Evening Report | November 30, 2023

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Firm says Brazil’s soybean production to fall below year-ago... Brazil will produce 150.67 MMT of soybeans in 2023-24, according to an updated forecast from consultancy Patria Agronegocios, given drought impact in key producing states like Mato Grosso. That would be 3.43 MMT smaller than last year’s 154.10 MMT crop. Patria Agronegocios forecasts Brazil’s corn crop at 112.51 MMT, which would be down from 131.36 MMT in 2022-23.

China quietly buying more U.S. wheat... For the week ended Nov. 23, China purchased 197,300 metric tons (MT) of U.S. wheat. For 2023-24, outstanding sales to China total 639,000 MT, including 511,000 MT of SRW, 98,000 MT of HRW and 30,000 MT of HRS — the most for this date since 2020-21. Total commitments (outstanding sales + accumulated exports) to China stood at 1.010 MMT.

Winter wheat drought footprint shrinks... As of Nov. 28, the U.S. Drought Monitor showed 56% of the U.S. was covered by abnormal dryness/drought, unchanged from the previous week. USDA estimated 38% of U.S. winter wheat areas were covered by drought, down three points from the previous week. 

In HRW areas, dryness/drought covered 90% of Kansas (8% D3 or D4), 67% of Colorado (2% D3 or D4), 52% of Oklahoma (1% D3, no D4), 67% of Texas (6% D3 or D4), 40% of Nebraska (11% D3 or D4), 12% of South Dakota (no D3 or D4) and 39% of Montana (no D3 or D4).

In SRW areas, dryness/drought covered 86% of Missouri (1% D3, no D4), 78% of Illinois (no D3 or D4), 97% of Indiana (no D3 or D4), 35% of Ohio (no D3 or D4), 31% of Michigan (no D3 or D4), 74% of Kentucky (no D3 or D4) and 97% of Tennessee (35% D3 or D4).

Click here to view related maps.

USDA cuts farm income forecast... USDA projects a decrease in U.S. farm sector profits in 2023 compared to the record-high levels of 2022. Inflation-adjusted net cash farm income is forecast to decline by $49.2 billion (23.8%) to $157.9 billion in 2023. Net farm income is expected to drop by $37.9 billion (20.0%) to $151.1 billion in 2023. Net cash farm income represents gross cash income minus cash expenses, while net farm income incorporates noncash elements such as changes in inventories and depreciation.

Cash receipts for farm commodities are anticipated to decline by $43.0 billion (7.8%) in 2023, with decreases expected in milk, corn and broiler receipts.

Total production expenses are expected to remain relatively stable, with a slight increase of $600 million (0.1%) to $443.4 billion in 2023. However, individual expense items may vary, including an increase in interest expenses and reductions in spending on fertilizer, lime, soil conditioner and feed.

Direct government payments to farmers are forecasted to decrease by $4.0 billion (24.8%) to $12.1 billion, primarily due to lower supplemental and ad hoc disaster assistance.

Farm sector equity is expected to increase by 6.9% ($229.4 billion) in 2023 to $3.57 trillion in nominal terms. Farm sector assets are forecast to rise 6.6% ($254.0 billion) in 2023 to $4.09 trillion following expected increases in the value of farm real estate assets. Farm sector debt is forecast to increase 5.0% ($24.6 billion) in 2023 to $520.7 billion. Debt-to-asset levels for the sector are forecast to improve from 12.93% in 2022 to 12.73% in 2023. Working capital is forecast to fall 5.0% in 2023 relative to 2022.

Fed’s preferred inflation gauge falls to lowest since March 2021... In October, the U.S. personal consumption expenditures (PCE) price index showed no change, marking its weakest performance since July 2022. This figure followed consecutive monthly increases of 0.4% in both September and August. The annual inflation rate declined to 3%, the lowest level since March 2021. Core PCE, excluding food and energy prices, saw a modest 0.2% increase from the previous month and posted an annual gain of 3.5%, the lowest since mid-2021.

Thompson aims to lower crop insurance costs in upcoming farm bill... In preparation for the upcoming farm bill, House Ag Chairman Glenn “GT” Thompson (R-Pa.) told Politico his intent to make crop insurance more affordable. Thompson said the committee is exploring various options to achieve this goal. “We need to look and see how do we make crop insurance more affordable and get more individuals to sign up for it,” Thompson said. When asked about where the money would come, presumably for higher premium subsidies, Thompson said: “I got lots of ideas for money.”

The primary focus is on increasing enrollment in crop insurance by reducing its cost for farmers. Currently, the government subsidizes about 60% of crop insurance premiums to encourage participation. While Thompson did not explicitly state that he aims to raise premium subsidies, he mentioned he has ideas for securing the necessary funds.

Southern Ag Today assesses recent GAO sugar program report... The recent report by the U.S. Government Accountability Office (GAO) evaluating the effects of the U.S. sugar program has come under scrutiny. The report, which focused on the impact of the sugar program on food companies and consumers, has faced criticism for not presenting a balanced view of the program’s effects. Some key points of contention include, according to the report from Southern Ag Today:

• Emphasis on Harm to Food Companies: The report primarily highlighted complaints from sugar-using groups regarding the prices paid for sugar, without quantifying the benefits these companies receive from the sugar program. It failed to acknowledge consumer preferences for domestically sourced sugar and the reliability of domestic sugar supply chains facilitated by the program.
• Omission of Recent Studies: The GAO report neglected to include recent studies that indicate the success of sugar-using firms operating within the program's framework. These studies demonstrated the financial outperformance of large sugar-purchasing food companies.
• Lack of Updated Consumer Impact Analysis: The report referenced a GAO report from 2000 regarding the effects of the sugar program on consumers, rather than using more recent studies. Recent research suggests that savings from changes in sugar prices are not passed on to consumers by food manufacturers.
• Failure to Address Loan Rate and Production Costs: The report missed an opportunity to compare sugar loan levels in the farm bill to the actual costs of producing sugar. Current production costs for sugarbeet and sugarcane are significantly higher than in 2018, when the last farm bill was enacted.
• Overemphasis on Welfare Economic Studies: The report relied heavily on welfare economic studies that provide a one-sided view of the sugar market. These studies do not capture the real-world benefits of a strong domestic supply chain and the threats posed by foreign governments in response to changes in U.S. sugar policy.
• Neglect of Economic Contributions: The report did not acknowledge the economic contributions of the sugar industry to rural and urban communities in the United States, including supporting jobs and contributing billions to the economy.
• Recycled Recommendations: GAO's recommendation to analyze alternative mechanisms for administering preferential-quota access to trade partners was similar to one made nearly 25 years ago, lacking new insights.

Bottom line: Critics argue the report missed an opportunity to provide a balanced assessment of the U.S. sugar program, including its benefits, and did not contribute substantially to the ongoing discussion surrounding the new farm bill.

Biden to introduce tax-credit rules for U.S. EV market... The Biden administration on Friday is expected to introduce new tax-credit rules aimed at influencing the American electric vehicle (EV) market. These rules are designed to promote the growth of domestic auto-supply chains and reduce reliance on China, which is a significant provider of clean-energy technology and a geopolitical competitor to the United States. The move is part of the White House’s efforts to reshape the EV market and enhance its strategic position in the industry.

OPEC+ agrees to oil production cuts... OPEC+ oil producers agreed to voluntary output cuts totaling about 2.2 million barrels per day (bpd) for early next year, led by Saudi Arabia rolling over its current reduction of 1 million bpd. Russia will cut 500,000 bpd and others will also contribute smaller cuts. Saudi Arabia, Russia, the United Arab Emirates, Iraq, Kuwait, Kazakhstan and Algeria were among producers who said cuts will be unwound gradually after the first quarter, market conditions permitting.

OPEC+ also invited Brazil, a top 10 producer, to become a member of the group. The country’s energy minister said it hoped to join in January.