Evening Report | January 16, 2024
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Brazil farmer group says soybean crop far smaller than other forecasts... Aprosoja, an association representing thousands of grain farmers in Brazil projects the country’s soybean production at 135 MMT. The group said the estimate is based on information collected from its branches in 15 states. Besides the hot and dry conditions that damaged Brazil’s soybean crop through December, excess rainfall in certain areas of these same states is disrupting harvesting, which may lead to even greater losses. Aprosoja said its crop forecast could be revised lower if the weather does not improve.
Argentina set for ‘super harvest’... Argentina is set for a corn and soybean “super harvest” with production forecasts likely to keep climbing, a senior analyst at the Rosario Grain Exchange told Reuters. Cristian Russo, head of agricultural estimates at the exchange, said both corn and soybeans had “very good chances” of topping its current forecasts of 59 MMT and 52 MMT, respectively. “Week after week we keep getting water," he noted, saying corn had a chance of posting a record harvest that could top 60 MMT.
NOPA soy crush posts all-time record in December... Members of the National Oilseed Processors Association (NOPA) crushed 195.3 million bu. of soybeans in December, which was an all-time high for any month and 2.2 million bu. more than traders expected. The crush pace increased 6.3 million bu. (3.3%) from November and 17.8 million bu. (10.5%) from year-ago. NOPA data implies a full December crush of 207.0 million bushels.
Soyoil stocks totaled 1.360 billion lbs., up 146.5 million lbs. from the end of November and the biggest inventory since September, but 431 million lbs. less than year-ago.
Insurers seek to exclude U.S., UK ships from Red Sea coverage... Insurers are placing restrictions in their war-risk policies so that they don’t have to cover U.S.-, UK- and Israel-linked ships sailing through the Red Sea, Bloomberg reported, citing one of the world’s top insurance brokers. “Underwriters are adding clauses saying no U.S., UK or Israeli involvement,” said Marcus Baker, global head of marine and cargo at Marsh. “Just about everybody is putting something like that in, and many include the words ‘ownership’ or ‘interest’.”
The U.S. military carried out a new strike in Yemen on Tuesday against anti-ship ballistic missiles in a Houthi-controlled part of the country as a missile struck a Greek-owned vessel in the Red Sea.
Disruptions to Red Sea shipping caused by Houthi attacks will push up prices of consumer goods in Europe in particular, an executive from port and freight operator DP World said as the impact on commerce increased.
Congressional leaders to meet Biden on national security supplemental, Ukraine aid... Congressional leaders, including Speaker Mike Johnson (R-La.), Senate Majority Leader Chuck Schumer (D-N.Y.), Senate Minority Leader Mitch McConnell (R-Ky.) and House Minority Leader Hakeem Jeffries (D-N.Y.), are set to meet with President Joe Biden at the White House on Wednesday. The meeting will focus on the national-security supplemental, which has faced lengthy delays.
During the meeting, the White House is expected to present its case for providing aid to Ukraine, as Congress has not approved new Ukraine funding since December 2022. Republicans have blocked aid to Ukraine, Israel and Taiwan to secure a larger border-and-immigration bill and in the case of Ukraine, to receive more transparency from the Biden administration on the use of prior aid to Ukraine. Republicans are insisting on stronger border security provisions before signing off on any additional aid.
While Senate negotiators have been working on a border package with the White House, Johnson does not favor language in the Senate bill. But McConnell has been urging Republicans to accept the deal expected to be finalized in the coming days, as Biden appears to be taking the border situation seriously after a lengthy time of inaction on Republican requests.
This White House meeting occurs as Congress is also dealing with government funding for fiscal year (FY) 2024, and there is a risk of a partial government shutdown looming on Friday depending on action in both the House (hurdles) or Senate.
The Senate is expected to hold a procedural vote tonight on the proposed continuing resolution (CR) to keep the government operational until early March, which is widely expected to easily clear the chamber. But Schumer and McConnell will need to agree on a time frame to pass the stopgap before the Friday midnight (ET) deadline.
Vilsack keeps suggesting Congress should tap CCC Charter Act to boost reference prices... In recent months, USDA Secretary Tom Vilsack has suggested Congress should use the Commodity Credit Corp. (CCC), Charter Act to find a “creative way” to raise reference prices in the next farm bill. But Vilsack has not provided extended comments on his suggestion.
Veteran farm policy sources say there are a couple of ways Vilsack’s suggestion could be taken. They include:
1. Take away the Ag Secretary’s discretionary authority under the Charter Act and use that “savings” to permanently beef up reference prices. However, that does not guarantee a lot of savings, unless the Congressional Budget Office (CBO) re-evaluates how it forecasts CCC spending. Link to a Southern Ag Today article on this topic.
Would Vilsack really want his hands tied relative to tapping CCC? He complained when congressional appropriators took away his authority before.
2. Congress could grant the Ag Secretary the authority to raise reference prices using his authority under the CCC. But analysts note he has full authority under CCC Charter Act Sec. 5(a) to “Support the prices of agricultural commodities (other than tobacco) through loans, purchases, payments, and other operations.” This is part of the authority the appropriators once took away. So, Vilsack has this at his disposal already as he has very broad authority in this regard. Some argue he could raise reference prices, not that Congress would endorse that approach because some Republicans fret he would likely do it in a very partisan way like he has done with recent ERP payments.
Bottom line: So, what is Vilsack trying to do relative to his comments which are not very detailed. Some speculate he is trying to force House/Senate Republicans into a box where they are limited to existing CCC spending to fund Title 1. They say he is doing it to distract from efforts to (1) pull the IRA/Climate Bill funding inside the farm bill and (2) reign in SNAP Thrifty Food Plan adjustments in the future.
Tester again calls for stricter regs on China farmland purchases... Sen. Jon Tester (D-Mont.) renewed his call for stricter regulations on the sale of U.S. farmland to China, following a report that revealed a Chinese billionaire is one of the largest landowners in the United States. Tester urged Congress to prevent “foreign adversaries” from acquiring U.S. farmland and agribusinesses.
Chen Tianqiao, who amassed his wealth from an online video game company, owns 198,000 acres of Oregon timberland purchased in 2015, making him the 82nd-largest landowner in the U.S. and the second-largest foreign landowner.
Tester emphasized the need for Congress to take action to protect American agricultural security considering this situation. He also sent letters to USDA Secretary Tom Vilsack and Treasury Secretary Janet Yellen, requesting a review of Chen’s land purchase and recommendations to enhance the tracking and vetting of large land sales to foreign buyers.
Last year, Tester co-sponsored a bill with Sen. Mike Rounds, (R-S.D.) aimed at prohibiting entities from China, Russia, North Korea and Iran from buying U.S. agricultural land or businesses. Although the legislation passed the Senate with broad support, it was ultimately removed from the final version by House Republicans.
Foreign ownership of U.S. land, especially land used for farming, has become a contentious issue in recent years. As of 2021, approximately 40 million acres of American agricultural land were owned by non-U.S. entities, with Chinese ownership accounting for a small fraction, equivalent to 0.03% of all U.S. farmland, according to USDA data.
Fed widely expected to cut rates this year, though economists are divided over timing... Markets currently expect the first cut following the Fed’s March 19-20 meeting, but only 19% of economists surveyed by the Wall Street Journal agree. Roughly one-third expect the first rate cut at the April 30-May 1 meeting, and just over a third at the June 11-12 gathering. Economists also expect fewer rate cuts than the market, seeing just one or two quarter-point reductions by the end of June, compared with three by markets. The current target is between 5.25% and 5.5%, a 22-year high.
The Fed increased its purchases of Treasuries and mortgage-backed bonds during the pandemic to provide liquidity to the financial system. However, since last year, it has been reducing these purchases by letting bonds mature without replacement. Some believe the Fed might start slowing down this process of shrinking its balance sheet in March by reducing the monthly reduction by $10 billion to $15 billion. This is because the Fed doesn’t want to tighten the money supply too quickly, especially with inflation easing. A slower pace of shedding bonds could be seen as a signal the Fed might consider interest rate cuts later in 2024. The May or June monetary policy meeting could be a likely time for an initial interest rate cut, especially if progress is made in controlling inflation.
Dairy farmers seeking more milk fat... As Americans eat more cheese and butter, U.S. farmers are scrambling to get their cows to produce fattier milk. The efforts include using different cow breeds and feed mixes, and making sure animals are comfortable and don’t get too hot. The result is that the average amount of butterfat in milk produced by U.S. dairy herds has climbed past 4% and above the previous record set during World War II, according to the Wall Street Journal.