U.S. Employers Add Surprisingly Strong 216,000 Jobs; Sign of Continued Economic Strength

GOP: Shut down border or shut down gov’t

Today’s Digital Newspaper

MARKET FOCUS

Market implications of stronger-than-expected jobs/wage report
West Coast shipping rates surge as Red Sea fallout goes global
Eurozone inflation rises
Warehouse vacancy rates in U.S. reach highest point since onset of pandemic
Eurozone consumer inflation increases in December
Ag markets today
Attaché cuts Brazilian soybean crop estimate
Ag trade update
First initial blast of heavy snow coming
NWS weather outlook
Pro Farmer First Thing Today items

CONGRESS

House Speaker Johnson mulls direct talks with White House on immigration policy
CBO analysis: Year-long CR could result in significant spending cuts
GOP: Shut down border or shut down gov’t
Impact on USDA if shutdown occurs after Jan. 19

ISRAEL/HAMAS CONFLICT

Sec. of State Antony Blinken left for his fourth trip to the Middle East since Oct. 7 attack
Israel's defense minister unveiled plans for the next phase of the war in Gaza

RUSSIA & UKRAINE

N. Korean missile supply fuels Russian attacks in Ukraine amid UN embargo violation

CHINA

Sales to China to close out 2023 focus on wheat, soybeans, sorghum, and cotton. USDA weekly Export Sales data for 2023-24 the week ended Dec. 28 included net
Top China diplomat warns of decoupling risk even as ties improve
Chinese shadow banking giant Zhongzhi Enterprise Group declares bankruptcy
Chinese markets signal expectations of more economic stimulus
China targets French brandy imports in escalating trade spat
China’s key sector workforce sees first increase in decades as migrants back on farm

ENERGY & CLIMATE CHANGE

Montana okays E15; Calif. only state to hold out
Norfolk Southern aims to slash emissions with greater use of biofuels

LIVESTOCK, NUTRITION & FOOD INDUSTRY

Supermarket chain drops Pepsi and Lay’s over price increases
Consumers defy rising restaurant prices in 2023, opt for cheaper dining in 2024
Avian influenza outbreak to raise egg prices due to reduced hen supply
UN food price index declines in Dec. and throughout 2023; sugar prices buck trend
Triumph Foods has not withdrawn its lawsuit challenging Massachusetts' Question 3

HEALTH UPDATE

Eli Lilly venturing into direct-to-consumer sales for approved weight-loss drug
Hospitals across several states reimpose masking requirements

POLITICS & ELECTIONS

Rep. Blaine Luetkemeyer (R-Mo.) announces his retirement
Robert F. Kennedy Jr. optimistic about getting on ballots across U.S.
DeSantis and Haley target Trump, Biden focuses on democracy
Trump leads Haley 37% to 33% in New Hampshire GOP poll, both gain 4 points
Charlie Cook on the presidential election

OTHER ITEMS OF NOTE

Cotton AWP: another increase
Biden facing escalating pressure to address influx of migrants entering U.S.

MARKET FOCUS

— Equities today: Asian and European stock markets were mixed to weaker overnight. U.S. Dow opened slightly lower but is currently around 150 points higher.

U.S. equities yesterday: The Dow ended up 10.14 points, 0.03%, at 37,440.34. The Nasdaq fell 81.91 points, 0.56%, at 14,510.30, closing lower for a fifth day its longest losing streak since October 2022. The S&P 500 was down 16.13 points, 0.34%, at 4,688.68. Some investors hold that as goes January, so goes the year.

The Dow has fallen 0.7% for the week, while the S&P 500 has dropped 1.7% and the Nasdaq Composite has shed 3.3%.

— Bond yields, particularly the benchmark U.S. Treasury 10-year note yield, have started to increase once more, surpassing the 4% mark for the first time in nearly a month. This indicates that market sentiment has shifted away from anticipating significant interest rate cuts by the U.S. Federal Reserve in the near future, reflecting a less dovish outlook.

— Agriculture markets yesterday:

Corn: March corn rose 1 1/4 cents to $4.66 1/2, a mid-range close.
Soy complex: March soybeans fell 9 1/2 cents to $12.6 1/2, closing nearer session low and made a fresh 6.5-month low. March soymeal dropped $4.20 to $376.20, settling near session low. March soyoil slipped 44 points to 48.16 cents.
Wheat: March SRW wheat rose 13 1/4 cents to $6.13 1/2, near the session high and hit a four-week low early on. March HRW wheat gained 4 1/4 cents at $6.25 3/4, near the session high though hit a five-week low early on. March spring wheat futures firmed 2 3/4 cents to $7.11 1/4.
Cotton: March cotton dropped 81 points, settling at 80.12 cents, near session low.
Cattle: February live cattle fell 72 1/2 cents to $171.125 and near mid-range. March feeder cattle closed down $1.375 at $225.65 and nearer the session low.
Hogs: Nearby February led the gains, jumping $3.75 to $69.05.

— Ag markets today: Corn and soybean futures mildly favored the downside in quiet, two-sided overnight trade, while wheat firmed. As of 7:30 a.m. ET, corn futures were trading around a penny lower, soybeans were mostly 3 to 4 cents lower, winter wheat markets were 2 to 4 cents higher and spring wheat was 6 to 7 cents higher. Front-month crude oil futures were around 60 cents higher, and the U.S. dollar index was up nearly 300 points.

Beef margins plunge. After packers bought cattle around $175.00 in the northern market earlier this week, feedlots raised asking prices to $177.00 in the Southern Plains. It appears this week’s average cash cattle price will rise at least $2.00. While cash prices are rising, wholesale beef continues to drop, with Choice down another $2.13 and Select 3 cents lower on Thursday. That combination pushed beef processor margins deeper into the red.

Cash hog index firms again. The CME lean hog index is up 67 cents to $65.86 (as of Jan. 3), marking back-to-back increases and the biggest daily gain since last July. February lean hog futures jumped $3.75 on Thursday to finish $3.19 above today’s cash quote.

— Of note:

Red Sea ripples. The White House National Economic Council and the National Security Council are monitoring the trade disruptions in the Red Sea that are rippling to the U.S. East and West coasts.
"The labor market ended 2023 on a solid footing," said Nela Richardson, chief economist for the payroll processing company ADP. "We'll see what 2024 will bring."

— U.S. added 216,000 jobs in December, exceeding expectations. Key data points:

The U.S. economy added 216,000 jobs in December 2023, more than a downwardly revised 173,000 in November, and well above market forecasts of 170,000. Employment continued to trend up in government, health care, social assistance, and construction, while transportation and warehousing lost jobs. It was the 36th consecutive month of gains. (Source of chart: NYT)
The total job gain for 2023 reached 2.7 million, the smallest annual gain since 2019 when excluding the pandemic year of 2020, but a strong showing in a year marked by strikes and layoffs by large firms across multiple sectors. Heading into an election year, it’s a data point that President Biden is expected to trumpet to voters still unconvinced about his handling of the economy.
The jobless rate was unchanged at 3.7%, the longest stretch the unemployment rate has been below 4 percent since the mid-1960s.
Average hourly earnings rose by 15 cents, or 0.4%, over a month to $34.27 in December 2023, the same rate as in the prior month and above market estimates of 0.3%. In December, average hourly earnings of private-sector production and nonsupervisory employees rose by 10 cents, or 0.3%, to $29.42. Over the past 12 months, average hourly earnings have increased by 4.1%, above market forecasts of 3.9%. Federal Reserve officials have signaled that readings above 4% are a little too hot for comfort. The good news for workers is that wages have been climbing faster than prices in recent months, so the average paycheck stretches further.
Labor force participation rate, a measure of those working or actively seeking work as a share of the 16-and-up population, fell to 62.5% from 62.8%.
Market impacts: Slightly dents hopes for a near-term Federal Reserve rate cut, S&P 500 futures pointed lower in Friday morning stock market action. Ahead of the December jobs report, markets were pricing in 7% odds of a rate cut at the Fed's Jan. 31 policy update, according to CME Group's FedWatch page. Markets saw 65% odds of a rate cut by the March 20 meeting, but that dropped to about 54% after the jobs report. For all of 2024, markets now see 1.25 percentage points of cuts with only a decent chance of 1.5 percentage points.

— Warehouse vacancy rates in the U.S. have reached their highest point since the onset of the pandemic. In the fourth quarter of 2023, the average warehouse vacancy rate in the U.S. rose to 5.2%, compared to 4.6% in the previous quarter and 3.1% from a year earlier, as reported by commercial real-estate services firm Cushman & Wakefield. This marks the first time the vacancy rate has exceeded 5% since 2020 when a surge in e-commerce sales, driven by the pandemic, triggered a rapid increase in warehouse construction and leasing. Link to details via the Wall Street Journal.

— Eurozone consumer inflation increases in December. Consumer inflation increased to 2.9% over year-ago in December, according to initial data, climbing from an over two-year low of 2.4% in November and the first uptick since April. Core inflation, excluding unprocessed food and energy costs, slowed to 3.9% from 4.2% the previous month, the lowest since March 2022. An even narrower measure of core prices, which also excludes alcohol and tobacco, fell to 3.4% from 3.6% in November.

Market perspectives:

— Outside markets: The U.S. dollar index was firmer ahead of the key U.S. jobs report as both the euro and British pound were weaker against the greenback. The yield on the 10-year U.S. Treasury note was firmer, trading back above 4% at around 4.04% ahead of the jobs update, with a mostly higher trend in global government bond yields. Crude oil futures were gaining, with U.S. crude around $72.90 per barrel and Brent around $78.15 per barrel. Gold and silver futures were mixed ahead of the Employment report, with gold weaker around $2,047 per troy ounce and silver firmer around $23.21 per troy ounce.

— Attaché cuts Brazilian soybean crop estimate. The U.S. ag attaché in Brazil cut the country’s soybean crop forecast by 3.5 MMT to 158.5 MMT “due to poor weather outlooks resulting from El Niño, particularly in the Centre West states.” That’s still well above most private crop forecasters, many of which are in the low 150-MMT area. In December, USDA lowered its Brazilian soybean production forecast to 161 MMT.

— Ag trade update: South Korea purchased 88,700 MT of U.S. milling wheat. Taiwan purchased 82,975 MT of U.S. milling wheat and tendered to buy 65,000 MT of corn that can be sourced from the U.S., Brazil, Argentina or South Africa.

— NWS weather outlook: Light to moderate snow expected for portions of the southern and central Great Plains along with localized flash flooding for the Gulf Coast today... ...Significant icing possible for portions of the southern and central Appalachians tonight into Saturday... ...Snow from developing East Coast winter storm to begin affecting interior portions of the Mid-Atlantic and Northeast on Saturday... ...Pacific storm system to bring renewed round of heavy mountain snow and coastal rain to the Northwest Coast tonight into Saturday.

Items in Pro Farmer's First Thing Today include:

     • Corn and beans weaker, wheat firmer this morning
     • U.S. winter wheat crop should survive coming cold spell.
     • China’s state banks take further actions to stem yuan losses

CONGRESS

— House Speaker Johnson mulls direct talks with White House on immigration policy. Speaker Mike Johnson (R-La.) is considering the possibility of initiating direct negotiations with the Biden administration regarding adjustments to border security and immigration policies, Punchbowl News reports. This idea was discussed during a private conference call with House Republican freshmen. The rationale behind this approach is the belief within Johnson's team that any deal negotiated in the Senate may face challenges passing the GOP-controlled House. Therefore, Johnson may seek to establish a direct line of communication with the White House for these discussions. For more details, link/pdf to a memo from Raj Shah, Johnson’s deputy chief of staff for communications.

— CBO analysis: Year-long CR could result in significant spending cuts. A recent analysis by the Congressional Budget Office (CBO) indicates that passing a year-long continuing resolution (CR) could result in significant spending cuts, particularly on non-defense expenditures. The extent of these cuts would depend on the timing of the CR's passage. In this scenario, the Office of Management and Budget (OMB) would ultimately determine the specific amount of cuts. Link to CBO report.

“Significant uncertainty surrounds the effects of the limits on discretionary funding contained in section 102 and section 101 of the FRA. Ultimately, funding will depend on the actions of lawmakers and on OMB’s decisions about sequestration,” CBO Director Phillip Swagel told House Budget Committee Chair Jodey Arrington (R-Texas) and Rep. Brendan Boyle (D-Pa.), the ranking member.

Details: The set of caps that applies to discretionary funding depends on the timing of the enactment of appropriation acts and the duration for which funding is provided. The caps specified in section 102 were triggered because discretionary funding was provided by the continuing resolution that was in place on Jan. 1, 2024. Unless all full-year appropriations have been enacted by April 30, 2024, OMB will use the section 102 caps to determine whether sequestration is required.

— GOP: Shut down border or shut down gov’t. That is the message from House GOP leaders regarding funding the government for fiscal year (FY) 2024. While veteran observers of this topic will likely say why can’t Republicans realize that shutting the government down rarely is a "win" politically for those that "cause" it?

But is this time different?

Of note: Some say any shutdown this time would not be about spending, as it usually is, but about policy. And that is a big difference going into 2024 elections.

It is beginning to make more sense why House GOP leaders pushed a two-stop FY 2024 funding process: Jan. 19 is the deadline for four spending bills (Agriculture, MilCon-VA, Energy and Water, and Transportation-HUD.) The second, broader Feb. 2 deadline is for the remaining eight bills.

With little time to complete the initial four spending bills with a Jan. 19 deadline, some believe there will be a push for a continuing resolution (CR). House Speaker Mike Johnson (R-La.) has said he wants to pass appropriations bills, not a CR. The speaker has repeatedly said he will not pass a short-term stopgap spending measure. Some say hardline conservatives wouldn’t mind a CR because it would lead to mandatory spending cuts (as of May 1) under last spring’s Fiscal Responsibility Act/FRA agreement between former Speaker Kevin McCarthy (R-Calif.) — if negotiators cannot reach agreement on full-year funding by the January and February deadlines, Congress could enact another CR. If they take this path and a CR is in place after April 30, the FRA's across-the-board cuts to discretionary spending would go into effect beginning May 1.

Johnson commented on the status of the appropriations talks during his trip to the U.S./Mexico border on Wednesday. “We are working hard to get the appropriations bills done… We have until mid-January, we have until early February to get the approps bills done. We have been working in earnest and in good faith with the Senate and the White House, virtually every day through the holiday, trying to come to an agreement. Negotiations are still ongoing. It’s [dragged] on way too long. But the sooner we get that agreement, the sooner we’ll be able to get the appropriations bills done.”

What could happen. Enough House GOP conservatives and the “gang of eight” GOP rebels will insist on significant border policy changes, thus their mantra of “Shut the border or shut the gov’t.” With not enough time to complete the four spending measures with a Jan. 19 deadline, there may well be a partial gov’t shutdown. While Democrats will clearly blame Republicans, GOP leaders will say this is a policy issue about the lack of border security and that Democrats were more inclined to aid illegal migrants rather than protecting the U.S. southern border. If this occurs, the pressure will grow ahead of the next Feb. 2 gov’t shutdown impacting 80% of government funding needs. Then it will be a test of who folds first.

Caveat: As an item below details, President Biden is facing escalating pressure to address the influx of migrants entering the United States, not only from Republican critics but also from Democratic mayors and governors in major cities far from the border, according to the New York Times (link). The increasing crises in these urban centers have transformed what was once a clear-cut ideological battle between Democrats and Republicans into a bipartisan call for action.

— Impact on USDA if shutdown occurs after Jan. 19. Various USDA agencies have prepared contingency plans for a government shutdown. During a government shutdown, in this case a partial shutdown, impacted government workers, whether furloughed or not, do not receive pay, although they typically receive back pay once the shutdown ends. The Office of Personnel Management (OPM) explains that a lapse in government funding restricts new financial obligations for functions funded through annual appropriations, except for certain authorized personnel.

Here are key highlights from the USDA contingency plans for different agencies (link):

Foreign Agricultural Service (FAS): Those exempted from a shutdown include those with activities that are financed from available funding sources; travelers who may be en-route home who need to be accounted for; foreign travelers that need to be administratively supported; outstanding time and attendance/payroll functions; activities relating to shutdown (e.g., notification of contractors); verifying property inventories are in hand; and securing and storing records, files, or work in progress. FAS will decide who among Foreign Service personnel posted overseas are to be excepted personnel at a US Embassy, Consulate, or other U.S. facility. FAS determines those individuals excepted from furlough on post. FAS may also implement the Market Access Program, Foreign Market Development Program, GSM102 Program, and the Agricultural Trade Promotion Program. A key here is that if the suspension of activity would prevent completion of mandatory requirements. Processing of information submitted through the Export Sales Reporting system is needed to preserve critical trade and economic information and to support international trade negotiations and engagements with foreign governments and is considered an operation exempted from a shutdown. However, the data will not be released and a timeline for release will be determined once any shutdown ends.
Farm Production and Conservation (FPAC): The Natural Resources Conservation Service (NRCS) classifies Emergency Watershed Program employees (working on disaster response and construction) and Watershed and Flood Prevention Program employees (working on active construction contracts and whose job includes aspects that could have a life and property-related job function) as “exempted.” Those guidelines remain mostly the same.

The Risk Management Agency will continue essential operations with a partial staff of around 155 employees for an estimated 6-8 hours per day. Among operations they are to maintain include program payments and offering of crop and livestock insurance policies including Dairy Revenue, Livestock Risk Protection, and Livestock Gross Margin. The contingency plan includes a notation that at the end of the second week of a shutdown, RMA would review the plan.

The Farm Service Agency (FSA) contingency plan says “FSA employees will cease all program delivery activities.” If a shutdown continues past 10 days, the plan said that one farm loan employee per service center will be on call to complete certain loan processing items in order to protect the security interest of the government. “This will not include any new loan processing,” the plan stated. However, the package noted that those paid with Inflation Reduction Act (IRA) funding who oversee policy development and program activities under IRA Section 22006 “will continue their work to the extent feasible, up to application approval during the first two weeks of a lapse in appropriation.” The plan also indicated that during the first two weeks of a shutdown would include “review and processing of distressed borrower payments up to application approval.” A shutdown longer than two weeks would prompted officials to re-evaluate the contingency plan “to consider whether it is appropriate to fund additional staff or to add excepted staff necessary to support the funded activity, to potentially include payment processing.” USDA has cautioned that work by the Natural Resources Conservation Service (NRCS) could stop in certain areas under a shutdown with the Farm Service Agency also affected.

NRCS classifies Emergency Watershed Program employees (working on disaster response and construction) and Watershed and Flood Prevention Program employees (working on active construction contracts and whose job includes aspects that could have a life and property-related job function) as “exempted.”

Food Safety and Inspection Service (FSIS): There are 8,400 staff that handle excepted functions, and 8,000 are frontline staff and will be excepted for the entire period. The other 400 are management, support and other staff and they will only work the hours needed to perform excepted duties.

An August 2020 plan said that activities during a shutdown that would continue include those to ensure the U.S. commercial supply of meat, poultry, and processed egg products is safe as required under the authority of the Federal Meat Inspection Act (FMIA); the Poultry Products Inspection Act (PPIA); and the Egg Products Inspection Act (EPIA). This includes the daily on-site inspection presence, regulatory enforcement and product testing in the laboratories. In addition, in cases where these functions are performed by State employees (under the Federal State Cooperative Act, Talmadge-Aiken), the activities are considered excepted. These activities are excepted as necessary to protect human life.

FSIS performs reimbursable work for the industry (non-federal partners) as authorized by the Agricultural Marketing Act of 1946; the FMIA; the PPIA; and the EPIA. None of these reimbursable activities are funded under an appropriation prior to reimbursement, and are not affected by a shutdown.

An updated plan also outlines the above functions as being excepted from the shutdown. Both plans also identify inspection of meat, poultry and egg products as excepted functions.

Other FSIS activities that could continue include enforcement/food safety surveillance and investigations, according to both contingency plans. Those could include Traceback/traceforward foodborne illness outbreak investigations; initiation of recall or performance of recall effectiveness checks; response to and recovery associated with natural disasters or intentional contamination; conducting surveillance that cannot be rescheduled; and conducting state and foreign audits required to ensure meat, poultry, and processed egg products entering our food supply are safe.
Animal and Plant Health Inspection Service (APHIS): APHIS may charge and collect user fees for the costs incurred in inspecting and quarantining animals imported into and exported from the US; performing certain laboratory veterinary diagnostics and select agency services; and issuing phytosanitary certificates for plant materials bound for export. All fees collected shall be credited to the accounts that incur the costs and shall remain available until expended without fiscal year limitations. Reimbursable overtime is also covered user fees.

Trust funds may provide revenues for activities related to preclearing and inspecting fruits, vegetables, and nursery products before they are shipped to the US; inspecting commercial birds in an APHIS-approved commercial bird quarantine facility; and other technical assistance. The APHIS Plant Protection and Quarantine (PPQ) will continue to operate, as will Feral Swine Eradication and Control efforts, the Animal Disease Prevention and Management Program, and inspection activities to prevent illegally harvested timber and other products suspected of being shipped through Mexico and mislabeled as Mexican origin. Border and coastal protection and surveillance activities would continue along with activities related to an animal or plant health emergency.
Agricultural Marketing Service (AMS): Market News is no longer considered an excepted activity, which may negatively impact the marketplace. Procurement activities and activities funded by user fees will continue.

Procurement activities by AMS are also an excepted activity such as the purchase of products by the U.S. government.

Activities funded by user fees and assessments will continue, including Federal Grain Inspection Service, cotton classing; cattle futures; poultry grading; dairy grading; seed inspection; Plant Variety Protection Program; meat grading; Perishable Agricultural Commodities (PACA); fee-funded warehouse inspections and certain other actions.

Activities that will not take place include but are not limited to Country-of-Origin Labeling; the National Organic Program; Federal Seed; Packers and Stockyards Program; Federal State Marketing Improvements Program; Pesticide Data Program; Shell Egg Surveillance; Compliance, methods development, and international monitoring activities conducted by the Federal Grain Inspection Service; National Bioengineered Food Disclosure. The September plan also now lists Market News as an activity that will not take place.

A September 2023 update Lists additional offices that are partially funded that can operate during a shutdown “to the extent their salaries are paid with excepted or exempt funding.” Offices added to the list include the Cotton & Tobacco Program, Dairy Program, Livestock & Poultry Program, and Specialty Crop Program. Interestingly, USDA’s AMS website lists activities under the Livestock & Poultry Program as including several Market News functions which is no longer an excepted function.

Both the August 2020 guidance and the September 2023 guidance list impacts from a government lapse in funding. With Market News no longer continued an excepted function, the updated contingency plan notes that a short-term (1-5 days) to long-term (2-4 weeks) shutdown will have “detrimental impacts on the marketplace.” AMS noted that no Market News means that buyers and sellers would be “unable to determine market value of an agricultural commodity being traded, creating uncertainty in the market about market trends and reluctance to move products, particularly livestock, to market.” The document also notes a often-cited focus for the Biden administration, that the ”brunt of the impact will be most keenly felt by producers, growers, and other small farmers; most affected will be the small farmers who market their commodities through formula arrangements, where the determination of price is based on published data.”
National Agricultural Statistics Service (NASS): The big NASS release package on Jan. 12 will be out of the way for NASS if a shutdown occurs after Jan. 19. Subsequent monthly updates could be affected, depending on how long any shutdown might last, including Cold Storage, Agricultural Prices, and the twice-yearly Cattle inventory update. But key would be how long any shutdown lasts if it does occur.
World Agricultural Outlook Board (WAOB): The World Board is the entity responsible leading the World Agricultural Supply and Demand Estimates (WASDE) report. They fall under the Office of the Chief Economist at USDA. In the event of a shutdown, only the Chairman of the World Board and the USDA Chief Economist “are deemed to be excepted for the purpose of supporting critical activities of the Office of the Secretary, including representing the Department and/or the Secretary in critical international negotiations and responding to requests by the Secretary for agricultural and economic intelligence or analysis in support of decision making that may impact public health, safety, or the economy.” That is not specified to include the WASDE report. All other employees of the Office of the Chief Economist “are deemed to be neither excepted nor exempt and will be furloughed for the duration of any shutdown.”

These contingency plans provide insights into which USDA functions would be affected and which would continue in the event of a partial gov’t shutdown, but the duration of the shutdown will determine the full extent of the impacts, especially regarding data releases.

ISRAEL/HAMAS CONFLICT

— Secretary of State Antony Blinken left for his fourth trip to the Middle East since the Oct. 7 attack on Israel, as part of US efforts to counter growing risks of a broader regional conflict. He will travel to Turkey, Jordan, Qatar, the United Arab Emirates, Saudi Arabia, Egypt and Israel, with a visit to the West Bank and an additional stop in Greece, State Department spokesman Matthew Miller said Thursday. “The secretary will focus on a number of critical issues on this trip,” Miller told reporters as he announced the itinerary before Blinken’s departure later in the day. “We don’t expect every conversation on this trip to be easy.”

— Israel's defense minister unveiled plans for the next phase of the war in Gaza, featuring a new combat approach in the north and a sustained focus on targeting Hamas leaders in the enclave's southern territory. The plan includes an expansion of raids and aerial activities as the humanitarian crisis in Gaza continues to worsen and fears are rising of a widened Middle East conflict. Israel's military is specifically intensifying its operations in central and southern Gaza, including the Khan Younis area, where Israeli forces said they struck more than 100 targets overnight.

RUSSIA/UKRAINE

— North Korean missile supply fuels Russian attacks in Ukraine amid UN embargo violation. The White House revealed that some ballistic missiles fired by Russia at Ukraine in recent days were supplied by North Korea, indicating growing support from North Korea for Russia, which is in violation of a United Nations embargo. This support comes as Russia's own supply of weaponry diminishes, forcing it to seek military equipment from other nations. White House national security spokesperson John Kirby described the use of North Korean missiles by Russia as a "significant and concerning escalation in the (Democratic People’s Republic of Korea) support for Russia." Two unnamed U.S. officials informed the Washington Post that Russia has been deploying North Korean-supplied missiles in Ukraine as part of its military operations. Russia launched North Korean missiles at least once in late December and again this week.

Additionally, the White House disclosed that Russia was seeking to purchase "close-range ballistic missiles from Iran," which could be delivered as soon as spring.

CHINA UPDATE

— Sales to China to close out 2023 focus on wheat, soybeans, sorghum, and cotton. USDA weekly Export Sales data for 2023-24 the week ended Dec. 28 included net sales of 65,799 metric tons of wheat, net reductions of 1 metric ton of corn, net sales of 85,400 metric tons of sorghum, 71,574 metric tons of soybeans, and 50,735 running bales of upland cotton. No activity for 2024-25 was reported. Net sales for 2023 included 3,208 metric tons of beef and 41 metric tons of pork, while net sales for 2024 of 242 metric tons of beef and 180 metric tons of pork were reported.

— Top China diplomat warns of decoupling risk even as ties improve. China’s top diplomat warned the U.S. that decoupling would be “self-defeating” as the country set out to implement a recent agreement made between their leaders. Link to more via Bloomberg.

— Chinese shadow banking giant Zhongzhi Enterprise Group officially declared bankruptcy due to insolvency. This decision comes in the wake of ongoing criminal investigations into its money management business, which had been involved in providing financing to distressed property developers and acquiring assets from various companies, including China Evergrande.

— Chinese markets signal expectations of more economic stimulus. China’s government bonds extended gains on Friday, with 10-year yields touching the lowest in nearly four years, on rising expectations of more stimulus to aid the country’s economic recovery. Yields on the benchmark 10-year government bond fell to 2.52%, the lowest since April 2020. “The People’s Bank of China may start to shift its focus from FX stability more towards monetary easing,” said Jingyang Chen, Asian FX strategist at HSBC, expecting a rate cut in China would come after the U.S. Federal Reserve kicks off its monetary easing.

— China targets French brandy imports in escalating trade spat. Investigation comes four months after Brussels complains of flood of Chinese electric cars. Link/paywall for details via the Financial Times.

— China’s primary sector workforce sees first increase in decades as migrants back on the farm. For the first time in decades, the share of China’s workforce employed in raw materials industries has gone up – a consequence of a weak job market and a return of rural migrants to their homes. Link for more via the South China Morning Post.

ENERGY & CLIMATE CHANGE

— Montana okays E15; Calif. only state to hold out. State officials said fuel retailers in Montana can sell E15, a 15% mix of ethanol into gasoline, leaving California as the only state to hold out against the blend. In a news release on Thursday, Growth Energy CEO Emily Skor said the move "is great news for Montana drivers who will soon have access to a lower-cost fuel option at the pump… By simply updating its fuel regulations, Montana has become the 49th state to give consumers the chance to save money with E15 while using more renewable fuel made in America and increasing our energy independence," Skor said in a statement.

— Norfolk Southern aims to slash emissions with greater use of biofuels. Fuel management and consumption will be a key means to reduce GHG emissions, as fuel accounts for over 90% of NS’ scope 1 and 2 GHG emissions, NS said when releasing its inaugural Climate Transition Plan (CTP) Thursday (link). Scope 1 emissions pertain to emissions directly from company operations while scope 2 emissions generally originate from sources not controlled by the company.

LIVESTOCK, NUTRITION & FOOD INDUSTRY

— Supermarket chain drops Pepsi and Lay’s over price increases. One of the world’s biggest supermarket chains said it would drop several PepsiCo products to protest what it called unacceptable price increases, a rare public standoff between a grocer and food maker after more than two years of rising prices. Carrefour, which operates thousands of stores across more than 30 countries, said it would stop selling Pepsi, Doritos and other products in France, Italy, Spain and Belgium.

Supermarket operators in the U.S. have also signaled concerns about rising prices in some aisles of stores, even as the overall rate of inflation has slowed. Walmart Chief Executive Doug McMillon said in November that “we may be managing through a period of deflation in the months to come, and while that would put more unit pressure on us, we welcome it, because it’s better for our customers.”

— Consumers defy rising restaurant prices in 2023, opt for cheaper dining in 2024. In 2023, consumers defied expectations as rising restaurant menu prices did not deter them from dining out. Instead, they continued to enjoy meals at restaurants while cutting back on discretionary spending in areas like clothing and furniture. However, it appears that in the current year, consumers may be inclined to opt for more affordable dining choices. There is already evidence of this trend, with same-store sales at quick-service restaurants increasing by 3.8% in November compared to the previous year, while casual dining sales only rose by 0.4%, as reported by Black Box Intelligence. Even though the cost of dining out has increased by 5.3% compared to the previous year, it is expected that menu prices will stabilize in 2024. This is partly because food commodity prices reached their peak in 2022 and have since decreased by approximately 20% from a year ago, although prices for items like beef and chicken remain elevated.

— Avian influenza outbreak to raise egg prices due to reduced hen supply. Cal-Maine's stock price experienced an increase following the company's announcement that an outbreak of avian influenza had impacted approximately 1.5 million of its hens, constituting 3% of its flock, at some of its Kansas facilities. The ongoing avian influenza outbreak, responsible for the deaths of approximately 80 million birds since its onset in 2022, is anticipated to lead to a reduction in the supply of egg-laying hens in the United States. Consequently, this is expected to result in higher wholesale egg prices.

— UN food price index declines in December and throughout 2023; sugar prices buck the trend. The UN Food and Agriculture Organization (FAO) reported a decline in the UN Food Price Index for both December and the entire year of 2023. In December, the index stood at 118.5, marking a 1.5% decrease from November and a significant 10.1% decrease from December 2022. Throughout 2023, the index averaged 13.7% lower compared to the preceding year, with the exception of sugar prices, which rose.

Despite this decline, the cereal price index increased by 1.5% in December, mainly due to rising prices for wheat, corn, rice, and barley, driven partly by logistical disruptions affecting major exporting countries. However, for the entire year, the cereal price index was 15.4% below the 2022 average, even though rice prices saw a notable 21% increase.

Additionally, vegetable oil prices dropped by 1.4% in December, registering a significant 32.7% decline for the entirety of 2023. Sugar prices experienced a sharp 16.6% decrease in December, reaching a nine-month low but remaining approximately 15% higher than in December 2022. Dairy prices, on the other hand, rose by 1.6% in December but were still 16.1% lower compared to December 2022.

Overall, the FAO Food Price Index for 2023 was at 124.0, which represented a decline from the 2022 level of 143.7. However, it remained above the 2020 mark of 98.1, despite being below the 2021 figure of 125.7.

— Triumph Foods has not withdrawn its lawsuit challenging Massachusetts' state animal welfare law known as Question 3 (Q3). This law mandates that pork sold in Massachusetts must meet certain animal welfare standards that came into effect on Aug. 24. Triumph Foods alleges that Q3 violates the Commerce Clause and other provisions of the U.S. Constitution. While a judge has already dismissed several parts of Triumph's lawsuit, Massachusetts is now seeking to have the remaining claim thrown out, arguing that Triumph has no legal standing since all sales of its pork products are controlled by Seaboard Foods under an agreement dating back to 2004. However, Triumph contends that the state's argument is irrelevant, as the law broadly prohibits anyone involved in the sale of pork products and clearly applies to them.

HEALTH UPDATE

— Eli Lilly is venturing into direct-to-consumer sales for its recently approved weight-loss drug and other pharmaceutical products. This initiative is facilitated through a newly launched website called LillyDirect, which provides home delivery services. This move puts Eli Lilly in competition with other telehealth providers that offer weight-loss treatments, including the parent company of Weight Watchers. LillyDirect connects individuals with independent online healthcare providers who can prescribe a limited selection of Eli Lilly treatments, including medications for weight loss, migraines, and diabetes, such as the weight-loss drug Zepbound. The website also offers savings programs and various payment options. Eli Lilly's CEO, David Ricks, has stated that the website provides people with more choices in terms of where and how they access healthcare, while also potentially helping them avoid pricing markups.

— Hospitals across several states, including those in New York, California, Illinois, and Massachusetts, have reimposed masking requirements for patients and staff amid a spike in Covid and flu infections. The decision comes as the two respiratory viruses gain momentum in the U.S. According to the latest data from the CDC, Covid-related hospitalizations have risen more than 29,000 from Dec. 17-23, indicating a ~17% rise over the prior week, while flu cases have reached close to 15,000 over the same period. In NYC, all 11 public hospitals, 30 health centers, and five long-term care facilities have made masks mandatory, citing potential staffing issues as a reason.

POLITICS & ELECTIONS

— Rep. Blaine Luetkemeyer (R-Mo.) announced his retirement, departing Congress at the end of the term. He was one of two frontrunners to lead the House Financial Services Committee, alongside Rep. French Hill (R-Ark.).

— Independent presidential candidate Robert F. Kennedy Jr. said Wednesday that he’s optimistic about getting on ballots across the U.S. but said it will likely cost his campaign about $15 million.

— DeSantis and Haley target Trump, Biden focuses on democracy ahead of Capitol riot anniversary. Florida Governor Ron DeSantis and former South Carolina Governor Nikki Haley intensified their criticism of Republican frontrunner Donald Trump during consecutive CNN town halls in Iowa. Haley emphasized her electability, citing the "chaos" she believes follows Trump, while highlighting her strong polling numbers and foreign policy experience. DeSantis took a more confrontational approach, criticizing Trump for his legal troubles and his repeated refusal to engage in debates. He also promoted his economic policies, which include abolishing the IRS and implementing a flat tax rate.

In a related development, President Joe Biden is also increasing his attacks on Trump, planning a campaign speech to address the protection of democracy. This speech coincides with the upcoming anniversary of the January 6, 2021, riot at the U.S. Capitol.

— Trump leads Haley 37% to 33% in New Hampshire GOP poll, both gain 4 points. A recent American Research Group poll of 600 likely GOP New Hampshire primary voters conducted from December 27 to January 3 showed Donald Trump leading with 37% support, followed by Nikki Haley at 33%. Both candidates have seen a four-point increase compared to a similar poll the previous month. The other candidates in the field lag far behind, with Chris Christie being the closest at 10%.

Nikki Haley has been experiencing a surge in her popularity, with rising poll numbers, larger attendance at her events, increased donor support, and notable endorsements. A Wall Street Journal survey even showed her with a 17-percentage-point lead over President Biden in a hypothetical contest, the largest margin for any GOP candidate. However, despite this momentum, her chances of winning the general election still appear challenging. Trump maintains a significant lead over Haley and the rest of the GOP field in both national and early-state polls, including South Carolina, where she previously served as governor for six years.

— Charlie Cook on the presidential election: “The Republican presidential nomination has not been seriously contested in nine months. Only an adverse medical event looks able to derail Donald Trump’s nomination. He should have a clear majority of delegates before any criminal verdict against him is handed down. In fact, if everything breaks his way, it’s possible he could win both the nomination and even the general election before any trials begin.”

OTHER ITEMS OF NOTE

— Cotton AWP: another increase. The Adjusted World Price (AWP) for cotton rose to 64.96 cents per pound, effective today (Jan. 5), up from 64.16 cents per pound the prior week. This still leaves the AWP more than nearly 13 cents above the mark that would trigger a loan deficiency payment (LDP) under the farm program safety net. Meanwhile, USDA announced that Special Import Quota #12 will be established Jan. 11 for the import of 28,475 bales of upland cotton, applying to supplies purchased not later than April 9 and entered into the US not later than July 8.

— President Biden is facing escalating pressure to address the influx of migrants entering the United States, not only from Republican critics but also from Democratic mayors and governors in major cities far from the border, according to the New York Times (link). The increasing crises in these urban centers have transformed what was once a clear-cut ideological battle between Democrats and Republicans into a bipartisan call for action. Cities like Boston, Denver, Chicago, and New York are among those exerting significant pressure on President Biden.

Of note: This situation has raised the possibility that President Biden and Democratic lawmakers may be more inclined to make immigration concessions to Republicans, which would have seemed unlikely just a few years ago.

KEY LINKS

U.S. Employers Add Surprisingly Strong 216,000 Jobs; Sign of Continued Economic Strength

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