New Farm Bill Talks Remain Stuck in Various Disputes; Sen. Hoeven Prepares Plan

Farm Journal
Farm Journal
(Farm Journal )

Pork oversupply sparks economic concerns; industry seeks solutions


 

Today’s Digital Newspaper

 



Modified format as I will speak in Fargo to a group of
Jan Vetter’s crop insurance clients.



— Equities, today: Asian and European stock markets were mixed in quieter overnight trading. China is celebrating its Lunar New Year holiday this week. Many China markets are closed much of this week for the annual holiday. U.S. stock index futures are signaling a mixed open today. In Asia, Japan closed. Hong Kong closed. China closed. India -0.7%. In Europe, at midday, London -0.1%. Paris +0.4%. Frankfurt +0.3%.

     Treasuries and the dollar were steady after wrapping up a sixth week of gains, the longest winning streak since early September.

     U.S. equities Friday: The tech-heavy Nasdaq Composite Index added 196.95 points, 1.25%, to 15,990.66, bringing its rise to 6.5% so far this year. The Dow fell 54.64 points, 0.14%, at 38,671.69, yet remains up 2.6% year-to-date. The S&P 500 rose 28.70 points, 0.57%, to 5,026.61 and ended the week 1.4% higher. The index has risen 5.4% in 2024.

     In the week just concluded, the S&P added 1.4% and the Nasdaq jumped 2.3%, while the Dow finished flat.

— Challenges are being faced by private equity funds in returning cash to their investors, as indicated by a new report. It highlights that last year, these funds returned the lowest amount of cash to investors since the financial crisis 15 years ago. This difficulty in returning cash is impeding buyout firms' ability to launch new investment vehicles. According to Raymond James Financial, distributions to investors, known as limited partners, amounted to only 11.2% of funds' net asset value, significantly below the median figure of 25% observed over the last 25 years. Sunaina Sinha Haldea, the global head of private capital advisory at the firm, commented that there are challenges in the cash flow dynamics at the investor level, suggesting underlying issues within the private equity industry.

— Ag markets today: Corn and soybean futures firmed amid mild corrective buying overnight, while wheat traded lower. As of 7:30 a.m. ET, corn futures were trading 1 to 2 cents higher, soybeans were 4 to 6 cents higher, winter wheat markets were 3 to 5 cents lower and spring wheat was unchanged to a penny lower. Front-month crude oil futures were around 85 cents lower, and the U.S. dollar index was trading just above unchanged.

     Cash cattle strengthen. Cash cattle traded sharply higher late Friday, though traders will have to wait until later this morning to get official data, including the volume of cattle sold. That will influence this week’s showlist numbers and could impact packers’ willingness to bid for cattle. 

     Cash hog index declines. The CME lean hog index is down 40 cents to $73.60 as of Feb. 8. That marks the first back-to-back days of declines since late December when the index was forging a seasonal low. February lean hog futures finished Friday 7.5 cents above today’s cash quote, while April hogs held a $7.55 premium.

— Agriculture markets Friday:

  • Corn: March corn fell 4 1/4 cents to $4.29, marking a weekly decline of 13 3/4 cents.
  • Soy complex: March soybeans fell 10 cents to $11.83 1/2 and gave up a nickel on the week. March soymeal fell 30 cents to $346.80 and lost $10.00 week-over week. March soyoil fell 68 points to 47.26 cents, gaining 253 points on the week.   
  • Wheat: March SRW wheat futures rose 8 1/4 cents to $5.96 3/4, near mid-range and for the week down 3 cents. March HRW wheat futures rose 1/2 cent to $6.01 1/2, nearer the session low and for the week down 23 1/2 cents. March HRS rose 1/2 cent to $6.84 1/4 but lost 15 1/2 cents on the week.
  • Cotton: March cotton surged 268 points to 91.78 cents and notched a 467-point gain on the week.
  • Cattle: April live cattle futures rose 15 cents to $186.725, near mid-range and on the week gained $2.975. March feeder cattle futures prices closed up 30 cents at $247.15, near mid-range and for the week rose $2.35.
  • Hogs: Hog futures rebounded from recent losses, although the closes came in well below the intraday highs. Expiring February futures rose 37.5 cents on the day, settling at $73.675. Most-active April advanced 80 cents to $81.15. That represented a weekly decline of $2.675.
     

— Ag trade: Egypt tendered to buy at least 50,000 MT of corn from unspecified origins. Indonesia is seeking to import 200,000 MT of rice from Thailand under a government-to-government arrangement.

— Poland to check Ukraine grain quality. Poland plans to start quality checks on all grain shipments from Ukraine, Deputy Agriculture Minister Michal Kolodziejczak said as Polish farmers continued nationwide protests against EU policies, including allowing grain imports from the neighboring country. Farmers started blocking roads and border crossings with Ukraine on Friday, kicking off a month-long general strike to protest against EU policies and a lack of government action to protect their livelihoods. “Today... I will request that all grain transports that are exported and have an embargo imposed on them be examined in Poland,” Kolodziejczak told state news agency PAP. He said poor quality Ukrainian grain moves into Germany and other EU countries and noted “99% of the time it returns to Poland as European grain.”

— Indonesia assures consumers rice supplies are adequate. Indonesia’s government assured consumers rice stocks were adequate amid increasing sale restrictions in retail outlets since the end of 2023. The availability of five kilograms sacks at modern retail outlets have been reportedly scarce since around September last year, leading to a restriction for retail customers. Head of the retail business association confirmed the restrictions, saying it was to ensure distribution and avoid reselling. Data from the ag ministry showed the country had a rice deficit of 1.63 MMT in January and 1.15 MMT in February. Indonesia plans to import 2.44 MMT of rice this year, of which around 445,000 MT is a quota carried over from 2023.

— Fed speak this week. Eight Fed officials will be making appearances throughout the week to address the concerns of both sets of market players. The specific officials include Michelle Bowman, Tom Barkin, and Neel Kashkari, who are scheduled to kick off the week's events on Monday. Tuesday brings release of the monthly Consumer Price Index (CPI) data, which is significant for market analysis and Fed policy considerations.

— Dr. Vince Malanga: In 2024, companies are embracing a motto of "doing more with less," focusing on cost-cutting measures and spending discipline to improve performance. This emphasis on efficiency, he says, is driven by the need to justify new projects amid tighter financial conditions and the increasing adoption of AI technology for streamlining operations.

     Despite what Malanga says is Federal Reserve Chair Powell's reluctance to acknowledge a productivity revival, data shows a significant increase in nonfarm productivity, with current indicators suggesting continued strength. This productivity growth, coupled with moderate wage increases and commodity prices, is expected to support profit margins and help alleviate inflation pressures in the short term.

     However, Malanga notes that concerns remain about potential economic shocks, such as China's deflation and global real estate issues.

     The Federal Reserve's policy decisions, heavily reliant on economic data, risk overlooking the positive trend of cost discipline and excess capacity, which Malanga says could lead to restrictive policies hindering growth. Adapting policy to align with improving productivity would be beneficial for economic growth and federal finances. While the Federal Reserve typically follows market cues in policy changes, Malanga says proactive adjustments like rate cuts or modifications to quantitative tightening could ease liquidity strains and support government borrowing needs, preventing a worse outcome amid looming debt refinancing challenges.    

— The February 2024 NABE Economic Policy Survey reveals:

  • Fiscal policy views align with previous surveys, with a slight increase (57%) in respondents believing it's "too stimulative" compared to August 2023 (54%) and March 2023 (53%).
  • Most respondents view monetary policy as "about right," but there's a shift in those who see it as "too stimulative" (8%, down from 12% in August 2023) and "too restrictive" (21%, up from 14% in March and August 2023).
  • A majority predicts elevated CPI inflation, with 67% foreseeing it staying above 2.5% through 2024.
  • Only 25% expect a recession in 2024, with 24% already perceiving it or predicting it in different quarters, while 22% anticipate it in 2025 and 36% in 2026 or later.
  • Concerns about geopolitical and economic risks include the Middle East conflict affecting oil prices and supply chains, a stagnant Chinese economy, and U.S. election instability, with around 50% seeing substantial probability for each event.
     

— Pork oversupply sparks economic concerns; industry seeks solutions. The Wall Street Journal has a major article (link) on the challenges facing the U.S. pork industry, which has become overly efficient, resulting in an imbalance between supply and demand. Despite producing various pork products like tenderloin, ham, sausage, and bacon, there's insufficient demand to absorb the surplus. Factors contributing to this imbalance, the article notes, include the industry's focus on efficiency, the perception of pork as less desirable compared to chicken and beef, and misconceptions about pork's preparation and healthiness.

     The industry is exploring various strategies to address these challenges, such as targeting new overseas markets, repositioning pork as an affordable alternative to beef, and promoting fattier, more flavorful pork breeds. However, there's no consensus on the best approach.

     Furthermore, the article highlights the financial strain on pork producers, with farmers losing money on each pig due to shrinking profit margins. If the industry fails to attract younger consumers, pork consumption is projected to decline further. To stabilize profits, the industry seeks to engage U.S. consumers, invest in marketing campaigns, and innovate products to meet changing consumer preferences and lifestyles.

— New farm bill update:

  • Timeline: Most farm bill watchers continue to predict the new bill will come in 2025, not this year. If it comes this year, sources say it would have to make substantial progress by May.
  • Funding: Senate Ag Chair Debbie Stabenow (D-Mich.) has around $5 billion above the farm bill baseline, but that is not nearly enough to adequately fund a needed hike in reference prices relative to the Title I safety net program. That would take $20 billion for a 10% boost and $50 billion for a 20% boost. House Ag Committee leaders and staff continue to pursue additional funding but efforts to tap some of the $20 billion in conservation funding via the Inflation Reduction Act has been consistently opposed by Stabenow and will likely be USDA Secretary Tom Vilsack’s comments when he testifies Wednesday before the House Ag Committee.
  • Use of USDA’s Commodity Credit Corporation (CCC) funding is another area of potential additional farm bill funding. Vilsack has suggested this and this will likely be another topic during Wednesday’s hearing.
  • The Senate appears to be far apart in reaching a farm bill conclusion. Stabenow already has the $20 billion in additional conservation funding in place, and ample food stamp funding is protected as the program is an appropriations entitlement. Ranking member John Boozman (R-Ark.) continues to push for higher reference prices, but funding issues remain. With odds over 50% of Republicans getting control of the Senate following Nov. 5 elections, Boozman may want to wait until 2025 to finalize a new farm bill. Meanwhile, Stabenow has put forth a controversial program opposed by Republicans. It includes a crop insurance plan that would provide more affordable options for farmers, but to obtain that, farmers would have to opt out of separate Title I programs (ARC, PLC). Sen. John Hoeven (R-Neb.) is working on his own crop insurance plans that would also provide more affordable crop insurance options, but wouldn’t force producers to opt out of separate Title I programs.
  • There is also a gap in the House between the GOP and Dems. House Ag Republicans have proposed repurposing about $15 billion in IRA climate-smart agriculture money and restricting future Thrifty Food Plan updates to SNAP to pay for spending increases in the farm bill’s safety net and key Democratic priorities. But that is getting major pushback from House and Senate Democrats, and USDA Secretary Tom Vilsack.

— The Congressional Budget Office (CBO) last Wednesday released a new baseline for USDA mandatory funded programs (that will not likely take place until May it appears). The report forecasts the projected cost of certain programs over the next 10 years. CBO is forecasting the Price Loss Coverage (PLC) program, which triggers payments when market prices fall below certain reference prices, will cost $28 billion from 2024 through 2034. The previous 2023-2033 forecast, issued last May, projected $33.1 billion. The Agriculture Risk Coverage program is now projected to cost $15.6 billion, down from the $28.4 billion forecast for 2023-33.

     CBO also raised its forecast for spending through the Commodity Credit Corporation (CCC) by about $5 billion over the next 10 years. Key leaders have suggested capping or eliminating USDA’s Section 5 authority under the CCC in the next farm bill, which would give Congress a greater say in how the funds are used by any given administration and could save $8 billion over 10 years.

— Rice producers and risk management. A Southern Ag Today article (link) shows how rice producers face lower production risk compared to other crops but still grapple with price risk. Traditionally, they've relied on government programs like Price Loss Coverage (PLC) but while some crops are expected to see an increase in the Effective Reference Price driven by a higher Olympic Average MYAP (e.g., corn and soybeans), the ERP for rice is expected to remain at the Statutory Reference Price of $14.00/cwt. The 2024-2025 MYAP price will likely not fall below $15.00/cwt based on the average of the November 2024, January 2025, and March 2025 Rough Rice futures contracts, suggesting the PLC program will likely not trigger a payment for rice in the 2024/2025 marketing year. The article suggests combining PLC with area crop insurance like Supplemental Coverage Option (SCO) and Enhanced Coverage Option (ECO) to mitigate price risk further. This strategy offers downside protection while allowing for higher price guarantees.

     Rice protection

— Israel rescued two hostages in Rafah in southern Gaza, where the military is preparing for a push into what it says is the last bastion for Hamas.

— Diamondback agreed to buy Texas oil-and-gas producer Endeavor in a $26 billion deal that will create the largest pure-play operator in the prolific Permian Basin. It would create an oil-and-gas behemoth worth more than $50 billion. Diamondback shares edged up in thin trading ahead of the opening bell.

— Defense Secretary Lloyd Austin was admitted into critical care with an apparent bladder issue after being hospitalized for the second time in a month. “At this time, it is not clear how long Secretary Austin will remain hospitalized,” Austin’s doctors said. “The current bladder issue is not expected to change his anticipated full recovery. His cancer prognosis remains excellent. Updates on the Secretary's condition will be provided as soon as possible.”

— NWS weather outlook: A significant winter storm crossing the Mid-South today will transition to a strong nor'easter for the Mid-Atlantic and New England by Tuesday... ...Areas of severe thunderstorms, heavy rainfall, and flash flooding will be possible across portions of the Southeast today... ...New storm system to arrive across the Northwest by the middle of the week with areas of locally heavy rain and mountain snowfall.

     NWS_021224


 

KEY LINKS


WASDE | Crop Production | USDA weekly reports | Crop Progress | Food prices | Farm income | Export Sales weekly | ERP dashboard | California phase-out of gas-powered vehicles | RFS | IRA: Biofuels | IRA: Ag | Student loan forgiveness | Russia/Ukraine war, lessons learned | Russia/Ukraine war timeline | Election predictions: Split-ticket | Congress to-do list | SCOTUS on WOTUS | SCOTUS on Prop 12 pork | New farm bill primer | China outlook Omnibus spending package | Gov’t payments to farmers by program | Farmer working capital | USDA ag outlook forum | Debt-limit/budget package |


 

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