Evening Report | January 26, 2024
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Your Pro Farmer newsletter is now available... Iranian-backed Houthi militants in Yemen continue to attack ships in the Red Sea, prompting some global shipping firms to seek additional alternative routes. Markets have been relatively non-responsive thus far, but that could change if the attacks start to inflate prices. South American weather and production prospects remain a focal point, though traders are waiting to see if a gradual weather improvement in Brazil will stabilize crops while keeping a watch on the recent drier bias in Argentina. Much of the demand focus is on exports, though domestic biofuels garnered a lot of headlines over the past week, including the first ethanol-to-sustainable aviation fuel plant. Biofuels remains a key demand source for U.S. agriculture. It’s time to start evaluating your farm bill safety net options for the 2024 crop year. You can elect between Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) for the 2024 crop year until March 15. We outline key tools, price levels and safety net options in our News page 4 feature. We also address Livestock risk protection (LPR) on News page 3. We cover all of these items and much more in this week’s newsletter, which you can access here.
Argentina can export wheat to China for first time... Chinese customs authorities for the first time have included Argentina in its list of countries eligible to export wheat to the country. China is the world’s third largest importer of wheat, with Australia and Canada being the two main suppliers to its market. China is making efforts to diversify its global grain suppliers in an attempt to increase food security.
Brazil’s soybean harvest nearly double last year’s pace... Brazilian farmers have harvested 9.5% of the soybean crop, according to Patria Agronegocios. That’s nearly double the 5.1% pace at this time last year.
Purdue ag economists’ economic forecast... Purdue University Department of Agricultural Economics experts look at key factors for agriculture in 2024. The economist cover traditional farm economy topics of land values, farm credit, farm costs and return estimates and dairy markets. Additionally, there are articles addressing the broader economy with dedicated sections on the national economic outlook, trade, policy and food prices. Spotlight topics include biofuels policy, rural development agricultural trade. They also look at potential outcomes of a delayed farm bill. Key highlights:
Trade policy: The 2024 event that is most likely to affect trade policy is the 2024 Presidential election. While voting in the primaries has not yet begun, it seems likely that the candidates chosen by their prospective parties will be President Joe Biden and Former President Donald Trump, a rematch of the 2020 campaign. When election season rolls around, most national candidates bow to pressure to protect uncompetitive industries that are important in politically sensitive states. These two candidates have proven histories that make them more likely than most recent candidates to do so. Those involved in export-oriented agriculture should certainly be paying attention, since those actions typically undermine the interests of export-oriented agriculture.”
Farm bill: “As we enter 2024, the complexities surrounding the farm bill debate persist. With federal spending cuts in focus, the projected cost of the farm bill will likely take center stage in agricultural committee deliberations this year. New farm legislation is unlikely to come to the fore ahead of some resolution to the fiscal 2024 spending bills. It is possible that some changes to mandatory spending programs in the 2018 farm bill (e.g. crop insurance premium subsidies, allowed acreage in the CRP, or size and eligibility of SNAP benefits) could be brokered as part of the budget process as was seen in the most recent debt ceiling negotiation. It would be more likely that the spending cuts were applied to the total spending leaving drafters of the farm bill to work out the tradeoffs and cuts necessary to curtail spending projections. In either case, the delay in passing federal spending bills for 2024 means that the farm bill debate is going to be pushed into the meat of a general election year where debates in Congress serve proxy for broader agenda items (e,g. immigration or international aid) making compromises more difficult to achieve.”
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Core PCE falls to nearly 3-year low... The personal consumption expenditures (PCE) price index increased 0.2% last month and rose 2.6% annually, matching November’s gain. Core PCE, minus food and energy prices, gained 0.2% from November and increased 2.9% from year-ago, the smallest annual gain since March 2021.
The Fed is widely expected to keep interest rates unchanged following the Jan. 30-31 monetary policy meeting. Fed fund futures reflect slightly less than 50% odds of a rate cut in March; about 90% chances for the April 30-May 1 meeting.
EU considers carbon market in agriculture for climate goals by 2040... The European Union is considering the establishment of a carbon market in the agriculture sector as part of its ambitious climate goals for the next decade. To achieve its binding target of climate neutrality by 2050, the EU must accelerate emissions reductions in farming. Diederik Samsom, a senior official at the European Commission, suggests that in 2040, agriculture will be the largest emitter of greenhouse gases, and action must be taken. One option being considered is the implementation of a new emissions trading system, where the agriculture sector would also produce certificates for nature-based solutions to remove carbon.
The EU currently employs a market tool, the Emissions Trading System (ETS), to reduce nearly half of its carbon emissions. ETS covers various sectors, such as electricity production and manufacturing, with gradually decreasing pollution caps. Additionally, the EU plans to introduce a second ETS for heating and road transport fuels in the coming years. However, efforts to reduce carbon emissions in agriculture have faced challenges in the past, as they encountered resistance from farmers. Under the proposed market for agriculture, these certificates would be tradable, allowing farmers to sell them to companies seeking to reduce emissions.
Samsom suggests the possibility of having an “ETS 3 for farmers,” but any decisions regarding this idea will be made by future commissions. The roadmap for the 2040 climate goal, set to be released by the European Commission on Feb. 6, will provide options for the EU to consider, but concrete laws and actions will be determined after the new commission takes office following the European Parliament elections in June.
UK suspends trade talks with Canada over agricultural disputes... Specifically, disputes regarding market access for Canadian dairy and beef products have led to the temporary suspension of talks. This interruption in trade discussions comes as the UK seeks to establish new trade agreements following its exit from the European Union. Similar trade negotiations with the U.S. are also on hold.
