Evening Report | January 31, 2024

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Fed holds rates steady, gives no indication a cut is imminent... The Federal Reserve left interest rates unchanged at a range of 5.25% to 5.50% following its two-day monetary policy meeting, as widely expected. While the post-meeting statement dropped a longstanding reference to possible further rate hikes, it gave no clear signal a rate cut was imminent and said it needs more “confidence that inflation is moving sustainably toward 2%.”

The statement noted, “Inflation has eased over the past year, but remains elevated," reiterating officials “remain highly attentive to inflation risks. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.”

Fed Chair Jerome Powell said, “I don’t think it’s likely the committee will reach a level of confidence by the time of the March meeting” to lower rates. He noted officials have begun discussing what it would take for them to stop the ongoing runoff (quantitative tightening) of the Fed’s balance sheet, saying it’s “getting to that time where questions are beginning to come into focus” about ending the effort.
 

Cattle Inventory Report in line with expectations... USDA estimated there were 87.157 million head of cattle in the U.S. as of Jan. 1, down 1.684 million head (1.9%) from last year. The beef cow herd dropped 716,000 head (2.0%) to 28.233 million head. The 2023 calf crop was estimated at 33.593 million head, down 847,000 head (2.5%) from the previous year. The total cattle herd was the smallest since 1951 and last year’s calf crop was the smallest in 82 years.

Of note, USDA revised the Jan. 1, 2023, cattle population down 433,000, with 411,000 head coming out of the heifer category, specifically replacement heifers. USDA cut beef replacement heifers 233,000 head and dairy replacements 263,000 head, while “other heifers” headed to feedlots was revised up by 85,900 head.

The number of beef heifers expected to calve in 2024 dropped 58,000 head (1.9%) and total beef replacement heifers declined 72,000 head (1.5%). That was the smallest number of heifers held back for breeding since 2011, largely because so many were moved into feedlots. Combined with the smaller beef cow inventory, the 2024 calf crop will continue to shrink.

The milk cow herd at 9.357 million head declined 41,000 head (0.4%) from year-ago and milk replacement heifers dropped 15,000 head (0.4%).

Based on the cow herd size and number of heifers being held back for breeding, the total U.S. cattle herd is likely to decline roughly another 1 million head as of Jan. 1, 2025.

Compared to pre-report expectations, the data was neutral. But the underlying data is bullish as the U.S. cattle herd contracted further — and will continue to do so.

India expected above-normal temps in February... India’s major wheat-growing areas in the north, as well as other parts of the country, could experience above normal temperatures in February, India's state-run weather office warned, raising concerns about crop yields. Monthly maximum temperatures for February are likely to be above normal over most parts of northwestern India, said Mrutyunjay Mohapatra, director-general of the India Meteorological Department. Temperatures are also likely to be above normal over western central India and some parts of eastern central India, he said.

India’s northern states of Punjab, Haryana and Uttar Pradesh and the central state of Madhya Pradesh are the top wheat-growing areas.

Cuts to wheat production from unfavorable late-season conditions could require the country to import wheat. So far, the government has resisted calls for wheat imports that could anger farmers ahead of the upcoming general election.

Farmers, analysts respond to Stabenow’s crop insurance/safety net proposals... Senate Ag Chair Debbie Stabenow (D-Mich.) has certainly garnered a lot of attention following her “Dear Colleague” letter outlining her proposal for strengthening the farm safety net in a new farm bill.

Her vision for modernizing the safety net centers around five key principles:

• Programs must be targeted to active farmers;
• Need to provide farmers choices and flexibility;
• Assistance should be timely;
• Need to expand the reach of programs to help more farmers; and
• Need to address the emerging risks farmers face.

The comments garnering the most focus is when Stabenow said “The 2018 Farm Bill provided cotton farmers with a choice between the traditional base acre programs and a highly subsidized and streamlined area-based crop insurance policy. The next farm bill should give a similar option to all commodities.”

Some possible details, subject to change, were obtained about Stabenow’s proposal from her staff. In brief, some highlights:

• Farmers can keep what they have now. 
• Or, they can choose annually between whatever ARC and PLC is in place OR improved area-wide crop insurance programs, but not both. In her letter, Stabenow wrote: “We can provide farmers the option to pick what tools work best for their crops, region, and farm. No mandates, just more options.”
• The proposal apparently would boost the premium subsidy for area-wide programs by 15 percentage points at a cost of around $1 billion over ten years, according to an initial score from the Congressional Budget Office (CBO).
• CBO reportedly assumes farmers would keep ARC/PLC most years, but that depends on price levels near the farmer’s annual program selection time.

Reaction to Stabenow’s crop insurance/farm program choice has been quick, based on talks with producers and analysts.

Says one farm policy contact: “So, you can keep what you have… but that clearly doesn’t work because cost of production has increased 35% over the last decade. If you want to keep what you had, you now have to shoot yourself in the foot by taking improved crop insurance off the table? If they can make those improvements to areawide insurance for $1 billion, why haven’t they already done it and stopped all of this ERP madness at USDA?”

One veteran farm bill observer sums it up this way: “Chairwoman Stabenow is advocating for a choice between PLC/ARC generally at CURRENT reference prices OR a STAX type (area wide) policy. But farm groups and many key lawmakers advocate PLC/ARC at HIGHER reference prices AND enhanced CI premium support at BOTH the individual and area wide basis (because for many if not most farmers individual coverage works far better than area coverage while for some farmers area coverage stacked on top of individual coverage is effective enough).” (Note: As noted previously, Stabenow said she was “open to proposals that would make sure every covered commodity receives an increase under an ‘effective reference price.’”

Another farm program analyst says: “This is a good way to think about things: Crop insurance is designed to address production/revenue losses as well as price swings within a crop year. In the normal to high commodity price years, crop insurance is all what many producers need. But sustained periods of depressed commodity prices are not covered by crop insurance. Crop insurance wasn’t designed for that. It is similar to your home insurance not being designed to help you with no income or low income. Farmers need both kinds of protection. Having to choose one or the other is not a fair choice any more than forcing a farmer to choose between the commodity title and conservation title. They are two different policies that address two separate kinds of issues.”

Another farm bill watcher emailed this reaction: “Farm groups — and many lawmakers — are calling for: (1) higher reference prices for producers; and (2) higher premium support for individual and area wide coverage. The requests are meant to deal with different issues. Higher reference prices are meant to address prolonged periods of depressed prices. Prices are already below break even. This makes higher reference prices critically important. Crop insurance does not address periods of prolonged multiple year low prices. Crop insurance premium support increases are also important but for different reasons. Some farmers have low crop insurance coverage. That means they have big deductibles. Higher premium support is intended to address this. Farm groups and key lawmakers support addressing both of these issues. They believe there needs to be some farm in the farm bill. That gives farmers a choice between two things that they need. It is like asking would you like your car or your house?  You have a choice. Which do you want?”

Bottom line: Stabenow has put pen to paper and certainly got the discussion going. Initial reaction shows ample pushback regarding the annual choice. There are always differences in farm policy initiatives wanted, and in current years some major differences among political parties. Her proposal is a start, but it is not finding much support in some sectors. Now the wait is on for counter proposals and whether there is adequate funding for those plans.  As Stabenow concluded in her Dear Colleague letter: “This may be my last farm bill, but it’s not my first. If we’re going to get a farm bill done this spring to keep farmers farming, it’s time to get serious. I look forward to continuing our bipartisan work to get it done.” House Ag Chair Glenn “GT” Thompson (R-Pa.) has said he will not lay down a Chairman’s Mark until the House is in for three consecutive weeks. That takes us into March.

Click here for more details.

Review of USDA ‘product of USA’ labeling plan continues at OMB... The National Meat Institute (NMI) has already had a session with the Office of Management and Budget (OMB) on USDA’s final rule for putting in place a voluntary Product of USA label. Their session involved officials from USDA and the Office of the U.S. Trade Representative (USTR) and likely focused on issues raised by NMI in the comments they filed during the request for public comment on the proposed rule released in 2023.

Today, Canada detailed its position on the final rule via Edward Farrell, a lawyer with the OFW law firm in Washington, DC, who advised Canadian cattlemen in their challenge at the WTO over the U.S. Country of Origin Labeling program.

Another meeting is currently scheduled for Feb. 6 with the National Turkey Federation.

It is unclear how much USDA’s final rule will have differed from the proposed rule released in 2023 but several U.S. meat industry stakeholders raised concerns about the rule and the potential impacts it could have on trade and other areas.

Bipartisan bill introduces new labeling rules for plant-based and cell-cultured meat products... A bipartisan bill introduced in both the House and Senate, known as the Fair and Accurate Ingredient Representation (FAIR) on Labels Act of 2024, aims to establish new labeling requirements for plant-based and cell-cultured meat alternative products. The bill, introduced by Sen. Roger Marshall (R-Kan.) in the Senate and Rep. Mark Alford (R-Mo.) in the House, seeks to ensure clear labeling for consumers, including terms like “imitation” and “cell-cultured” on product labels. It addresses concerns about transparency in food labeling, especially for products designed to resemble traditional meat and poultry.

The FAIR Labels Act introduces specific definitions for “imitation meat” and “imitation poultry” for plant-based meat alternatives. These definitions would apply to products that resemble meat but do not contain actual meat. The bill requires the use of “imitation” or similar terms on labels and mandates a disclaimer stating that these products do not contain meat or poultry.

For cell-cultured meat and poultry products, the bill establishes definitions and grants the USDA authority over their labeling. It requires the use of terms like “cell-cultured” or “lab-grown” on labels to clearly differentiate these products from traditionally farmed meat.

The bill has received support from various agricultural and livestock trade groups, who believe it will help prevent consumer confusion and protect the reputation of traditional meat products in the marketplace.