Evening Report | January 29, 2024
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Brazilian soybean cargoes sold to U.S. East Coast... At least three cargoes of Brazilian soybeans were traded on Friday to a U.S. East Coast crusher, which is not typical for this time of year, trade sources told Agricensus. Three cargoes were booked for shipment the last half of February, with the soybeans likely to depart from Brazil’s northern arc ports along the Amazon River. End-users import some Brazilian soybeans to the East Coast during most years, though those shipments are typically for summer delivery. The $1.35 discount to March soybean futures the cargoes were booked at is also not usual for this time of year. Plunging Brazilian soybean prices have made arbitrage trade viable for East Coast destinations.
POET, Summit Carbon Solutions announce carbon capture partnership... POET and Summit Carbon Solutions announced a partnership connecting the world’s largest biofuel producer with the biggest carbon capture and storage project to capture the value of the biogenic CO2 from the bioethanol production process. The partnership strategically expands the carbon opportunity across the Midwest by incorporating POET’s 12 facilities in Iowa and five facilities in South Dakota into the Summit project. This addition will facilitate the capture, transportation and permanent storage of 4.7 MMT of CO2 annually from the 17 POET bioprocessing plants.
The timeline for the addition of these plants is strategically planned. The plants in South Dakota will be included in the upcoming state application, ensuring a streamlined integration into Summit’s existing project framework. Meanwhile, for the plants in Iowa, separate applications will be filed, acknowledging the unique requirements and opportunities in each state. This structured approach allows Summit to efficiently expand the project scope while adhering to local regulations and needs.
Bipartisan Ag Trade Caucus formed amid growing tensions over U.S. trade policy... A bipartisan group of lawmakers is establishing an agricultural trade caucus to advocate for open markets, especially as concerns regarding the future of trade policy grow in both political parties. This move is in response to a recent survey conducted by data firm Morning Consult and advocacy group Farmers for Free Trade, which found that around 30% of rural voters believe Congress should have a greater role in shaping U.S. trade policy. This sentiment is shared by 36% of 2020 Biden voters and 25% of 2020 Trump voters. Only 12% of respondents think Congress should have a smaller role, while the majority, 60%, believes Congress’s role in trade policy should remain roughly the same.
Some members of the House see an opportunity for congressional action on ag trade, particularly in the absence of new free trade agreements from the Biden administration. For instance, Rep. Adrian Smith (R-Neb.) has advocated for the renewal of trade programs that can temporarily reduce certain tariffs, stating that “with the administration asleep at the wheel on trade, Congress must step up.”
The Ag Trade Caucus will include Reps. Jim Costa (D-Calif.), Dusty Johnson (R-S.D.) and Jimmy Panetta (D-Calif.), in addition to Rep. Adrian Smith, and it will be officially announced on Wednesday.
President Joe Biden has faced criticism for not pursuing new free trade agreements. Farmers for Free Trade is pushing for more open markets for U.S. agricultural products, with 61% of the surveyed rural voters expressing the view that Washington should be doing more to support U.S. farm exports. Biden, however, has emphasized a focus on “worker-centered trade” to ensure the benefits of trade without offshoring American jobs. USDA has highlighted its efforts to open new agricultural export markets through trade missions to countries like Kenya.
The survey also revealed rural voters largely support reducing tariffs and negotiating trade deals with other countries. Most respondents favored a hypothetical presidential candidate who would reduce tariffs and negotiate trade deals over one who would increase tariffs and negotiate less. This issue of trade policy is becoming increasingly divisive in both Democratic and Republican ranks, with debates over whether the advantages of free trade agreements outweigh the disadvantages. These debates are expected to continue as politicians seek to appeal to rural voters in the 2024 elections.
While free trade agreements used to enjoy bipartisan support, there is now a growing isolationist faction within the Republican party and skepticism on the left regarding the impact of globalization on American workers. The Biden administration is seen as shifting away from pursuing free trade agreements and focusing more on domestic manufacturing.
Populists on both the left and right worry that globalization may harm American workers as jobs in sectors like manufacturing disappear. They acknowledge that free trade agreements can lower the cost of goods but often at the expense of U.S. labor.
The most recent free trade agreement, the U.S.-Mexico-Canada Agreement (USMCA), received bipartisan support and took effect during the Trump administration. However, Trump's trade policies, which included a trade war with China involving tariff increases, were seen by some as causing job losses in the U.S., which could have significant implications for rural America since China is a major market for U.S. farm exports.
European officials are increasingly concerned about America's protectionist stance on trade... The Wall Street Journal reports European officials had hoped that with the change in administration from President Donald Trump to President Joe Biden, certain trade policies would be reversed, but they have been disappointed to see many of these policies continue. Diplomats and officials in Europe are now grappling with how to navigate and collaborate with the United States’ protectionist trade position. There is a growing uncertainty about whether the European bloc can depend on the U.S. to support the rules-based trading system, or if there is a potential for economic conflicts to emerge between these long-standing allies.
Malanga: Gov’t expects slower GDP growth and low inflation; rate cuts possible in the future... The U.S. last week reported that in the final quarter of last year, real GDP growth was at a rate of 3.3%, while inflation was at a rate of 1.5%. This growth was primarily driven by government spending and inventory investment. However, expectations for the current quarter suggest slower economic growth and continued low inflation.
Dr. Vince Malanga, president of LaSalle Economics, says the report suggests the high nominal GDP growth of nearly 5% observed in the past is unlikely to be sustained unless productivity growth remains strong. Productivity growth exceeded its usual trend in the last quarter. Additionally, Malanga notes, softness in commodity prices and favorable yearly comparisons are expected to lead to a gradual decline in inflation, particularly in the spring. However, challenges may arise in the following periods, he adds.
Malanga notes the possibility of the Federal Open Market Committee (FOMC) considering a rate cut in March if labor market weakness becomes apparent. Although jobless claims have been surprisingly low recently, he says significant job cuts have been announced in various industries over the past two weeks, which could influence the FOMC’s decision.
Malanga anticipates the FOMC this week is likely to maintain its current monetary policy while hinting at the possibility of rate cuts closer to the election. He signals that policymakers may consider tapering or ending the Fed’s quantitative tightening (reducing its balance sheet) earlier than scheduled. This move, he says, could help ease market congestion and provide liquidity to the economy, benefiting financial markets and corporate debt rollover.
On the fiscal side, Malanga details that the Biden administration has been active, with various initiatives, including student debt forgiveness, funding for plant modernizations, support for electric charging stations and infrastructure projects. This government spending is expected to continue.
In conclusion, Malanga believes the FOMC may choose to adjust its quantitative tightening policies rather than cutting interest rates, but some rate cuts may still be implemented to align with market expectations. Combined with government spending, these measures are expected to support the economy through the year, barring any external shocks. Malanga suggests a range of 3.75% to 4.25% for the 10-year treasury yield, with short-term rates gradually decreasing to create a positive slope in the interest rate yield curve. However, he warns that concerns about inflation and capacity constraints may arise in the following year due to the economic stimulus in place.
CCA watching U.S. beef labelling issue... The Canadian Cattle Association (CCA) is closely monitoring what’s happening with the U.S. voluntary “Product of the U.S.” labeling legislation. CCA’s general manager Ryder Lee says it is watching to see if it changes how cattle are procured or beef is sold.
“We’re working on making sure that this isn’t just mandatory Country of Origin Labeling that makes our cattle and our meat discounted in the U.S. If it’s round two of that, we’re quick to remind lawmakers and others in the U.S. that we still have the WTO ruling that allows for retaliation up to a billion dollars and aren’t afraid to bring that to bear if they’re just dressing that same thing up in a new label.”
