Evening Report | January 19, 2024

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Your Pro Farmer newsletter is now available... Brazil’s once-record soybean crop continues to shrink, but there are a very wide range of estimates. The low end of the private crop estimates is 14 MMT to 22 MMT (514 million bu. to 808 million bu.) below USDA’s January forecast. If the worst-case scenarios play out, USDA will need to slash the Brazilian export forecast. Brazil is facing some soybean quality issues, too, which could have export ramifications. Meanwhile, Argentina is poised for a “super harvest,” with corn and soybean production estimates likely to keep climbing. On the ag policy front, after months of inactivity on farm bill, there was a flurry of news and activity from both House and Senate Ag panels, suggesting a new farm bill in 2024 is still a possibility. Geopolitically, Middle East tensions are escalating, which impacts supply chains and could have global economic consequences. Our page 4 feature this week looks at other U.S. and global economic factors. We cover all of these items and much more in this week’s newsletter, which you can access here.

Cattle on Feed Report in line with expectations... USDA estimated there were 11.930 million head of cattle in large feedlots (1,000-plus head) as of Jan. 1, up 248,000 head (2.1%) from year-ago and virtually matching pre-report expectations. December placements dropped 4.5%, while marketings slipped 0.9% from year-ago levels.

Placements dropped in each of the categories except for 9-weights, which were up 4.8% from year-ago but accounted for only 6.5% of the total number of calves moved into feedlots during December. Placements dropped 2.2% for lightweights (under 600 lbs.), 3.5% for 6-weights, 8.4% for 7-weights, 6.7% for 8-weights and 5.6% for heavyweights (1,000-plus lbs.). Placements declined 10,000 head in Colorado, 40,000 head in Kansas, 35,000 head in Nebraska and 20,000 head in Texas, while “other states” placed 25,000 head more cattle into feedlots than year-ago during December.

Feedlot inventories included 7.195 million head of steers (up 163,000 head; 2.3%) and 4.735 million head of heifers (up 85,000 head; 1.8%).

This report is about as neutral as it gets, with all three categories virtually matching the average pre-report estimates. As a result, the market should have little to no price response.

More grain ships divert from Red Sea... Attacks on shipping in the Red Sea region have in past days led to a sharp rise in the number of grain cargoes being diverted around the Cape of Good Hope, rather than using the Suez Canal, grain traders told Reuters.

“About 3 million metric tons of about 7 million tons a month that normally goes through Suez has been diverted,” Ishan Bhanu, lead agricultural commodities analyst at data provider Kpler, said. “So, this week, the number diverting away from the Red Sea has jumped from 20% to 45%.” He said Friday, Kpler had traced another 18 vessels diverting, which were carrying in total about 1 MMT of grains.

“The number of diversions has certainly become more serious in the past couple of days,” a German grain trader said, but he added that large numbers of bulk carriers were still sailing via the Red Sea.

New farm bill hurdles remain despite comments this week... After months of inactivity on farm bill, there was a flurry of news this week, which we highlighted in Thursday’s “Evening Report.” But the end zone still appears to far away. Until there is an agreement to fund the government through the end of fiscal year 2024, and there is a decision made on a potential supplemental/border enforcement measure, it is hard to see action on a new farm bill.

Red Sea conflict disrupts shipping; Europe faces economic impact... Conflict in Europe’s neighboring region is causing disruption for the second time in three years. Recent attacks by Houthi rebels on cargo ships in the Red Sea have prompted many carriers to choose the longer and more expensive route around Africa via the Cape of Good Hope for safety. These detours are driving up freight costs and causing concerns for retailers about stock shortages. Some factories have even halted production due to a lack of essential parts, according to the Wall Street Journal. 

Of note: “The Red Sea is not as dangerous to global trade as the events were a few years ago.” — Patrick Lepperhoff, a consultant with Inverto, a unit of BCG.

GAO criticizes USDA for inadequate reporting on foreign farmland ownership... A report (link) from the Government Accountability Office (GAO) criticized USDA’s efforts to collect, track and share data regarding foreign purchases of U.S. farmland under the Agricultural Foreign Investment Disclosure Act (AFIDA) of 1978. GAO called for USDA to enhance its procedures, including providing data to the Committee on Foreign Investment in the U.S. (CFIUS) and improve data verification and monitoring.

While USDA agreed with most GAO recommendations, it disagreed with certain steps, such as incorporating country information from additional foreign persons beyond the primary investor. This report is expected to influence further exploration of the topic by lawmakers via hearings and more.

Consumer sentiment rises to 2 1/2-year high... U.S. consumer sentiment improved in January, hitting the highest level in two and a half years amid growing optimism over the outlook for inflation and household incomes. The University of Michigan’s Index of Consumer Sentiment jumped 9.1 points to 78.8, which was up 21.4% from year-ago. The Current Economic Conditions Index rose 10 points and the Index of Consumer Expectations increased 8.5 points.

Surveys of Consumers Director Joanne Hsu said, “Consumer views were supported by confidence that inflation has turned a corner and strengthening income expectations. Over the last two months, sentiment has climbed a cumulative 29%, the largest two-month increase since 1991 as a recession ended. For the second straight month, all five index components rose, with a 27% surge in the short-run outlook for business conditions and a 14% gain in current personal finances. Like December, there was a broad consensus of improved sentiment across age, income, education, and geography. Sentiment has now risen nearly 60% above the all-time low measured in June of 2022 and is likely to provide some positive momentum for the economy. Sentiment is now just 7% shy of the historical average since 1978.”