Evening Report | February 16, 2024
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Wheat producers: Increase old- and new-crop sales... Wheat futures dropped to new contract lows, opening more near-term downside risk. With funds heavily short across the wheat complex, hedges are risky. We advise wheat hedgers and cash-only marketers to sell another 10% of 2023-crop to get to 70% priced in the cash market. We also advise selling another 10% of expected 2024-crop production to get to 20% forward priced for harvest delivery.
Your Pro Farmer newsletter is now available... Grain markets continued to sell off as supportive news remains scarce and the path of least resistance is down. While funds are heavily short across the grain and soy complex, there’s no incentive for them to actively cover shorts. USDA’s initial projections for 2024-25 added fuel to bears’ fire. While these are USDA’s be guesstimates at this time and conditions will change, the projected increases in ending stocks paint an even bleaker long-term picture. The extended weather forecast through May suggests generally favorable weather for spring planting. The drought that began in 2020 may be coming to an end. However, a bout of heat and dryness may develop in late spring/early summer. On the policy front, the farm bill remains stuck in neutral with increasing disparity between SNAP/food stamps and farm safety net spending providing a major wedge in talks. Our News page 4 feature this week is key gleanings from USDA’s Ag Outlook Forum. We cover all of these items and much more in this week’s newsletter, which you can access here.
Presidents Day schedule... Markets and government offices are closed Monday, Feb. 19, for Presidents Day. Therefore, there will be no Pro Farmer updates that day. Grain markets will resume trading at 7:00 p.m. CT on Monday, Feb. 19, with the overnight session. Livestock markets will reopen at 8:30 a.m. CT on Tuesday, Feb. 20.
Vilsack keeps touting CCC for farm bill safety net funding... At USDA’s 100th Agricultural Outlook Forum, Secretary Tom Vilsack again proposed innovative approaches, such as utilizing Commodity Credit Corporation (CCC) funds creatively, to address farm bill funding challenges without compromising other priorities. Vilsack highlighted the need to balance support for both production agriculture and smaller producers, rejecting the idea that farming success should solely be measured by expansion. He advocated for programs like the Partnerships for Climate-Smart Commodities (PCSC) to provide new revenue opportunities for all farmers.
Key farm-state lawmakers have not directly addressed Vilsack’s repeated overtures regarding tapping CCC as a farm bill revenue stream, dubbed as USDA’s ATM machine. “In the past, we figured out creative ways to use the CCC, but there has to be a willingness to be open to the conversation,” said Vilsack.
But some former USDA top economists addressed the topic during USDA’s Forum, with some advocating for Congress to reintroduce restrictions on USDA’s use of CCC, which grants broad authority to support farm income. Joe Glauber, former chief economist at USDA, highlighted the significant expansion of CCC usage under the Trump and Biden administrations since restrictions were lifted during the Obama era. Glauber emphasized the need for congressional oversight on CCC utilization. Bob Thompson, a Reagan administration official, described the CCC as a "license to steal," advocating for overdue restrictions on its use. Similarly, Dan Sumner, who served in the George H.W. Bush administration, supported imposing limitations on the CCC. But Rob Johansson, former USDA chief economist during the Trump administration, urged caution, emphasizing CCC's role in responding swiftly to unforeseen events like the trade war with China. Johansson suggested that while Congress may address concerns about CCC usage, it has allowed USDA to react promptly to situations beyond the scope of traditional farm bill provisions.
Vilsack complimented Senate Ag Committee Chair Debbie Stabenow (D-Mich.) for an imaginative proposal to provide higher levels of crop insurance coverage to row-crop growers if they forgo traditional crop subsidies. He also said that Senate Majority Leader Chuck Schumer (D-N.Y.) “says he’s going to bring $5 billion into the [farm] program… He’s obviously got a mechanism for getting those resources into the program outside of the [budget] baseline,” when asked about the reach of congressional accounting rules. “Where there’s a will, there’s a way,” he said.
Vilsack also addresses SEC climate rule... Vilsack said the SEC’s proposed rule requiring publicly listed companies to disclose likely climate impacts and risks runs counter to USDA’s efforts to encourage climate-smart agricultural practices. “From a standpoint of agriculture, I don’t know that it’s necessarily helpful to have mandates,” said Vilsack. He added that incentives would be more effective so “[farmers] don’t feel like they have to go off the farm and work 40 hours a week to be able to keep doing what they love to do.” The SEC has said the rule won’t require farmers to disclose climate impacts of their operations, but it would affect companies in the agribusiness sector. That has led to fears among producers and major farm groups that they may be subject to informal reporting requirements in order to be part of larger agriculture supply chains.
Rains have limited impact on Argentina’s soybeans, corn ratings drop... The Buenos Aires Grain Exchange rated Argentina’s soybean crop 31% good/excellent (unchanged from the previous week), 50% normal (up three points) and 19% poor (down three points). The exchange rated the country’s corn crop 27% good/excellent (down four points), 56% normal (up two points) and 17% poor (up two points).
Producer prices rise the most in five months... U.S. producer prices in January increased 0.3% from the previous month, marking the largest rise in five months. Service costs notably rose 0.6%, the most significant increase since July, driven by a 2.2% surge in hospital outpatient care prices. Additionally, prices for chemicals and allied products wholesaling, machinery and equipment wholesaling, portfolio management, traveler accommodation services and legal services saw upticks. Conversely, goods prices declined 0.2%, marking the fourth consecutive decrease, primarily due to a 3.6% drop in gasoline prices. Other goods, including electric power, hay, hayseeds and oilseeds, beef and veal, ethanol and iron and steel scrap, also experienced declines in prices. Producer prices rose 0.9% annually, slightly lower than December’s 1% gain but surpassing expectations of 0.6%.
Consumer sentiment inches up... The University of Michigan’s Survey of Consumers showed the consumer sentiment index inched up to 79.6 based on preliminary data for February. That was up 0.8% from January and 19.0% above year-ago. The current economic conditions index slipped 0.5% from the previous month but was 15.3% above year-ago. The index of consumer expectations rose 1.7% from January and jumped 21.6% from last year.
Surveys of Consumers Director Joanne Hsu said: “The fact that sentiment lost no ground this month suggests that consumers continue to feel more assured about the economy, confirming the considerable improvements in December and January across various aspects of the economy. Consumers continued to express confidence that the slowdown in inflation and strength in labor markets would continue. Five-year expectations for business conditions rose 5% to its highest reading since December 2020. Sentiment is currently about 30% above November 2023 and about 6% below its historical average since monthly data collection began in 1978.”
Year-ahead inflation inched up from 2.9% in January to 3.0% in February. Long-run inflation expectations remained at 2.9% for the third straight month.
