Evening Report | January 8, 2024

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Guidebook created by American Farmland Trust aims to understand ag carbon markets... Carbon markets have been evolving rapidly and are used by corporations to meet their sustainability goals through the purchase of carbon credits generated by farmers adopting “climate-smart practices.” The guidebook (link) provides a list of 10 important questions farmers may want to consider when thinking about participating in agricultural carbon markets. These questions are divided into two sections:

Section 1: Background on How Ag Carbon Markets Work

• What is an ag carbon market and why are farmers being asked to join? This question seeks to provide an understanding of the purpose and significance of agricultural carbon markets.
• Just how many ag carbon markets are there and how do they differ? This question helps clarify the various agricultural carbon market programs and their distinctions, allowing farmers to make informed choices.
• What the heck is additionality, why is it so important, and how does it affect me? Additionality is a key concept in carbon markets, and this question explores its significance and implications for farmers.
• How is the government involved in agricultural carbon markets? This question addresses the role of government in regulating and facilitating agricultural carbon markets.

Section 2: Questions That Are Top of Mind for Farmers

• Am I eligible to participate? This question explores the eligibility criteria that farmers need to meet to engage in agricultural carbon markets.
• What are the current ag carbon markets paying for (practices or outcomes)? It delves into what exactly these markets are compensating farmers for, whether it's specific practices or the overall carbon reduction outcomes.
• They want to look at my what?! What information and access do I have to provide? This question addresses the data and information farmers may need to share with market participants and the access they must provide.
• How long are the contracts & who's liable if something goes wrong? Farmers need to understand the duration of their commitments and the liability implications in case of unforeseen issues.
• Money matters: How can I make a market work for me? This question focuses on financial aspects, helping farmers figure out how to maximize their benefits from participating in carbon markets.
• How do I know which carbon market is right for me and where can I get more information? Farmers are encouraged to assess their options and seek additional resources and information to make informed decisions about the right carbon market for their needs.

The guidebook also offers supplementary materials, such as infographics and a glossary of terms to provide more insights and assist with understanding agricultural carbon markets. For a concise overview, a “Highlights” document (link), summarizes key points from the guidebook.

NY Fed: Inflation expectations fall to nearly three-year low... U.S. consumers’ outlook for inflation over the short run fell to the lowest level in nearly three years in December, the New York Federal Reserve said. Inflation one year from now is expected to be at 3.0%, the lowest reading since January 2021, versus a projection of 3.4% in November, the regional Fed bank said in its latest Survey of Consumer Expectations. Poll respondents saw inflation three years from now at 2.6%, compared to 3.0% in November, while price pressures five years ahead were at 2.5% versus 2.7% in November.

The survey found the expected year-ahead rise in gasoline prices held steady at 4.5% in December, with expectations for home price rises unchanged at 3.0%.

Respondents in the New York Fed poll also forecast slower gains in household earnings and spending, with the latter measure moving to 5.0% in December, its weakest reading since September 2021.

Bostic: Fed ‘in a strong position’ on inflation battle... Atlanta Federal Reserve Bank President Raphael Bostic said inflation has come down more than he expected and is on a path to reaching the Fed’s 2% goal, though it’s too early to declare victory. “We are on a path to 2% today,” Bostic said Monday in a speech to the Rotary Club of Atlanta. “The goal is to make sure we stay on the path.”

Bostic noted the Fed “is in a strong position,” adding policymakers can continue to let monetary policy remain restrictive.

Bostic repeated his expectation for two rate cuts this year.

Economists grapple with short-term relief, long-term concerns at annual gathering... The annual American Economic Association gathering of the nation’s top economists brought mixed sentiments. On one hand, they are relieved the U.S. is seemingly on track for economic growth in the short term instead of facing a recession. However, their concerns shift towards the long-term outlook and whether growth will surpass pre-pandemic levels. They find themselves perplexed by their earlier failure to anticipate what appears to be a “soft landing” — an economy with controlled inflation and no recession.

Several factors have contributed to this unexpected outcome. Many of the economic wounds inflicted by the pandemic have healed, including immigration and labor force participation, leading to sustained job growth and moderated wage increases. Additionally, supply chain disruptions have largely been resolved, contributing to a more stable economic environment.

But concerns linger about inflation not fully returning to the Federal Reserve’s 2% target, which could necessitate further interest rate adjustments. Investors are anticipating rate cuts by the Fed, starting as early as March.

When looking at the long-term horizon, economists are less optimistic. They believe that merely returning to pre-pandemic trends will not substantially boost long-term growth. Sustainable growth must stem from productivity improvements to counteract challenges like an aging population, global conflicts, and fragmented international trade.

Policymakers must be mindful of the potential negative repercussions of reversing productivity gains resulting from globalization and free-trade agreements, as protectionist measures can hinder economic growth.

PBOC may use RRR cuts, other tools to boost economy... Chinese officials indicated they may lower the amount of money banks must set aside as reserves to boost lending, even after the central bank provided a massive amount of liquidity via other tools in recent weeks. The People’s Bank of China (PBOC) may use open market operations, medium-term lending facilities and reserve requirements among other monetary policy tools to provide “strong” support for reasonable growth in credit, Zou Lan, head of PBOC’s monetary policy department told the Xinhua news agency. PBOC will strengthen its counter-cyclical and cross-cycle policy adjustments to create favorable financial conditions for the country’s economic growth, according to Zou.