U.S.-Led Military Coalition Conducts Strikes Against Iran-Aligned Houthi Militants in Yemen

House speaker navigating complex situation re: spending deal | CRP, CREP signup | SRE

Abbreviated report today as I am speaking this morning in Florida at an American Soybean Association meeting.

— Equities, Thursday: Stock indices ended narrowly mixed after the U.S. CPI update. The Dow edged up 15.29 points, 0.04%, at 37,711.02. The Nasdaq was up 0.54 point, 0.00%, at 14,970.19. The S&P 500 was down 3.21 points, 0.07%, at 4,780.24.

— Equities, today: In Asia, Japan +1.5%. Hong Kong -0.4%. China -0.2%. India +1.2%. In Europe, at midday, London +0.8%. Paris +1.1%. Frankfurt +0.9%.

— Ag markets, Thursday:

     Corn: March corn fell 1 3/4 cents to $4.57 3/4, nearer the session low. Corn futures edged narrowly sideways ahead of Friday’s USDA report data, while gains in soybean and crude oil futures largely offset pressure stemming from SRW wheat.

     Soybeans: March soybeans closed unchanged on the day at $12.36 1/2 despite trading as high as $12.49 3/4. March soymeal settled $2.10 lower at $362.20, marking a fresh seven-month low. March soyoil ended the day 47 points higher at 48.72 cents, nearer session highs. Soybeans continue to struggle garnering much bullish momentum, though have failed to follow through to the downside from early-week lows.

     Wheat: March SRW wheat fell 7 cents at $6.03 3/4. March HRW wheat lost 8 1/2 cents at $6.16. March spring wheat dropped 7 3/4 cents to $7.00. Prices closed nearer the session lows. The winter wheat futures markets today saw some technical selling pressure and position evening ahead of Friday morning’s USDA monthly supply and demand and quarterly grain stocks report.

     Cotton: March cotton rose 118 points to 81.36 cents, marking a high-range close. Cotton futures surged to the highest level in nearly a month as prices continue to gradually climb higher on the daily bar chart.

     Cattle: February live cattle rose $1.05 to $171.80 and nearer the session high. March feeder cattle closed up $1.275 at $227.40 and nearer the session high. Cattle futures prices rose today in apparent response to the bullish near-term aspect of a major winter storm in the Midwest disrupting marketing of cattle and stressing the animals.

     Hogs: Hog futures resumed their recent climb, with nearby February gaining 52.5 cents to $72.60. In contrast to the sustained weakness seen in early 2023, the hog and pork complex seems to be following the traditional pattern of strength at this time of year.

— House Speaker Mike Johnson (R-La.) is navigating a complex situation regarding a spending deal, with divisions within the Republican party and the need for bipartisan cooperation to pass funding bills. The length of the stopgap measure and Johnson's final decision remain uncertain. Coming out of a meeting Thursday, Johnson told reporters he's been having "thoughtful conversations" but has made "no commitments" — and that "if you hear otherwise, it's just simply not true." Updates:

• Initial spending deal: Johnson reached a deal with Senate Majority Leader Chuck Schumer (D-N.Y.) to fund spending for fiscal year (FY) 2024 at levels similar to the Fiscal Responsibility Act. The deal included $16 billion in additional cuts and rescissions added by Democrats to allow Johnson to claim some victories.
• Initial support and backlash: Johnson initially promoted the deal as a win for Republicans, claiming "hard-fought concessions." By Thursday, Johnson faced opposition from hardline House Republicans who urged him to abandon the spending deal.
• Changing stance: While Johnson initially stated that he had made no commitment to walk away from the deal with Schumer, others say he was at least open to hearing alternatives. This caused anger among Democrats and highlighted divisions within the Republican party, with moderates supporting the spending agreement.
• Lawmakers respond: Rep. Marjorie Taylor Greene, a GOP rebel from Georgia, said, “There’s going to be a new deal drawn up.” Rep. Scott Perry (R-Pa.), former House Freedom Caucus chair, said Republicans will come up with a new spending deal that addresses their priorities, including border restrictions. House Democratic leader Hakeem Jeffries (D-N.Y. told reporters there is nothing to discuss on the cap since a deal had been made.
• Year-long CR proposal shot down: During the meeting, Johnson mentioned that his preference was to pass a clean year-long Continuing Resolution (CR), which would represent walking away from the deal. But he indicated that he lacked the votes to make this happen. House Armed Services Committee members, led by Chair Mike Rogers (R-Ala.), expressed opposition to a yearlong CR, particularly because it freezes defense spending. Rogers made it clear that such an option was not viable.
• Short-term CR: Schumer filed cloture on a legislative vehicle for a short-term CR. It is expected to last until March 1 or March 15. Johnson had not made a final decision on which option he preferred.
• Bipartisanship needed: Senate Minority Whip John Thune (R-S.D.) emphasized the need for bipartisanship to get things done. He suggested that Johnson needs to work across the aisle to pass funding bills if he wants to advance GOP policy priorities.
   

— U.S.-led military coalition conducted strikes against Iran-aligned Houthi militants in Yemen. Of note:

• Escalation and warnings: The strike represents a significant escalation in the conflict. The Houthi militants had been warned multiple times by the Biden administration and other governments to stop attacking commercial vessels in the Red Sea. These warnings were ignored by the group.
• Reason for hostility: The Houthis had been disrupting global trade by making the Red Sea a dangerous place for ships to transit. Their actions were in protest of Israel's military campaign in Gaza.
• Number of attacks: The Houthis had carried out at least 27 attacks in the region since November, leading to repeated responses by the United States and partner nations, who sent warships to protect against these attacks.
• President Biden's statement: President Biden characterized the strikes as a necessary retaliation to protect against Houthi violence, which had affected several countries. The targets of the strike were locations used by the Houthis to launch their attacks. President Biden did not disclose whether there were casualties in the operation.
• Reasons for the strike: The attacks by the Houthis endangered U.S. personnel, civilian mariners, and international partners. They also posed a threat to trade and freedom of navigation in the Red Sea. President Biden expressed a willingness to take further measures to protect people and international commerce if necessary.
• Reaction: The AP quoted Houthi spokesman Brig. Gen. Yahya Saree in a videotaped address on Friday as warning that the "American and British enemy bears full responsibility for its criminal aggression against our Yemeni people, and it will not go unanswered and unpunished.” He described 73 strikes hitting five regions of Yemen under Houthi control.
• Market impact: The price of oil jumped as the situation likely steps up retaliation for attacks on ships in the Red Sea. Global benchmark Brent rose more than 3% to above $80 a barrel as investors tried to gauge the chance of the escalation in hostilities sparking a broader conflict in the Middle East.
   

— USDA announces resumption of continuous CRP, CREP signup. The extension of the 2018 Farm Bill signed into law in November is allowing USDA to resume continuous Conservation Reserve Program (CRP) signup for Fiscal Year (FY) 2024, including the Conservation Reserve Enhancement Program (CREP). Producers can begin to offer land for enrollment today (Jan. 12), with the agency also noting that producers participating in continuous CRP with land expiring this year can also apply to re-enroll starting today. Those wanting to offer land in the continuous CRP need to do so by July 31.

— Court dismisses challenge to SRE; ruling sends case to D.C. Circuit. The U.S. Court of Appeals for the 11th Circuit has dismissed the case of Hunt Refining Co. v. U.S. Environmental Protection Agency (EPA), stating that the small refinery exemption (SRE) challenge should be heard by the U.S. Court of Appeals for the D.C. Circuit. This decision, welcomed by Growth Energy, validates that EPA's SRE petition denials have a nationwide effect, emphasizing the importance of a consistent approach in handling challenges related to the Renewable Fuel Standard (RFS).

— Eggs are getting more expensive at grocery stores again as bird flu has once again struck the industry. Prices of eggs shot up 8.9% from November, marking the highest monthly increase since January of last year as bird flu has again struck the industry. For now, economists believe this latest avian flu won’t be as severe as the one in 2022 that devastated flocks and sent egg prices sky-high (at one point rising 70% year over year). Of note: For the 12 months that ended in December, egg prices are down 23.8%.

— China’s soybean imports rise in 2023. China imported 9.82 million metric tons (MMT) of soybeans during December, up 1.9 MMT (24.0%) from November but 740,000 MT (7.0%) less than last year. For 2023, China imported 99.41 MMT of soybeans, up 11.4% from last year and the first annual rise in three years. However, the U.S.’ share of those imports declined.

— Iowa farmers support Trump despite trade war concerns. Republican farmers in Iowa are expressing their desire to see former President Donald Trump return to the presidency, citing the substantial financial support his administration provided to the agricultural sector. Despite concerns about potential trade wars and their impact on U.S. agricultural exports, Trump remains a favored candidate among Iowa's influential farming community, as revealed by a Reuters/Ipsos poll. Trump's administration distributed historic sums of money to farmers, totaling about $217 billion, which significantly exceeded previous levels of support. While some farmers acknowledge the downsides of Trump's trade policies, many still view him as a strong advocate for agriculture.

— Hurdles and uncertainty surround passing $1.5 trillion farm bill in 2024. Major challenges, including negotiations over government spending bills and the complexity of moving substantial legislation during an election year, are looming as obstacles to passing a five-year, $1.5 trillion farm bill in 2024. Industry groups like the American Farm Bureau Federation are urging House and Senate Ag panels to focus on the farm bill once government-wide spending disputes are hopefully resolved. The timing depends on congressional leadership making floor time available for reauthorization, which is likely to follow committee actions closely. While passing significant legislation during an election year is more challenging, lawmakers often aim for legislative achievements to tout to voters before elections. Even with a short calendar due to the election, securing a five-year bill remains a priority. The potential for partisan conflicts are also starting to impact the bill's outcome.

— 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 (link). 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.

     The 2018 Farm Bill introduced a minor provision that replaced the "higher-of" formula with the average of advanced Class III and IV skim milk prices plus 74 cents. 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 participating in an order share payment obligations or draws 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.

— Sen. Paul proposes 2024 Federal Reserve audit. Sen. Rand Paul (R-Ky.) introduced the "Federal Reserve Transparency Act of 2024," aiming to conduct a comprehensive audit of the U.S. Federal Reserve by the Government Accountability Office (GAO). This audit would encompass the entire Federal Reserve balance sheet, including the recently established Bank Term Funding Program, which has lent banks money ($141 billion) in exchange for U.S. Treasuries. The audit's scope extends to transactions with foreign entities, monetary policy deliberations, Federal Open Market Committee actions, and communications within the Federal Reserve System.

     The audit will reveal which banks have depended on the Fed to mitigate losses due to overexposure to U.S. Treasuries, with a significant portion of the national debt being publicly traded. As the national debt continues to rise, questions arise about who will purchase this debt and at what interest rates.

     The last audit uncovered foreign entities' significant sales of mortgage-backed securities to the Fed during the financial crisis. Now, with the Fed holding substantial MBS assets, an audit will provide insight into the source of these securities. The audit's focus on the Bank Term Funding Program is vital for Congress as it plans spending on programs like Social Security, Medicare, and Medicaid, which are projected to grow significantly.

     As these programs expand, the annual deficit is expected to rise, and the amount funded by Treasuries markets will increase. Rand says that understanding the impact of overexposure to treasuries on banks is crucial, considering the potential challenges high inflation and interest rate hikes may pose in the future. An audit of the Federal Reserve remains the key to answering these critical questions, and Sen. Rand Paul's proposal aims to provide those answers.

— USDA's 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. The Census of Agriculture, conducted every five years, remains a comprehensive data source for American agriculture, informing policies and programs. The 2022 Census of Agriculture data will be released in February 2024. Producers not receiving the survey are urged to sign up at www.agcounts.usda.gov/getcounted, with confidentiality ensured by federal law. For more information, visit www.nass.usda.gov/go/nacs, or call 888-424-7828 for survey assistance.

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