Evening Report | January 11, 2024

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Firm slashes Brazilian soybean crop estimate... Ag consulting firm Patria Agronegocios cut its 2023-24 Brazilian soybean crop estimate to 143.18 MMT, down 7.52 MMT from its prior forecast. The firm cut its Brazilian corn crop estimate by 2.22 MMT to 110.29 MMT.

U.S. CPI stronger than expected in December... The consumer price index (CPI) rose 0.3% in December, the most in three months, and posted an annual gain of 3.4%. The cost of shelter accounted for more than half of the increase in CPI. Core CPI, excluding food and energy costs, increased 0.3% last month and 3.9% on an annualized basis, the lowest since May 2021.

The food price index increased 0.2% monthly and 2.7% annually. Food at home (grocery store) prices rose 0.1% in December and 1.3% annually. Food away from home (restaurant) prices increased 0.3% last month and 5.2% for the year.

Traders pared bets the Fed will begin cutting interest rates in March following the inflation data. Still, Fed fund futures show greater than 50% odds of a rate cut in March.

IGC raises global corn, wheat production forecasts, cuts soybeans... The International Grains Council (IGC) raised its 2023-24 global corn production forecast 7 MMT to 1.230 billion MT amid bigger crop estimates for China, Russia and Ukraine, which exceeded a cut to Brazil’s crop. IGC now forecasts global corn production to rise 65 MMT (5.6%) from last year.

IGC raised its 2023-24 global wheat production estimate by 1 MMT to 788 MMT, though that would still be down 16 MMT (2.0%) from last year.

IGC cut its 2023-24 global soybean production forecast by 3 MMT, as a reduction to Brazil’s crop more than offset gains in other countries. It still forecasts global soybean production to increase 21 MMT (5.7%) from last year.

Drought covers one-third of U.S. winter wheat areas... As of Jan. 9, the U.S. Drought Monitor showed 54% of the U.S. was covered by abnormal dryness/drought, down one percentage point from the previous week. USDA estimated 33% of U.S. winter wheat areas were covered by drought, up one point from the previous week but far less than 59% last year at this time.

In HRW areas, dryness/drought covered 77% of Kansas (virtually no D3 or D4), 67% of Colorado (2% D3, no D4), 34% of Oklahoma (no D3 or D4), 56% of Texas (4% D3, no D4), 39% of Nebraska (7% D3, no D4), 28% of South Dakota (no D3 or D4) and 69% of Montana (no D3 or D4).

In SRW areas, dryness/drought covered 89% of Missouri (virtually no D3 or D4), 52% of Illinois (no D3 or D4), 89% of Indiana (no D3 or D4), 48% of Ohio (no D3 or D4), 59% of Michigan (no D3 or D4), 99% of Kentucky (no D3 or D4) and 100% of Tennessee (43% D3 or D4).

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China dethroned as top U.S. exporter by Mexico amid supply chain shifts... China, the top exporter to the U.S. since 2006, likely lost its position to Mexico in the past year. This shift in rankings is a consequence of changing dynamics and tensions between the two largest economies, reshaping global supply chains. Of note:

• U.S. imports from China decreased by over 20% during the January-November period of 2023, as per U.S. Commerce Department data. This drop reduced China’s share of total U.S. imports to 13.9%, the lowest since 2004, down from its peak of over 21% around 2017. U.S. exports to China remained relatively stable.
• Mexico is poised to become the top exporter to the U.S. for the entire year, a position it hasn’t held since 2000. Imports from Mexico are expected to reach a record high in 2023, constituting over 15% of the total for the first 11 months of the year.
• Imports from the European Union also reached a record high during this period. Despite a slight dip in shipments from the Association of Southeast Asian Nations (ASEAN), their share of total U.S. imports has doubled over the past decade.
• Japan’s share of U.S. imports remains below 5%, despite the value of its shipments increasing due to the strengthening of the dollar. Japan’s share has declined significantly since 2000 as Japanese manufacturers increased U.S. production.
• The U.S. is diversifying its suppliers for products like consumer electronics, reducing its reliance on China. For example, smartphone imports from China dropped about 10%, while imports from India increased fivefold. Laptop imports from China decreased by roughly 30%, but those from Vietnam quadrupled.
• The Biden administration is promoting “friendshoring,” which involves keeping supply chains within allies and partner countries. Tariffs on Chinese products, initiated by the Trump administration, are being maintained.
• The Federal Reserve has expressed concerns about the impact of reduced U.S./China trade on inflation, with some analysts suggesting that domestic production of previously cheap Chinese goods could lead to higher prices by tightening the labor market.
• Chinese companies are adjusting their business strategies in response, with some investing more in Mexico and setting up production facilities in North America.
• China is also working to reduce its dependence on U.S. exports by promoting the use of the yuan in international transactions with other countries, such as Russia, the Middle East, and South America. Chinese exports to Russia notably increased in 2023.
• China’s auto exports grew by about 60% during the same period, primarily comprising gasoline-fueled vehicles sold at lower prices in the Middle East and Africa to address weak domestic demand.

Farm Bureau: Federal order pool losses persist due to 2018 Farm Bill formula change... Since May 2019, Class I milk pricing for beverage milk products has been determined by averaging advanced Class III (cheese) and Class IV (milk powders) skim milk prices and adding 74 cents. Previously, it followed the “higher-of” advanced Class III and Class IV skim milk prices. Ongoing disruptions in milk marketing, stemming from factors like Covid-19 have resulted in sustained revenue pool losses associated with this formula alteration, the American Farm Bureau Federation said in a report. By November 2023, cumulative losses had exceeded $1 billion.

Despite ongoing Federal Milk Marketing Order hearings and renewed farm bill discussions, no immediate adjustments are expected. Farm Bureau says dairy farmers continue to grapple with reduced pool values and outdated pricing regulations, causing uncertainty in their milk payments for 2024.

This change was initiated at the request of dairy processors and cooperatives, aiming to enhance risk management for beverage milk. Under the classified dairy pricing system, handlers participate in an order share payment obligation or draw from the federal order’s revenue pool. Essentially, it combines the values of the four milk classes within the order, ensuring farmers in the region receive a consistent minimum milk price. This system equalizes prices for milk used in various products, even if the milk’s value differs based on its ultimate use.

NASS launches national agricultural classification survey ahead of 2027 Census... USDA’s National Agricultural Statistics Service (NASS) will begin the National Agricultural Classification Survey (NACS) on Jan. 24, 2024, as part of preparations for the 2027 Census of Agriculture. NACS aims to reach 250,000 recipients to determine their involvement in agriculture, ensuring all U.S. producers, regardless of operation size, are counted. Respondents are encouraged to use the provided survey code to respond securely online or mail completed questionnaires. NASS stresses the importance of every response to capture the breadth of American agriculture.

NACS targets individuals with $1,000 or more in annual agricultural product sales. Producers not receiving the survey are urged to sign up at www.agcounts.usda.gov/getcounted. For more information, call 888-424-7828 or go to www.nass.usda.gov/Surveys/Guide_to_NASS_Surveys/NACS/index.php.

Budget deficit swells to $129 billion... The U.S. federal government posted a December deficit of $129 billion, up $44 billion or 52% from a year earlier as outlays rose while receipts fell from December 2022 levels that were swelled by pandemic-deferred tax payments, the U.S. Treasury Department said. outlays for December rose 3% to $559 billion, a December record, partly as a result of higher Social Security outlays and interest on the public debt. Receipts for the month fell 6% to $429 billion. For the first three months of the 2024 fiscal year that started Oct. 1, the federal deficit reached $510 billion, up $89 billion, or 21% from the year ago period.