Evening Report | February 21, 2024

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FOMC minutes: Fed worried about cutting rates too soon... Minutes from the Jan. 30-31 Federal Open Market Committee (FOMC) revealed the bulk of policymakers were concerned about the risks of easing monetary policy too soon, with broad uncertainty about how long interest rates should remain at the current level.

The minutes stated, “Most participants noted the risks of moving too quickly to ease the stance of policy,” while on “a couple... pointed to downside risks to the economy associated with maintaining an overly restrictive stance for too long.” They also “highlighted the uncertainty associated with how long a restrictive monetary policy stance would need to be maintained” to return inflation to the Fed’s 2% target. Fed officials “generally” wanted “greater confidence” before cutting rates. “Some participants” said there was a risk inflation could stall if the economy continued to perform strongly.

The minutes also noted upcoming decisions on when and how to stop reducing the size of the Fed’s balance sheet, with “many participants” suggesting a start to “in-depth” discussions on that subject at the March meeting.

Fed fund futures continued to reflect the greatest odds for a Fed rate cut starting in June, with three or perhaps four reductions by year-end.

Exchange cuts Argentine crop estimates... The Rosario Grain Exchange cut its estimates for the 2023-24 Argentine soybean and corn crops due to impacts from heat and moisture stress in late January and early this month. The exchange now estimates soybean production at 49.5 MMT, down 2.5 MMT from its prior forecast. The corn crop is estimated at 57 MMT, down 2 MMT.  

Mexico to continue U.S. yellow corn buys... Mexico will continue to buy corn from the U.S. for livestock feed and industrial use, despite the ongoing formal dispute over its ban on imports of genetically modified (GM) corn for human consumption, said President Andrés Manuel López Obrador. The comments follow those from Mexico’s National Agricultural Council, which represents 1.8 million small and medium producers, stating a day earlier that Mexico could surpass China and become the largest importer of corn in the world this year, importing between 21 MMT and 22 MMT.

As of Feb. 8, Mexico’s 2023-24 U.S. corn export commitments stood at 16.2 MMT, with accumulated exports of 8.4 MMT and 7.8 MMT of outstanding sales on the books.

USDA to correct last week’s pork export figures... USDA incorrectly reported pork export data for the week ended Feb. 8. USDA noted, “Exports of 19,286 MT to China and 18,878 MT to Mexico of pork were incorrectly reported. A correction will be included in the next weekly report, which will be published Friday, Feb. 23.”

Sharp drop in placements expected in Cattle on Feed Report... Analysts polled by Reuters expect USDA’s Cattle on Feed Report Friday afternoon to show the feedlot inventory fractionally higher than year-ago at 11.716 million head. That would be the fifth straight month of year-over-year increases in feedlot numbers. After aggressive placements of calves into feedlots early last fall, analysts anticipate that category will be down 11.6%, which would be the third straight month with a year-over-year decline. Marketings in December are expected to be down 0.2%.

Brazil’s rising biodiesel mandate to slow soyoil exports... Brazil’s biodiesel mandate will increase to 14% (B14) on March 1, and 15% (B15) in 2025. That’s already having an impact on Brazil’s domestic soyoil market. Since the end of 2023 when this increase was announced, the domestic market has been consistently outbidding the export market for soyoil. AgriCensus reports a more aggressive ramp-up could virtually take the country out of the export market in the short run.

“The domestic market is trading 2.50 cents per lb. higher than the export market,” Eduardo Vanin from Agrinvest told AgriCensus, adding that he believes Brazil’s soyoil export program will be limited due to this price difference.

Brazil’s congress is expected to vote on a law before the end of the month that intends to increase the biodiesel mandate to 20% (B20) or even 25% (B25).

“With the current installed capacity it is already possible to produce B20 [and] with the expansion projects that are already in place, total capacity will reach 16.25 billion liters, enough to meet approximately a 25% mandate,” industry associations and a parliamentary caucus said in a note on Wednesday.

Prospects of a significant backdrop in Brazil’s soyoil exports in 2024 are likely to create opportunities for rival exporters, with Argentina likely to the be biggest beneficiary.

Food companies predict slower price increases, easing inflation concerns... Food companies are forecasting smaller price hikes this year, signaling potential relief for consumers and policymakers grappling with rising food costs, the New York Times reports. Recent data shows a notable slowdown in grocery inflation, with companies attributing the shift to various factors, including consumer pushback against steep price hikes and more stable input costs.

The trend toward smaller price increases reflects a broader moderation in overall inflation, offering hope the rapid spikes in grocery and restaurant prices may be easing. While prices are unlikely to decrease, the pace of inflation is expected to ease, aligning more closely with historical norms.

Several major companies, including PepsiCo and Coca-Cola, are scaling back price hikes after experiencing resistance from consumers and observing a divide in spending power among customers. Walmart, for instance, has seen resilient customer demand for value, indicating a preference for affordability amid ongoing inflationary pressures.

Moreover, signs of a return to normalcy in food-related input costs, coupled with companies’ adoption of technology and productivity enhancements, suggest a more moderate inflationary environment ahead. Wendy’s, for example, is implementing digital menus and dynamic pricing strategies to enhance efficiency and manage costs.

Bottom line: The outlook points to a cooler trajectory for food inflation in 2024, with grocery prices expected to rise at a slower pace compared with recent years. While restaurant inflation may remain somewhat stronger, there are indications that even this sector will experience a gradual decline in price pressures.