FOMC Day: Statement, Press Conference, Updated Fed Forecasts Awaited

May be around Memorial Day before details released on House farm bill

MARKET FOCUS

• FOMC: Key questions await answers today from the Fed/Powell
• Artificial intelligence expected to have huge impact on energy sector
• EIA: U.S. set fresh oil export record in 2023
• API reports decline in U.S. crude, gasoline inventories
• U.S. mortgage rates rise first time in four weeks
• ECB President Lagarde: June rate cut likely; future moves data-dependent
• Argentines are flocking to Bitcoin
• Ag markets today
• Thailand to ban corn imports from polluting neighbors
• USDA daily export: 120,000 MT soybeans to unknown destinations, 2024-2025 MY
• Ag trade update
• NWS weather outlook
• Pro Farmer First Thing Today items

CONGRESS

• Deal to fund rest of the government through the fiscal year

ISRAEL/HAMAS CONFLICT 

• Sec. of State Blinken traveling to the Middle East to push for cease-fire deal
   

RUSSIA & UKRAINE

• EU agrees to grant tariff-free access to Ukrainian food products until June 2025
• Russia will adjust grain export duties but not cancel them
   

POLICY

• Farm bill updates
   

CHINA

• Brazil supplying China more soybeans & corn to start 2024, U.S. market share drops
• China to pass new rules for labeling GM crops used in food
• American CEOs get ready to go to Beijing. But who will receive them?
• EU chamber warns of ‘slow-motion train accident’ with China
• China’s Sinochem takes first oil cargo from Canadian pipeline
   

TRADE POLICY

• U.S. ag sector seeking over $900 million in aid to regain overseas markets
• U.S. allows adoption of WTO finding regarding import duties on olives from Spain
• USTR details allocations for increase in sugar TRQ
   

ENERGY & CLIMATE CHANGE

• House lawmakers urge Biden administration action on biofuel trade restrictions
   

POLITICS & ELECTIONS

• Results from Tuesday’s elections
   

OTHER ITEMS OF NOTE

• Immigration rules governing southern U.S. border seesawed
• Biden administration warns states of water system cyberattacks
• U.S. drops from 15th spot in Gallup's annual World Happiness Report, now ranks 23rd

— Equities today: Asian and European stock markets were mixed in overnight trading. U.S. Dow opened around 60 points lower but is currently up slightly. In Asia, Japan closed. Hong Kong +0.1%. China +0.6%. India +0.1%. In Europe, at midday, London -0.1%. Paris -0.6%. Frankfurt +0.2%.

     U.S. equities yesterday: The Dow was up 320.33 points, 0.83%, at 39,110.76. The Nasdaq gained 63.34 points, 0.39%, at 16,166.79. The S&P 500 rose 29.09 points, 0.56%, at 5,178.51, with 10 of its 11 sectors closing higher.

— Ag markets today: Soybean futures reversed losses from the past two days during overnight trade, while corn and wheat faced price pressure. As of 7:30 a.m. ET, corn futures were trading 1 to 2 cents lower, soybeans were 6 to 7 cents higher and wheat futures were 5 to 7 cents lower. Front-month crude oil futures were around $1.10 lower, and the U.S. dollar index was more than 500 points higher this morning.

     Big jump in beef movement. Wholesale beef prices paused on Tuesday, with Choice down 11 cents and Select up 13 cents, though movement improved to 138 loads. The pickup in movement signals there’s still strong retailer demand for beef ahead of the grilling season, despite strong prices.

     Traders keeping hog futures premium in check. April lean hog futures dropped on Tuesday despite continued strength in the cash index. The lead contract finished yesterday at a $3.005 premium to today’s cash index quote, which is up another 28 cents to $82.82 as of March 18. That reflects expectations for a slightly bigger-than-average rise in the cash index over the next month.

— Agriculture markets yesterday:

• Corn: May corn futures rose 3 1/2 cents to $4.39 1/2 and nearer the session high.  
• Soy complex: May soybeans fell 2 1/4 cents to $11.85 1/2, ending the session below the 40-day moving average for the first time since March 11. May soymeal gained $2.00 to $333.90, forging a high-range close, while May soymeal fell 56 points to 48.14 cents.  
• Wheat: May SRW futures rallied 9 3/4 cents to $5.52 1/2, settling nearer session highs. May HRW futures rose 9 cents to $5.82 3/4. May spring wheat rose a nickel to $6.55 3/4.
• Cotton: May cotton fell 123 points to 93.34 cents, marking the lowest close since Feb. 20.  
• Cattle: April live cattle futures fell 52.5 cents before settling at $188.05. April feeder cattle futures slipped 2.5 cents to $255.075, while expiring March feeders dropped 52.5 cents to $250.675.
• Hogs: April lean hogs fell $1.00 to $85.825 and near mid-range.  
   

— Quotes of note:

• Artificial intelligence (AI) expected to have huge impact on energy sector. “It is going to be transformational,” ConocoPhillips Chief Executive Officer Ryan Lance said from the main stage at the CERAWeek by S&P Global conference in Houston. “It is going to be huge. It is going to impact every one of your businesses here.”
   
• Perspective on energy demand. John Ketchum, CEO of utility NextEra Energy Inc., told attendees at the CERAWeek event that U.S. power demand, which has been relatively flat for years, is poised to increase by 81% over the next five years. Toby Rice, chief of the largest U.S. natural gas driller, EQT Corp., cited a prediction that AI will gobble up more power domestically than households by 2030.
   
• You have AI email. Chevron Corp. CEO Mike Wirth talked about sending employees back to school to study AI. Olivier Le Peuch, who leads SLB, said the technology is being used for robotic drilling and to prolong the productive life of aging wells. BP Plc CEO Murray Auchincloss discussed its potential to enhance trading. ConocoPhillips’ Lance even used AI to prepare for his CERAWeek panel with S&P Global Vice Chairman Dan Yergin. He entered key words for the conversation into machine-learning software, which pulled relevant data, including any presentations the company had on hand. “It went and grabbed all the pertinent facts to that and wrote me an email that I could send to Dan Yergin,” Lance said in an interview with Bloomberg. Lance did, however, need to make a few edits before sending.
   

— Today, the Federal Reserve will conclude its latest rate-setting meeting, with anticipation high despite the unlikelihood of an interest-rate cut. While the focus remains on potential future cuts, several key questions loom:

• How many rate cuts does the Fed anticipate this year: three or two? Economists initially predicted three cuts based on December projections, but recent inflation reports may prompt a reassessment.
   
• When might the first rate cut occur? Market indicators suggest a possibility for a rate reduction in June, but some Fed officials advocate for caution, emphasizing the need for further evidence of economic cooling.
  
  In January, fed funds futures traders had priced in six to seven quarter-point rate cuts by the end of the year. Now, with inflation falling slower than expected, traders see three reductions starting in June or July, aligning with the Fed's December Summary of Economic Projections.
   
• When will the Fed begin reducing its $7.5 trillion balance sheet? The rapid expansion of the central bank's holdings during the pandemic raises questions about its future plans. Investors eagerly await insights from Fed Chair Jay Powell on this matter.
   

— ECB President Lagarde: June rate cut likely; future moves data-dependent. European Central Bank (ECB) President Christine Lagarde stated that while a rate cut in June is likely, the bank cannot commit to further reductions in borrowing costs beyond that. Lagarde emphasized that decisions will be based on evolving data, with more clarity expected by June. She stressed the necessity for a data-dependent approach, indicating that even after the initial rate cut, the ECB cannot pre-commit to a specific rate path. The debate now centers on the pace of unwinding the ECB's rate hike campaign and where borrowing costs will ultimately settle. While some officials suggest multiple rate cuts this year, others remain more ambiguous. Chief Economist Philip Lane highlighted the need to balance restrictiveness with progress in underlying inflation and wages. Lagarde emphasized that forthcoming data on wages, productivity, and corporate profit margins will dictate the timing of rate reductions. If these data align with inflation projections and transmission remains robust, the ECB will transition into a less restrictive policy phase.    

— In the week ending March 15, 2024, data from the Mortgage Bankers Association revealed a notable increase in mortgage rates. Specifically:

• The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances rose by 13 basis points (bps) to 6.97%. This follows an 18 bps drop in the previous period and marks the first rate increase in four weeks.
• Uncertainty surrounding the Federal Reserve's potential interest rate adjustments heightened due to hotter-than-expected inflation data. This uncertainty contributed to the rate hike.
• For 30-year mortgages on jumbo loans (homes sold for over $766,550), the average rate increased by 10 bps to 7.14%.
• Similarly, the average rate for 30-year mortgages backed by the Federal Housing Administration climbed by 12 bps to 6.89%.
   

Market perspectives:

— Outside markets: The U.S. dollar index was firmer, with the euro and British pound weaker. The yield on the 10-year U.S. Treasury note was lower, trading around 4.28%, with a lower tone in global government bond yields. Crude oil futures were under pressure ahead of U.S. gov’t inventory data due later this morning. U.S. crude was around $82.50 per barrel while Brent was around $86.40 per barrel. Gold and silver were lower, with gold around $2,155 per troy ounce and silver around $25.03 per troy ounce.

— Argentines are flocking to Bitcoin (whose value has fallen nearly 14% over the past week) instead of dollars to protect themselves against rampant inflation. Link to more via Bloomberg.

— EIA: U.S. set fresh oil export record in 2023. The volume of crude oil exported by the U.S. increased by 13% year over year to a record 4.1 million barrels per day in 2023, supported by surging domestic production, the Energy Information Administration reports. The Netherlands was the top destination for U.S. crude, followed by China and South Korea.

— API reports decline in U.S. crude, gasoline inventories. U.S. crude oil and gasoline stockpiles decreased by 1.52 million barrels and 1.57 million barrels, respectively, last week, according to the American Petroleum Institute. In contrast, distillate supplies added 512,000 barrels.

— Thailand to ban corn imports from polluting neighbors. Thailand plans to ban corn imports from neighboring countries linked to agriculture burning that causes air pollution, an official said. The ban will not violate Thailand’s commitments to the World Trade Organization, government spokesperson Chai Wacharonke said, adding it would come into force after the government passes the Clean Air Act.

— USDA daily export sale: 120,000 MT soybeans to unknown destinations, 2024-2025 MY.

— Ag trade update: Algeria purchased between 100,000 and 200,000 MT of durum wheat from unspecified origins. Egypt tendered to buy an unspecified amount of wheat from multiple origins.

— NWS weather outlook: Snow showers and gusty winds forecast throughout the Northeast over the next few days... ...Light to moderate snow spreads from the northern Plains to the Great Lakes by Friday... ...Shower and thunderstorm chances return to the Southern Plains and Gulf Coast.

Items in Pro Farmer's First Thing Today include:

     • Beans firmer, corn and wheat weaker overnight
     • Coceral cuts EU wheat crop forecast  

— Congressional leaders announced a deal to fund the rest of the government through the fiscal year. House Speaker Mike Johnson (R-La.) revealed the agreement, expressing hope that the legislation's text will be released promptly for voting. The deadline for passing the deal is 11:59 p.m. Eastern time Friday, with the process expected to take days in both chambers. Johnson may require several Democratic votes to pass the legislation, given resistance from the far-right wing of his conference. Additionally, in the Democratic-controlled Senate, any single member can impede the process, potentially causing the federal government to miss its deadline.

     Of note: There’s a chance the voting won’t be complete by Friday’s deadline, which means a partial government shutdown while the process is completed, or a last-minute extension. Both the House and Senate are scheduled to recess for two weeks starting Saturday.

— Secretary of State Antony Blinken is traveling to the Middle East to push for a cease-fire deal amid signs that Israel and Hamas have hardened their positions. Mediators have described the talks as the last chance to secure a truce to avert Israel’s impending plans for an offensive on Hamas’s last stronghold in Rafah. But Israeli Prime Minister Benjamin Netanyahu on Tuesday said he had made it clear to President Biden that he wouldn’t be dissuaded from invading the southern Gaza city on Egypt’s border.

— European Union (EU) reached an agreement to grant tariff-free access to Ukrainian food products in EU markets until June 2025, although some limitations will apply to grain imports. The European Commission proposed extending the suspension of duties and quotas on Ukrainian farm products for another year, with provisions for an "emergency brake" on poultry, eggs, and sugar if imports exceed average levels from 2022 and 2023. In response to farmer protests, EU lawmakers expanded the emergency list to include oats, corn, groats, and honey while retaining the reference years of 2022 and 2023. Some advocated for including 2021 due to restrictions and tariffs imposed on Ukrainian farm goods before the Russian invasion. The agreement also requires the European Commission to act swiftly under the emergency brake within 14 days, instead of the initially proposed 21-day period. Additionally, the Commission will monitor Ukrainian wheat and other cereal grain imports and intervene if they disrupt EU markets. Approval of the agreement by the European Parliament and EU member countries is anticipated in April.

— Russia will adjust grain export duties but not cancel them, according to Russian Agriculture Minister Dmitry Patrushev. He noted duties were adjusted at the start of 2023-24 and would be again for the new-crop marketing year, but did not give specific figures. Russian farmers have criticized grain export taxes amid falling international prices.
 

— Farm bill updates:

• House farm bill timeline: It now looks like around Memorial Day for major news about a new bill. Whenever details are released, floor action could come within two weeks.
• House farm bill funding: The biggest issue lingers: If all the farm bill needs identified were funded, it would take an estimated $75 billion to $100 billion in additional funding beyond the $1.51 trillion baseline over ten years. Looks like whenever the House measure is unveiled it will likely show an over-baseline funding level of $40 billion to $50 billion. Some funding will come via tapping USDA’s Commodity Credit Corporation (CCC), with “guard rails” on using such funds. Other funding sources will likely be in sensitive areas that Senate Democrats have warned against (nutrition and conservation).
• What more farm bill funding may provide: (1) Higher reference prices but not the same percentage for all commodities; (2) Improved crop insurance for greater buy-up levels, among other ideas; (3) Significant funding boost for MAP and FMD, but back-loaded due to current RAPP funding (see Trade policy item below); (4) More bio-security funding.
• When will Senate farm bill be released? Word is awaited on that from Senate Ag Chair Debbie Stabenow (D-Mich.). Some reports signal it will come shortly after House Republicans release their Chairman’s Mark. Others say there is nothing to hold Stabenow back from releasing the Senate farm bill version.
• Perspective on moving funding around in farm bills. Consider the following:
  
  

— Brazil supplying China more soybeans and corn to start 2024, U.S. market share drops. China’s soybean imports from Brazil totaled 6.96 MMT during the first two months of this year, a 211% surge from year-ago. Combined January and February soybean arrivals from the U.S. fell to 4.96 MMT, down 48.9% from the same period last year. China imported 4.1 MMT of corn from Brazil during the first two months of this year, two-thirds of its total imports and a 178% jump from the same period last year. Corn imports from the U.S. of 766,989 MT fell 67% from the first two months of last year.

— China to pass new rules for labeling GM crops used in food. China is expected to pass new rules this year for the labelling of genetically modified (GM) crops used in food products, government backed The Paper reported. In the new rules, China will change its labelling method of GM crops in food to “quantitative labelling” from “qualitative labelling,” The Paper said. That will require manufacturers to disclose if a product contains GM material exceeding 3% of its mass. Previous rules stipulated mandatory labelling if the product contained or was processed from GM crops. Regulation of the use of GM crops in food comes as China paves the way for commercial planting of higher-yielding GM varieties to secure its food security.

— American CEOs get ready to go to Beijing. But who will receive them? China wants to use annual business gathering to attract more foreign investment but is opaque about which leader will attend. Link for details via the Wall Street Journal.

— EU chamber warns of ‘slow-motion train accident’ with China, says something needs to change. China’s overcapacity is creating problems in Europe and crowding out domestic industries, according to the European Union Chamber of Commerce in China. Link to more via the South China Morning Post.

— China’s Sinochem takes first oil cargo from Canadian pipeline. China’s Sinochem Group has purchased one of the first crude cargoes shipped through a new pipeline in Canada, which is designed to move oil from landlocked Alberta to the Pacific Coast for export. Link for details via Bloomberg.

— U.S. ag sector is seeking over $900 million in aid to regain overseas markets lost to competitors like Brazil and Russia. USDA has received applications for more than three times the $300 million initially allocated in the first round of a five-year export promotion plan. The Regional Agricultural Promotion Program (RAPP), totaling $1.3 billion and announced last year, aims to assist the industry in accessing new markets for American crops. Funds from this program must be used to diversify markets, with a focus on expanding into Southeast Asia, the Middle East, and Africa. The U.S. aims to capitalize on the growing middle class and increased buying power in these regions. Daniel Whitley, the administrator of the USDA’s Foreign Agricultural Service, is particularly optimistic about Africa, emphasizing the importance of establishing a presence there before it's too late.

     Of note: Brazil overtook the U.S. last year as the world’s top exporter of corn, after earlier doing the same for soybeans, and it looks to do so this year for cotton, while Russia has surpassed the U.S. with wheat.

     “Many of our competitors are extremely busy and active promoting their products around the world,” Whitley said at the National Grain and Feed Association annual convention in Orlando on Monday. “It’s important that we give you all the tools you need to be successful, and that’s what this RAPP program does — it allows you to grow and expand your market and promotion activities.”

— The U.S. has allowed the adoption of a WTO finding regarding its import duties on olives from Spain. The WTO Dispute Settlement Body adopted a report stating that the U.S. failed to comply with a previous WTO ruling on the matter. Despite expressing disappointment, the U.S. did not block the adoption of the report. However, due to the US.S. blocking the appointment of new judges to the WTO's Appellate Body, it lacks the means to challenge the report's findings further. Failure by the U.S. to bring its provisions into compliance could lead to the European Union (EU) imposing retaliatory measures.

— USTR details allocations for increase in sugar TRQ. The Office of the US Trade Representative (USTR) outlined allocations for the increased amount of raw cane sugar permitted to enter the U.S. at a reduced duty rate under the fiscal year (FY) 2024 tariff-rate quota (TRQ). USDA announced on March 7 an additional in-quota quantity of the TRQ for raw cane sugar, totaling 125,000 metric tons raw value (MTRV). USTR has provided a breakdown of this allocation, distributing the 125,000 MTRV among 20 countries identified as net importers of sugar. Detailed allocations can be accessed through this link.

— House lawmakers urge Biden administration action on biofuel trade restrictions. A bipartisan group of House lawmakers is urging the Biden administration to address new trade restrictions impacting U.S. biofuel exports. Led by Reps. Randy Feenstra (R-Iowa) and Darin LaHood (R-Ill.), the lawmakers emphasized the significance of biofuels for both the U.S. economy and global clean energy efforts. They highlighted concerns about ethanol production, noting its reliance on American corn farmers.

     Additionally, they pointed to the expanding global demand for sustainable aviation fuel (SAF) and emphasized the potential for U.S. farmers and biofuel producers in this sector.

     The lawmakers urged the administration to pursue new free trade agreements (FTAs) that include market access commitments, or alternatively, to aggressively work on reducing trade barriers affecting biofuel imports. They specifically mentioned challenges in markets such as Brazil, India, and the United Kingdom.

     The lawmakers also highlighted the importance of addressing broader trade issues affecting the corn sector, such as Mexico's ban on genetically modified (GM) corn imports.

     Of note: U.S. ethanol exports reached record levels in 2023, underscoring the significance of international markets for the biofuel industry and rural economies.
 

— Biden administration warns states of water system cyberattacks. The Biden administration issued warnings to state governments regarding cyberattacks targeting water systems across the U.S. In a letter addressed to governors by the White House and Environmental Protection Agency, concerns were raised over the lack of basic cybersecurity measures in place at water facilities. The letter emphasized the importance of such precautions in preventing disruptive cyberattacks. Despite these warnings, the U.S. water sector, comprising 150,000 public water systems, faces challenges in securing adequate funding and personnel to address the growing number of cyber threats. Incidents in November saw hackers breaching industrial equipment at multiple water facilities to display anti-Israel messages, while Chinese state-backed hackers have been detected operating within U.S. water facilities for an extended period.

— U.S. drops from 15th spot in Gallup's annual World Happiness Report and now ranks 23rd. But one age group is faring well: Americans 60 and older reported higher levels of happiness than younger people. Link to report.

     Finns are the world’s happiest people, Afghans and Lebanese the least. That’s according to the World Happiness Report, an annual survey on wellbeing conducted in 140 countries since 2012. This year’s report also shows that young people are becoming gloomier than pensioners. The culprit? Social media, says Vivek Murthy, a former surgeon-general of America. Declining wellbeing among under 30s has pushed America out of the 20 happiest countries.

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