Evening Report | March 20, 2024

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Soybean producers: Increase old-crop sales... May soybean futures hit our sales target during the strong late-session rally. We advise soybean producers to sell another 10% of 2023-crop production in the cash market to get to 65% priced for hedgers and 60% sold for cash-only marketers. You must be prepared to increase old- and new-crop sales on additional price strength, as farmer selling is likely to be active on any extended price recovery.

Heavy Argentine rains could be ‘very damaging’ for crops... A new wave of heavy rains over key grains regions of Argentina could be “very damaging” to the country’s soybean and corn crops and could dent production, an Argentine weather forecaster said. “The rains we’re getting are totally unneeded, very damaging to the south and east of Entre Ríos, south of Santa Fe and the north of Buenos Aires,” said German Heinzenknecht, a meteorologist at Applied Climatology Consulting (CCA).

The Rosario Grain Exchange said, “We are seeing excess water in these areas. There are locations that have exceeded 300 millimeters so far in March and there we are seeing flooded lots of soybeans. It impacts the development of crops, especially soybeans. Delays to the soy harvest along with high humidity can cause the pods to open and the beans to be lost or to sprout inside the pod.”

Fed still expects three rate cuts this year, but there’s a twist... As expected, the Federal Reserve kept interest rates at a range of 5.25% to 5.50% following its two-day monetary policy meeting. But what economists and market participants were really interested in were new economic projections from Fed officials – the so-called “dot plot” projections.

The Fed’s dot plot showed a growing number of officials were coalescing around the view that rates would end 2024 at 4.50% to 4.75%, equivalent to three 25 basis point cuts, in line with December’s dot plot. However, fewer committee members anticipate more than three cuts. In December, five officials expected four or more quarter-point cuts in 2024. This time round, it was just one. Nine officials now expect three cuts, compared with six in December. The number expecting two remained the same at five.

The projections now signal core inflation will end the year higher and unemployment slightly lower than predicted in December. Officials sharply upgraded the gross domestic product projections for 2024, with the economy now expected to expand 2.1%, compared with December’s median forecast of 1.4%.

Officials also predict inflation will end the year at 2.4% — in line with previous estimates — and won’t hit the Fed’s 2% target until 2026, while unemployment will edge up to 4% from 3.9%, previously.

Fed Chair Jerome Powell downplayed recent inflation data, which was hotter than expected. He said it does not change the overall story, “which is that of inflation moving down gradually, on a somewhat bumpy road.” He noted the Fed must be careful when starting its rate cuts, which will be sometime later this year, saying officials need greater confidence inflation is moving sustainably lower before easing monetary policy.

Farm bill updates: Following are key components of getting a new farm bill.

• 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 10 years. It appears 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 the Market Access Program (MAP) and Foreign Market Development Program (FMD), but back-loaded due to current Regional Agricultural Promotion Program (RAPP) funding (see 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: The 2008 Farm Bill cut a total of $7.5 billion from Titles 1 (Commodities) and 12 (Crop Insurance) and increased Titles 2 (Conservation) and 4 (Nutrition) by more than $14 billion. The 2008 Farm Bill was the only one of the last five where both Chambers were controlled by Democrats.
 

Huge demand for RAPP... The 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.

Brazil overtook the U.S. last year as the world’s top exporter of corn, after years earlier doing the same for soybeans, and it looks to do so this year for cotton. Russia years ago surpassed the U.S. on wheat exports.

Biden administration finalizes strict emissions rules for light-duty vehicles, pushing EV transition... The Environmental Protection Agency (EPA) finalized regulations requiring automakers to increase EV sales while reducing carbon emissions from gasoline-powered vehicles. Notably, the rule offers flexibility for automakers, delaying stricter EV requirements until after 2030 to address concerns from labor unions. The new rules apply to light-duty vehicles — cars, sport-utility vehicles and most pickup trucks — for model years 2027 through 2032. For model-year 2032, though, EPA stuck to the endpoint it originally proposed, which requires that carbon emissions from new vehicles be cut nearly in half from those that go on sale in 2026.

The new rule allows manufacturers to include hybrid EVs and plug-in hybrids for meeting the requirements, in addition to battery powered EVs.

EPA estimates that the rule will prevent billions of metric tons of carbon emissions and save thousands of lives annually from reduced air pollution. To hit the targets for model-year 2030, for example, an estimated 31% to 44% of new light-vehicle sales would need to be electric, rather than the 60% mark originally proposed. The total percentage would depend on the level of tailpipe pollutants from the rest of the vehicles sold, which would be a combination of gas-electric hybrids and traditional gas- or diesel-powered vehicles.

Automakers that can’t meet the emissions targets can buy credits from those that are in compliance. Under EPA rules, if credits aren’t available for purchase, car companies could be forced to reduce sales of gas-powered vehicles.

In the next few weeks, the Department of Transportation is expected to finalize new emissions standards for heavy-duty vehicles such as buses and freight-carrying trucks.

Bottom line: The EPA measure is one of several rules governing vehicle pollution and fuel economy. Automakers also must hit fuel-economy requirements established by the Transportation Department, with EVs getting credit based on a just-updated Energy Department formula.

House lawmakers urge 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.

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 central 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 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.