Evening Report | October 24, 2023

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China signs U.S. ag purchase agreements... A delegation of commodity importers from China on Monday signed agreements to buy billions of dollars’ worth of agricultural goods, mostly soybeans, during a ceremony in Iowa, the U.S. Soybean Export Council (USSEC) said. The deals were signed as “frame contracts,” which are typically non-binding letters of intent to buy at a later date, without formal sales terms.

The agreements, signed at the China/U.S. Sustainable Agricultural Trade Forum, were the first such bulk signings since 2017 between top soybean importer Beijing and the U.S., the world’s second-largest supplier of the oilseed. The deals also included corn, sorghum and wheat. Top U.S. crop merchants Archer-Daniels-Midland, Bunge and Cargill were among the companies that signed 11 purchasing agreements.

Emmert wins House GOP speaker nomination... House Republicans selected House Majority Whip Tom Emmer (R-Minn.) as their nominee for speaker. The decision came after a series of votes narrowed down a field of nine, with Emmer securing 117 votes to Rep. Mike Johnson’s (R-La.) 97 in the final round. This choice aims to bring an end to the ongoing political crisis within the Republican party and allows lawmakers to refocus on key issues, such as providing aid to Israel, addressing a looming government funding deadline and a needed farm bill extension. However, the close vote reveals persistent divisions within the Republican conference, raising questions about Emmer’s ability to secure the 217 votes needed on the House floor to become speaker. Emmer’s 117 votes are fewer than Rep. Jim Jordan (R-Ohio) received when winning his ballot.

Emmer has only been able to vote on one farm bill – 2018 – and he voted yes.

Argentina expands export incentive program... Argentina will expand and extend an export incentive program for 30 days. The program, which had once been available to exporters of soybeans and soy products, will now be offered to all export sectors, in a bid to boost exports and bring in hard currency to replenish the central bank’s reserves. Argentine ag export firms will be able to swap 30% of the foreign currency they make on alternative exchange markets that offer better rates than the official rate, said Economy Minister Sergio Massa.

U.S. HPAI cases spread, prompting trade restrictions from Mexico... The highly pathogenic avian influenza (HPAI) situation in the U.S. has escalated, with 12 commercial turkey flocks confirmed to be affected across four states, as of Oct. 23. Among the impacted counties, eight out of nine had previously reported H5N1 infections earlier in the year, suggesting the potential for the virus to become endemic in the local environment and resident wild flocks.

The outbreak has not only raised concerns about the poultry industry but has also resulted in mounting trade restrictions. Mexico, a significant destination for U.S. poultry and related products, has suspended all poultry imports from the four affected states: Minnesota, South Dakota, Utah and Iowa.

ADM Q3 profits driven by ethanol margins and Brazilian exports... ADM exceeded Wall Street’s third-quarter profit expectations. ADM’s strong quarterly performance was attributed to favorable ethanol and sweetener margins, as well as robust Brazilian crop exports. Despite lower year-on-year results, ADM raised its full-year earnings outlook, thanks to a strong performance in the first three quarters and favorable market conditions. ADM has thrived on increased demand for food, animal feed and biofuels. Additionally, record-large corn and soybean harvests in Brazil have offset reduced supplies from drought-impacted Argentina and war-torn Ukraine.

USDA to tap CCC fund for trade promotion and food aid... USDA will release $2.3 billion from the Commodity Credit Corporation (CCC) to support trade promotion and international food aid programs. USDA Secretary Tom Vilsack announced during the World Food Prize’s Borlaug Dialogue in Des Moines, Iowa, responding to a request from Senate Agriculture Committee Chairwoman Debbie Stabenow (D-Mich.) and Sen. John Boozman (R-Ark.). The funds will be allocated as follows:

• $1.3 billion for the Regional Agricultural Promotion Program (RAPP) to diversify export markets and provide support to specialty crop industries.
• $1 billion to address global hunger through food aid programs.

Vilsack emphasized the importance of the CCC and USDA’ 's market development and aid programs, especially amid challenges in international commodities markets and global food insecurity. These funds will help strengthen the presence of U.S. agriculture in existing and new markets, ensuring that high-quality American agriculture and food products reach those in need worldwide.

USDA highlighted the growing agricultural trade deficit and increased competition in export markets, emphasizing the need for additional investments in market development and diversification away from dependence on a few large markets.

The funds for trade promotion and food aid will not be part of traditional programs but will instead be allocated to the RAPP to enable exporters to enter new markets and increase market share. Additionally, there will be targeted technical assistance to the specialty crops industry.

USDA said the recent challenges in supply chains and ongoing conflicts have exacerbated global food insecurity. An estimated 205 million people require life-saving food assistance, and 768 million people face chronic hunger. The U.S., with its surplus commodities, is well-positioned to address these gaps by extending food aid to those in need globally. The $1 billion donation will support efforts to combat global hunger and aid U.S. agriculture through the purchase of surplus commodities, in collaboration with the U.S. Agency for International Development (USAID).

ERP payments rise to $8.19 billion, while CFAP totals see minor adjustments... After a period of relative stability, Emergency Relief Program (ERP) payments have been adjusted higher by USDA as of Oct. 23. Total ERP payments now stand at $8.19 billion, up from the previous figure of $8.16 billion. Notably, ERP Phase 2 payments increased to $742.99 million, compared to the earlier figure of $714.95 million. The number of payment recipients currently stands at 9,968.

The Coronavirus Food Assistance Program (CFAP) figures posted minor changes, with total CFAP 1 payments edging up slightly to $11.84 billion, as opposed to the previous $11.83 billion. Most other totals within these programs have remained relatively consistent as of Oct. 23.

IEA warns oil demand to halve by 2050, declares fossil fuels no longer ‘safe or secure’... The International Energy Agency (IEA) predicts a nearly 50% decline in oil demand by 2050 if governments fulfill their commitments to transition to cleaner energy sources. This comes with a warning that investments in oil and gas are no longer secure. Fatih Birol, the head of IEA, pointed to recent events like Russia’s invasion of Ukraine, Middle East tensions and record-breaking temperatures as evidence of the risks associated with continued reliance on fossil fuels.

Birol has persistently called for an end to new oil and gas investments, despite resistance from many industry players, including energy executives in the United States and OPEC. He stated that oil and gas cannot be considered safe or secure energy choices for countries and consumers worldwide.

IEA’s report highlighted the evolving risks of over-investment in fossil fuels as governments seek to enhance energy security in the wake of the Ukraine conflict. Although there will be a surge in liquefied natural gas (LNG) projects from 2025, the risk of over-investment means that concerns about underinvestment in oil and gas supply are no longer valid.

IEA’s 2023 report projects peak demand for global oil, natural gas and coal before 2030, with oil demand expected to drop to 92.5 million barrels per day by 2030 and 54.8 million barrels per day by 2050 if government pledges are met. However, if governments fail to follow through on their commitments and maintain existing policies, oil demand is projected to only slightly decline to 97.4 million barrels per day by 2050.

OPEC, on the other hand, predicts an increase in oil demand to 116 million barrels per day by 2045, highlighting a significant discrepancy between producer forecasts and those of IEA.

In IEA’s scenario where government pledges are met, unabated fossil fuels are expected to account for only 32% of global energy supply in 2050, compared to 80% in 2022. Renewable energy sources, biomass, nuclear and carbon-captured coal and gas generation would make up 66% of global energy generation.

While progress has been made in clean energy investments, IEA emphasizes the need for more ambitious government policies to limit global warming to the critical threshold of 1.5 degrees Celsius, as outlined in the 2015 Paris Agreement. IEA warns that global emissions are still on track to raise global average temperatures by approximately 2.4 degrees Celsius this century, leading to severe climate change impacts.

In the most ambitious “net-zero” scenario proposed by IEA, unabated fossil fuels would only represent 12% of global energy demand by 2050. Birol also highlighted the challenge of fragmentation, citing conflicts involving Ukraine and Israel.