Evening Report | November 7, 2023

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Modest changes expected in Nov. crop reports... USDA’s corn and soybean crop estimates aren’t likely to change much in Thursday’s Crop Production Report. Barring any supply-side surprises, adjustments to usage forecasts in the 2023-24 balance sheets are also likely to be minor. Given El Niño impacts, the potentially biggest changes could be to USDA’s global production forecasts. The following pre-report estimates are from Reuters; Bloomberg for cotton.

Thompson gives some on farm bill timeline... House Ag Chair Glenn “GT” Thompson (R-Pa.) continued to express optimism about the possibility of passing a new farm bill in December in the House. At the American Bankers Association’s 71st Agricultural Bankers Conference in Oklahoma City, Thompson was asked about the impact of Mike Johnson (R-La.) being elected as Speaker of the House on the farm bill reauthorization, to which he confidently responded they are determined to get the farm bill done.

However, Thompson acknowledged an extension of the current farm bill would still be necessary while the Senate and others complete their work on the legislation. He explained that even if they had passed a farm bill last September, a long-term extension would have been required because both the House and Senate versions need to be reconciled through a conference process. Additionally, USDA needs time to align its provisions with the emerging farm bill. So, this is a change in Thompson’s prior farm bill extension thoughts.

Thompson mentioned the House’s extension language is currently being assessed by the Congressional Budget Office, and if approved, it would extend the current farm bill until the end of the fiscal year (Sept. 30). He expressed his desire to receive the extension and new bill language on the House floor as an early Christmas present, emphasizing his goal of acting as quickly as possible in this regard.

Comments: Not many think the House will complete a new farm bill this calendar year. Thompson also identified key issues in the farm bill including finding funding to make changes to the farmer safety net, potentially addressing base acres and other changes that have been well known through the process so far — issues still without a consensus.

One hurdle in extending 2018 Farm Bill: $100 million in funding for “orphan” programs. Even though both House and Senate Ag panel officials and staff have been looking for billions of additional dollars to help improve the Title I safety net, it appears a far smaller amount, $100 million, is needed to help fund the around 20 so-called “orphan programs,” which are solely authorized and funded under the farm bill rather than other appropriations streams in Congress. That discussion is taking place now.

Bipartisan bill aims to clarify standards for SAF made with agricultural commodities... Rep. Max Miller (R-Ohio) introduced a bipartisan bill known as the Farm to Fly Act, aimed at providing clarity and standards for sustainable aviation fuel (SAF) made from agricultural commodities. The bill has garnered support from various cosponsors across party lines. SAF presents a promising biofuel opportunity for farmers and enjoys support from agricultural commodity groups, the Fuels America coalition, major airlines and USDA Secretary Tom Vilsack.

The proposed legislation seeks to define SAF eligibility within the USDA’s agricultural bioenergy programs, establish a common SAF definition for USDA purposes and promote collaboration for aviation biofuels through USDA programs and public-private partnerships. Rep. Miller believes the bill will open new markets for farmers, stimulate rural economic development and enhance domestic energy resources.

Farmer sentiment rises amid improved financial conditions... The Purdue University/CME Group Ag Economy Barometer rose 4 points (3.8%) in October to a reading of 110, which was 7.8% higher than last year. The modest improvement in farmer sentiment resulted from farmers’ improved perspective on current conditions on their farms as well as their expectations for the future. The Index of Current Conditions rose 3 points to 101 while the Index of Future Expectations rose 5 points to 114. Farmers were a bit less concerned about the risk of lower prices for crops and livestock and felt somewhat better about their farms’ financial situation than a month earlier.

“Reports of higher-than-expected corn and soybean yields in some Corn Belt locations, along with a modest rally in corn prices, likely contributed to this month’s rise in the financial conditions and the barometer indices,” said James Mintert, the barometer’s principal investigator and director of Purdue University’s Center for Commercial Agriculture.

Farmers continue to be cautiously optimistic about farmland values, particularly when asked to look ahead five years. Nearly one in four corn and soybean farmers responding to this month’s survey reported making changes in their farm operation in response to long-term weather pattern changes in their area. Changes implemented by farmers were wide ranging and some farms reported making multiple changes to their farm operations in response to shifting weather patterns.

Final rule on Transparency in Poultry Grower Contracting and Tournaments coming soon... This rule is part of the Biden administration’s efforts to address issues in the U.S. livestock/poultry industry. The final rule aims to update the requirements for disclosures and information that live poultry dealers must provide to growers and sellers when entering poultry growing agreements. It also sets guidelines for the use of poultry grower ranking systems by dealers to determine settlement payments.

USDA’s regulatory agenda describes the rule as intended to enhance transparency in poultry production contracting and provide poultry growers with relevant information for making business decisions. During the Office of Management and Budget (OMB) review, two meetings were held to discuss the final rule, involving representatives from the U.S. poultry industry and a group focused on reforming poultry contracting.

Typically, USDA announces new regulations shortly after OMB completes its review, so the release of this final rule is expected soon. Additionally, another final rule related to competition and market integrity under the Packers and Stockyards Act is currently under review at OMB.

U.S. debt interest bill surpasses $1 trillion a year... The U.S. may face increased selling pressure on its Treasuries in the coming year, driven by the growing burden of debt repayment. Bloomberg analysis reveals that estimated annualized interest payments on the U.S. government’s debt surpassed $1 trillion by the end of last month. This amount has doubled in the past 19 months and now accounts for a significant 15.9% of the entire federal budget for fiscal year 2022.

These figures are based on data from the U.S. Treasury, which tracks the government’s monthly debt balances and the average interest payments it makes. The deteriorating financial metrics could revive concerns about the country’s fiscal trajectory, particularly as the government continues to borrow heavily. This trend has already led to increases in bond yields, raised concerns about the return of the “bond vigilantes” (investors demanding higher interest rates on government debt) and prompted a downgrade of U.S. government debt by Fitch Ratings in August.

Impact: Bloomberg Intelligence strategists Ira Jersey and Will Hoffman predict there will be further increases in Treasury coupon auctions and outstanding T-bills in the future. They attribute this to deficits exceeding $2 trillion in the foreseeable future and the need to refinance growing maturities stemming from increased issuance starting in March 2020.

Banks tighten lending standards... Lending officers at U.S. banks told the Federal Reserve they tightened standards and saw weaker demand for business loans over the past three months. The Fed’s latest Senior Loan Officer Opinion Survey also found weaker demand among households for residential real estate, credit card, auto and other consumer loans. “This report clearly shows that banks are tightening their lending screws. It’s undeniable that credit conditions affect economic activity, so the most pertinent question to ask is when tighter conditions will restrict GDP growth,” said Nationwide economist Oren Klachkin.