Evening Report | February 14, 2024

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Rains boost Argentine crops... Plentiful rains in recent days across Argentina's main growing regions have provided much-needed relief for the country’s soybean and corn crops, the Rosario Grain Exchange said. “After weeks of heat and growing concern for the crops, over the long weekend (due to the Carnival holiday) rains finally hit the core growing region,” the exchange said. “What we’re waiting to see now is what the crops' reaction will be.”

Mexico to import up to 16 MMT of yellow corn in 2023-24... Mexico will import between 14 MMT and 16 MMT of yellow corn this year, Agriculture Minister Victor Villalobos said, after production in northern Chihuahua state was “severely” affected by drought last year. He said production in the country’s southeast would help offset the deficit in Chihuahua.

Mexico is self-sufficient in white corn production but it imports large amounts of yellow corn – almost entirely from the United States.

As of Feb. 1, Mexico’s total commitments for U.S. corn stood at a record 15.8 MMT, including accumulated exports of nearly 8 MMT and outstanding sales of more than 7.8 MMT.

SovEcon raises Russian wheat crop forecast... Black Sea consulting firm SovEcon raised its forecast for 2024 Russian wheat production by 1.4 MMT to 93.6 MMT due to favorable weather conditions in most growing regions. At that level, production would be up 400,000 MT (0.4%) from last year. The winter wheat crop is estimated at 67.7 MMT, up from 63.8 MMT in 2023. The spring wheat crop is expected to total 25.9 MMT, down from 29.0 MMT last year.

Russia lacks sufficient grain receiving, shipping capacities... Amid big harvests, Russia lacks grain receiving and shipment capacities, as well as modern elevators, according to an ag ministry official. Olga Polozyukova, deputy director of the department for regulation of agricultural markets at the ag ministry said, “"The main weaknesses in the current realities are probably insufficient grain receiving and shipping capacities, as well as elevators that do not have sufficient railroad infrastructure. They are also now in a weak position. This is an important topic for remote regions,” she said. “For example, for Siberia the only method of delivery to the main ports of Russia is by rail. And elevators, which do not have the capacity to ship by shipping routes, are forced to form 10 to 15 railcars at their location, then transport them to public railways, and form common shipments there. These processes lengthen the delivery time to end consumers and export terminals, and increase the cost of delivery.”

“Thus, the main need now is for modern elevators capable of carrying out shipment routes and fully equipped with their own infrastructure,” she said.

Polozyukova noted there are various measures of state support for the development of the grain storage industry. In particular, an export project provides for preferential investment loans for the construction of access railroads to receive and form full shipment routes.

Vilsack sees ‘chaos’ in meat industry without Prop 12 action... USDA Secretary Tom Vilsack told the House Ag Committee the U.S. meat industry will face “chaos” if Congress doesn’t take action on California’s Proposition 12 law, which toughened animal welfare requirements for pork products sold in the state. Vilsack said, “When each state has the ability to define for itself and for its consumers, exactly what farming techniques or practices are appropriate, it does create the possibility of 50 different sets of rules and regulations.” He noted, “I’m not sure that this Congress is going to be able to pass legislation, with due respect, but I would suggest that if we don’t take this issue seriously, we’re going to have chaos in the marketplace.”

Central U.S. ag real estate values resilient despite headwinds... Agricultural real estate values in the Tenth District remained resilient in 2023, despite challenges such as higher interest rates and a moderation in farm income, according to the Federal Reserve Bank of Kansas City. Nonirrigated farmland values saw an average growth of around 10% from the previous year, while irrigated farmland and ranchland values experienced slightly slower growth rates. Despite the slowdown in capital spending and increased financial strain, all types of farmland values saw an increase of about 8% on average from the previous year. Demand for farm loans increased toward the end of 2023, driven by lower crop prices and stable production expenses, putting pressure on margins for some farm borrowers.

Farmland values varied throughout the District, with notable increases seen in Western Missouri and Nebraska. Despite some shifts in demand, overall farmland values remained robust. Cash rents for farmland stabilized despite continued growth in farmland values, with ranchland rents slightly decreasing while nonirrigated and irrigated rents remained largely unchanged. The volume of farmland sales slowed across the region, likely due to limited land availability rather than a decline in demand.

The share of farmland purchased by farmers increased across the District, reaching its highest level since 2015. Despite increased costs and risks associated with higher interest rates, most agricultural lenders expected farmland values to remain stable or increase moderately in 2024. However, concerns remain regarding a potential increase in interest rates and the repricing of farmland loans, with a significant portion of loans scheduled to reprice in the coming months. Despite these challenges, demand for farm loans grew at the fastest pace in nearly three years by the end of 2023, signaling ongoing financial resilience within the sector.

U.S. carbon border tax being discussed... The possibility of enacting a carbon border tax in the U.S. is under discussion as trade partners, including the EU, are moving forward with similar measures. Both Democratic and Republican lawmakers have proposed carbon border tax schemes to ensure fair competition for U.S. producers, focusing on issues like taxing both domestic and foreign products and harmonizing carbon accounting methods.

Discussions at the Washington International Trade Association’s conference highlighted proposed legislation aiming to implement a carbon border adjustment mechanism (CBAM) to impose tariffs and fees on carbon-intensive imports. Key proposals include the Clean Competition Act from Sen. Sheldon Whitehouse (D-R.I.) and Rep. Suzan DelBene (D-Wash.), which compares the carbon intensity of imports with U.S. standards, and Sen. Bill Cassidy’s (R-La.) Foreign Pollution Fee, which targets imports with higher carbon intensity compared to domestic counterparts.

The purpose of CBAMs is to address the “carbon loophole” in global trade, where goods produced with higher carbon intensity in one country are exported to another. This aims to provide a more accurate picture of a country’s carbon intensity and level the playing field for less carbon-intensive U.S. production. U.S. fertilizer producers, for example, support CBAMs as they seek policy certainty for investments in decarbonization.

However, challenges remain in striking a balance between policy comprehensiveness and administrative feasibility. The adoption of carbon accounting rules and mutual recognition across industries and trade partners globally is crucial. While concerns exist about potential political pressure if CBAMs raise costs for domestic consumers, proponents argue that they provide long-term benefits by incentivizing greener production and making U.S. products more sustainable and valuable in global markets.

Extremely low odds House GOP leaders will do anything with international aid package... There are legislative maneuvers that the minority can employ to force a House vote on the Senate-passed international aid package. That would need at least 111 Republicans willing to vote for the $95 billion package, but that is far from reality at this juncture.

Some Republicans still want tighter restrictions at the U.S. border to support the foreign aid package, which includes about $60 billion for Ukraine. House Republicans rejected an earlier Senate-negotiated border funding package, and former President Donald Trump opposes more Ukraine aid. Besides Ukraine, the aid package also provides $14.1 billion for Israel; $9.15 billion for food, water and humanitarian aid to Gaza, the West Bank and Ukraine; and $2.4 billion to support U.S. operations related to protecting global shipping operations in the Red Sea.