congress to decide whether to increase transportation taxes, reduce spending or utilize other federal resources to cover the funding gap.

The core problem lies in how the federal government finances surface transportation projects, relying on gas and diesel taxes to fill the Highway Trust Fund. However, these tax rates have not been raised since 1993, despite increased vehicle fuel efficiency and reduced year-to-year driving increases. Over the past 15 years, Congress has redirected $275 billion from other federal accounts to bolster the Highway Trust Fund, with $118 billion diverted from general funds in the 2021 infrastructure law.

The funding gap is widening, with projected federal surface transportation spending of $65 billion annually, while expected revenues will only bring in $37 billion per year. CBO predicts a cumulative gap of $241 billion by 2033, with the situation exacerbated by the rising popularity of electric vehicles.

In response, some states are exploring mileage taxes as an alternative to per-gallon fuel taxes. Oregon and Washington state have been at the forefront of such efforts. These mileage taxes are seen as a modernization necessary to shift the focus to road usage rather than fuel consumption. They could also be structured to assist low-income drivers, a flexibility not possible with gas taxes.

At the federal level, CBO suggests several options to address the Highway Trust Fund shortfall, including increasing the gas tax by 15 cents per gallon, introducing a mileage fee like state experiments or implementing a specific tax for electric vehicles. These measures aim to ensure highway users contribute more fully to the costs associated with road maintenance and infrastructure.

Mexico revives century-old railway to challenge Panama Canal for container traffic... Mexico’s government is embarking on a project to revive a historic railway connecting the Gulf of Mexico to the Pacific Ocean, aiming to compete with the Panama Canal for container traffic, the Financial Times reports. The $2.8 billion Tehuantepec isthmus corridor will include a railway linking renovated ports at Salina Cruz in Oaxaca state and Coatzacoalcos in Veracruz, along with industrial parks near transport hubs. The project aims to attract multinational companies seeking proximity to the U.S. and take advantage of the Panama Canal’s challenges, such as periods of low water levels due to frequent droughts in the region. Mexican President Andrés Manuel López Obrador envisions this project as part of an effort to draw investment to the economically disadvantaged southern regions of the country.

However, experts have raised concerns about the feasibility and challenges of the project. It may take years to build the necessary infrastructure and develop industries to attract global logistics players. International shipping companies, freight groups and port terminal operators have not yet shown interest in the route.

Capito: Minimal changes to WOTUS may lead to continued clean water act litigation... The Biden administration’s minimal changes to the waters of the U.S. (WOTUS) regulation in response to a Supreme Court ruling have raised concerns that litigation over the Clean Water Act will persist. The Supreme Court’s decision limited federal protection of wetlands to those with a “continuous surface connection” to larger bodies of water, a stricter definition compared to the previous “significant nexus” standard. This change has left many wetlands unprotected, leading to criticism and legal challenges.

Sen. Shelley Moore Capito (R-W.Va.) expressed worry that the administration’s limited revisions could result in ongoing legal battles. At a Senate hearing held on the 51st anniversary of the landmark 1972 law, Capito said, “It will likely be up to the courts again to constrain administrative overreach or give us some clarity.”

The Supreme Court’s ruling has created uncertainty around wetland protection, with some assessments suggesting that over half of the country’s wetlands are no longer safeguarded. While there have been conflicting WOTUS rules across the Obama, Trump and Biden administrations, the recent minimal changes have raised concerns about a lack of consistency in wetland protection.

Susan Bodine, a former EPA assistant administrator, agreed that litigation is likely to continue, citing potential challenges based on procedural grounds and non-compliance with the Supreme Court ruling. As a result of ongoing lawsuits, the revised WOTUS rule is currently in effect in 23 U.S. states but not in the remaining 27.

Mazeika Sullivan, a Clemson University professor, urged Congress to address the situation, stating that the Supreme Court’s decision is not based on science and goes against the Clean Water Act’s intent. Despite concerns, Bodine emphasized that recognizing limits on Clean Water Act jurisdiction does not necessarily mean all wetlands will be filled or waterways polluted, as there are numerous state and federal programs aimed at protecting water quality and wetlands.