Inflation Report: Hotter Than Expected

Thompson to Politico: House GOP Farm Bill Markup by Memorial Day

— Annual inflation rate in the U.S. accelerated for a second straight month to 3.5% in March 2024 from 3.2% in February, above market forecasts of 3.4%. Compared to the previous month, the CPI rose 0.4%, the same as in February but above forecasts of 0.3%. The index for shelter and gasoline contributed over half of the monthly increase in the index for all items. The Bureau of Labor Statistics also said on Wednesday that core inflation, which excludes changes in food and energy costs, remained at 3.8%. Economists had expected a core rate for March of 3.7%.

     Impact: This will clearly adjust market expectations on Fed rate cuts and underscores the cautions expressed by Fed officials over inflation. Investors reacted sourly to the CPI report, as S&P 500 futures fell and yields for 10-year U.S. government bonds jumped more than 10 basis points (the value of bonds and their yields move inversely).

— Equities: Asian and European stock indexes were mixed overnight. U.S. stock indexes are pointed toward steady to mixed openings. In Asia, Japan -0.5%. Hong Kong +1.9%. China -0.7%. India +0.5%. In Europe, at midday, London +0.6%. Paris +0.5%. Frankfurt +0.8%.

— The Shanghai Futures Exchange (SHFE) will impose trading limits on its gold and copper contracts, it said on Wednesday, following sharp price rallies by both metals, according to Reuters. The exchange set the maximum intraday position opening volumes of gold at 2,800 lots and copper at 2,000 lots. The change will start from April 12. The most-traded SHFE gold contract hit a fresh record of 560.88 yuan ($77.55) per gram on Wednesday, up 16% from the beginning of the year. The record followed a global price uptrend amid a favorable mix of emerging inflationary risks and geopolitical tensions which have underpinned the safe-haven metal. The Shanghai International Energy Exchange (INE) will also impose trading limits on crude oil futures contracts from April 12, it said in a separate notice on Wednesday. The maximum intraday position opening volume is set at 3,200 lots for each contract. ($1 = 7.2328 Chinese yuan renminbi)

— Costco has ventured into the gold market, selling 1-ounce bars of nearly pure 24-karat gold since late summer 2023. This move coincides with a surge in gold prices, which have risen by over 13% in 2024 alone. Analysts at Wells Fargo project that Costco's revenue from these gold bars could be as high as $100 million to $200 million per month due to strong sales. Edward Kelly, an equity analyst at the bank, attributes this success to Costco's competitive pricing and high level of customer trust.

— Fitch changed China’s credit outlook to negative from stable, citing increasing risks to its public finances as the country contends with more uncertainty. The country’s A+ rating was affirmed, supported by still solid growth prospects. The yuan shrugged off Fitch’s warning, trading little changed, while Asian stocks saw mild gains ahead of key U.S. inflation data this morning that will provide fresh clues about the Fed’s outlook on interest rates.

      Fitch said it expects China’s government to increase debt as it tries to pull the world’s second-largest economy out of a slowdown driven by the property sector. China’s government said the rating failed to reflect the “positive role of fiscal policies in promoting economic growth.” Moody’s, another ratings agency, also cut China’s outlook to negative in December.

— Wheat leads overnight price gains. Grain and soy futures firmed amid corrective buying overnight, led by HRW wheat contracts. As of 7:30 a.m. ET, corn and soybean futures were trading 2 to 3 cents higher, SRW wheat was 7 to 8 cents higher, HRW wheat was 12 to 15 cents higher and HRS wheat was mostly a dime higher. The U.S. dollar index was around 100 points lower, and front-month crude oil futures are around 50 cents higher. 

— Corrective recovery continues in cattle futures. Cattle futures posted strong corrective gains for a second straight day on Tuesday, though the market still hasn’t clawed back all of last Friday’s losses and is well below where the market finished on March 28. More strong corrective gains and a high-range close for the week are needed to suggest a low is in place.

— Cash hog index picking up steam. The CME lean hog index is up another 83 cents to $87.88 as of April 8. The index has risen an average of 68.25 cents the last four days, accelerating the seasonal climb. Expiring April lean hog futures finished Tuesday $2.72 above today’s cash quote, suggesting traders don’t anticipate any letup in the cash market near-term.

— Ukraine ships corn, wheat to China. Ukraine has shipped 360,000 MT of corn and 65,000 MT of wheat to China so far this month, according to Spike Brokers. The export data firm says a total of 600,000 MT of Ukrainian corn could be shipped to China this month, with another 400,000 MT of corn likely to be exported in May.

— Russia seizes assets of AgroTerra. Russia has seized companies belonging to agricultural firm AgroTerra and placed them under temporary management, according to a decree signed by President Vladimir Putin. Monday’s decree listed AgroTerra assets being placed under temporary management of Rosimushchestvo, Russia’s federal property management agency. The company, which is a producer and supplier of mass commodity crops and specialty, value-added crops to top food processors, said it was operating as usual and that its primary focus was the ongoing planting campaign.

— Modest changes expected in April WASDE Report. USDA is expected to make relatively modest changes to its domestic usage forecasts in Thursday’s Supply & Demand Report. On average, analysts expect ending stocks to decline 70 million bu. for corn, rise 2 million bu. for soybeans and increase 17 million bu. for wheat. Globally, focus will remain on South American production, though USDA will likely remain above many private crop forecasts and Conab with its Brazilian crop estimates.

— USDA confirms BIAV in New Mexico dairy cattle. USDA’s Animal and Plant Health Inspection Service website shows the H5N1 virus, Bovine Influenza A Virus (BIAV) as we now refer to it, was detected at two dairy farms in New Mexico. That brings the total number of confirmed BIAV cases to 20 in six states – Texas (9), New Mexico (4), Kansas (3), Michigan (2), Ohio (1) and Idaho (1).

— NCBA criticizes USDA/NASS decision to halt vital cattle industry reports. The National Cattlemen’s Beef Association (NCBA) has expressed strong criticism of USDA’s National Agricultural Statistics Services' decision to halt the publication of the July Cattle Report and discontinue County Estimates for Crops and Livestock, among other changes. These reports are deemed essential for the cattle industry, providing vital data, and the decision to terminate them is seen as deeply misguided by the NCBA.

     Background: NASS said it is canceling the July Cattle report and discontinuing the Cotton Objective Yield Survey, as well as all County Estimates for Crops and Livestock beginning with the 2024 production year. The decision to discontinue these surveys and reports, NASS said, was not made lightly, but was necessary, given appropriated budget levels.

     NCBA accuses NASS of contradicting its commitment to transparency in livestock markets by discontinuing reports that contribute to that transparency. While NASS may try to attribute the decision to congressional appropriators, the NCBA believes that halting these reports will not lead to significant cost savings for USDA. They argue that cattle producers understand the importance of these reports and call upon NASS to reverse its decision promptly.

     In summary, NCBA urges the USDA/NASS to uphold its mission of delivering timely, accurate, and useful statistics to serve the U.S. agriculture industry by rescinding the decision to cease the publication of critical cattle industry data.

     Comments: Some veteran USDA watchers think NASS officials should be asked why the Cattle publication was selected rather than a score of other USDA reports. Also, this isn’t the first time NASS has selected the Cattle report for exclusion, only to have it return following additional funding.

— President Joe Biden said he’s still considering unilateral action to shut the southern U.S. border, and studying whether he has legal authority to do that without congressional approval. “We’re examining whether or not I have that power,” he said in an interview with Univision Noticias broadcast Tuesday. “There’s no guarantee that I have that power all by myself without legislation. And some have suggested I should just go ahead and try it. And if I get shut down by the court, I get shut down by the court. But we’re trying to work that, work through that right now.” Biden said in the Univision Noticias interview that the U.S. doesn’t have enough staff to interview asylum claimants or enough Border Patrol officers.

— President Joe Biden said Benjamin Netanyahu’s approach to Gaza was a “mistake” — his strongest rebuke yet of Israel’s prime minister— during a television interview. He also urged Israel to pursue a ceasefire and called an Israeli drone attack that killed aid workers in Gaza last week “outrageous.” Biden previously maintained that it was Hamas’ responsibility to agree to a truce.

— Sen. Ben Cardin (D-Md.) announced that a third channel at the Port of Baltimore will open this month, following the collapse of the Francis Scott Key Bridge two weeks ago. This development comes as part of efforts to restore operations at the port, with hopes that the entire channel will be cleared by the end of May. Cardin, along with Maryland's congressional delegation and Governor Wes Moore, discussed plans for federal aid to cover the full cost of a new bridge to replace the collapsed one.

     Cardin emphasized that federal funds would cover the entirety of the bridge replacement costs, drawing parallels to previous instances such as the Interstate 35W bridge collapse in Minnesota. He expressed bipartisan support for the proposed legislation, noting cooperation from Republicans.

     The legislation aims to ensure that federal taxpayers bear the financial burden, with any funds recovered from liable parties or insurance being directed towards taxpayers. However, this will not delay the bridge replacement efforts.

— Import cargo to hit 2 million containers for first time since last fall. The Global Port Tracker report indicates that next month's inbound cargo volume at major U.S. container ports is anticipated to surpass 2 million units for the first time since last fall, despite new challenges in the supply chain. The National Retail Federation and Hackett Associates released the report, highlighting that U.S. imports continue to rise despite disruptions at U.S. ports, such as the recent shutdown of the Port of Baltimore due to a bridge collapse. Cargo originally destined for Baltimore is being redirected to other East Coast ports, such as New York/New Jersey and Virginia. Additionally, rerouting around the Red Sea and Suez Canal following earlier attacks on vessels, alongside increased vessel speed and additional vessels, has helped stabilize supply chains within a short period. However, any further strain on capacity could have serious implications for the market.

     In February, U.S. ports handled 1.96 million Twenty-Foot Equivalent Units (TEU), marking a slight decrease from January but a significant increase from the previous year. While March's numbers are yet to be reported, it's projected to be lower due to the impact of the Lunar New Year but still higher year over year. April is forecasted to see a rise in TEU, reaching 1.93 million, with May expected to hit 2.04 million, the highest level since last October. The first half of 2024 is expected to total 11.7 million TEU, marking an 11% increase from the same period last year, while imports in 2023 totaled 22.3 million TEU, down from 2022.

— Malaysia's largest port is set to double its capacity, aiming to rival Singapore as a regional hub. The ambitious expansion, valued at over $8 billion, is in response to shifting supply chains, including a trend away from reliance on China. The executive chairman of the port operator highlighted that much of this supply chain realignment will focus on Southeast Asia. Link for details via Nikkei Asia.

— The U.S. has authorized the sale of $138 million worth of air defense equipment to Ukraine in response to ongoing Russian air attacks on Ukrainian cities. This approval comes amid delays in a broader assistance package awaiting a vote in the House of Representatives, a vote that if it occurs and attracts more votes from Democrats than Republicans will test the fate of current House Speaker Mike Johnson (R-La.).. Secretary of State Antony Blinken cited an "emergency" situation necessitating the immediate sale of the equipment to bolster Ukraine's defense capabilities.

— Rep. Tom Cole (R-Okla.) was unanimously elected by the House Republican Steering Committee to be the next chair of the House Appropriations Committee, succeeding Rep. Kay Granger (R-Texas) who is retiring later this year. Cole, who currently chairs the House Rules Committee, is a veteran Republican known for his influence within the party establishment. He has been active behind the scenes in the Appropriations panel throughout this Congress.

— Crop insurance improvement bill introduced in Senate. The Federal Agriculture Risk Management Enhancement and Resilience (FARMER) Act seeks to improve crop insurance affordability by increasing premium support for the highest levels of coverage and enhancing the Supplemental Coverage Option (SCO). Introduced by committee member Sen. John Hoeven (R-N.D.), the FARMER Act seeks to: 

• increase premium support for certain revenue protection and yield protection policies at the 80% coverage level from 68% to 77% and at the 85% coverage level from 53% to 68%;
• increase premium support for the SCO, an area-based plan, from 65% to 80% and increase the SCO coverage level from 86% to 90%; and
• direct the Risk Management Agency to conduct a study to improve the effectiveness of SCO in counties larger than 1,400 square miles.
   

     Links: A summary and the full bill text of the legislation can be found here and here, respectively. Statements of support can be found here.

     Of note: Hoeven says the bill has been scored by CBO to cost $4.2 billion. Hoeven argues his new crop insurance plan will cost “a fraction” of what the federal government would have to pay out in ad hoc disaster assistance for producers. Some details of this topic will likely show up in the coming House GOP farm bill proposal coming before Memorial Day (see next item). No Democrats have signed onto the bill so far.

— House farm bill markup seen before Memorial Day: Ag Chair Thompson. House Agriculture Committee Chairman GT Thompson (R-Pa.) expects that his panel will vote on a farm bill package before the end of May. Thompson told Politico he is "anticipating a markup before Memorial Day. I’m excited. It’s all coming together." The report indicated the timeline is planned even if there is no immediate floor time for a vote in the full House.

     Comments: The key will be how additional funding for this and other GOP farm bill wishes will be paid for. If it involves, as expected, changes to the Thrifty Food Plan, the measure will not get to the White House for signature. Republicans are circulating a one-pager (link/pdf) on the Thrifty Food Plan proposal among some Democrats and key stakeholders. House Ag Democrats are slated to meet late this afternoon for ranking member David Scott (Ga.) to brief members on the recently finalized GOP proposal for nutrition. Voting keys are (1) whether any Ag Committee Democrats vote for the GOP plan during the panel markup and (2) whether there are enough votes in the full House to clear the measure. Food stamp-related language has tripped up some prior farm bills. But with the U.S. debt rising $1 trillion every 100 days and interest on the debt taking 30 cents out each dollar in revenue, the overall cost of the farm bill could take on more importance if and when it gets to the House floor for debate. As noted many times previously, lawmakers and staffers have said they would be creative in finding additional funding to temper opposition of others. We will soon find out how creative and practical the tactics are in resolving lingering funding issues. In the Senate, Majority Leader Chuck Schumer (D-N.Y.) notably left the farm bill off a recent list of his legislative priorities for the next few months.

— USDA finalizes rule updating the types of foods that can be purchased through WIC. Dairy groups are not happy. USDA finalized a rule that updates the types of foods eligible for purchase through the WIC program, a federal initiative supporting low-income women and young children. The aim is to provide more flexibility at grocery stores and promote fruit and vegetable consumption, but it also reduces the monthly allowance for certain foods, particularly dairy products. This reduction has drawn criticism from dairy industry groups such as the International Dairy Foods Association (IDFA) and the National Dairy Producers Federation (NMPF), who argue that it contradicts the goal of ensuring consistent and equitable access to healthy foods. NMPF's president Gregg Doud expressed concern over the reduction in access to essential dairy nutrients. IDFA president Michael Dykes, while critical of the reduction in dairy allowances, acknowledged the rule's authorization of lactose-free milk purchases and new flexibilities for yogurt and cheese. Conversely, nutrition advocacy groups like the National WIC Association welcomed the rule, praising USDA's adherence to science-based standards and urging prompt implementation.

— USDA seeks feedback on bioengineered food disclosure rules. USDA issued a notice in the Federal Register (link) seeking feedback on potential amendments to the electronic or digital link disclosure option within the National Bioengineered Food Disclosure Standard.

     This proposed rule focuses on eight specific issues and specifies that comments should only address these matters. When the standard initially rolled out, USDA acknowledged challenges with accessing electronic notifications and implemented a text option, which faced legal challenges. Consequently, USDA is now seeking input to address these issues. USDA had previously planned to remove the text option by November 2023, as indicated in its regulatory agenda.

 The Agricultural Marketing Service (AMS) is specifically seeking comments on challenges related to accessing information on the bioengineered status of foods via electronic or digital links, preferences for consumer-friendly options and their location, smartphone ownership statistics among consumers, broadband availability in retail settings, consumer usage patterns of bioengineered or electronic disclosures, the advantages of electronic or digital link disclosures, usage by small businesses, and the time required to update labels.

   Comments must be submitted by June 10.

— Wall Street investors are utilizing sheep grazing as a method to maintain the grass around solar panel installations, the Financial Times reports (link/paywall). This initiative aims to enhance the green credentials of these investors while also gaining local support for renewable energy projects. The use of sheep for grazing has increased significantly in recent years, with ranchers across the United States benefiting from contracts with solar energy companies.

     The American Solar Grazing Association reports a tenfold increase in the number of solar power sites using sheep for grazing, estimating that around 80,000 sheep now graze approximately 100,000 acres across 27 states. The sheep help to manage vegetation around the solar panels, accessing areas that lawnmowers struggle to reach. Other livestock such as goats, cows, pigs, and horses are not recommended due to safety concerns for the solar arrays.

     Financial backing from major firms like Berkshire Hathaway and DE Shaw Renewable Investments has supported the growth of this initiative, providing opportunities for sheep farmers who have faced declining revenues in recent decades. Solar grazing represents a significant income source for the sheep industry, which has had to diversify to survive.

    The strategy: The partnership between solar power companies and farmers often begins on a local level, with neighboring farmers approaching solar sites with inquiries. This grassroots collaboration benefits both parties, as farmers gain income while solar companies benefit from effective vegetation management.

     However, challenges remain, such as difficulty securing bank loans for small operators and concerns about equipment damage and cost effectiveness.

— Iowa Governor Kim Reynolds signed a new law regarding regulations on foreign ownership of farmland in the state. The law aims to increase reporting requirements and impose harsher penalties for violations related to foreign ownership of agricultural land.

          Key points:

• New reporting requirements and penalties: The law introduces stricter reporting requirements for foreign-owned agricultural land and imposes heavier penalties for violations. Foreign landowners are now required to provide detailed information about their landholdings in other states exceeding 250 acres. Failure to report holdings every two years could result in fines of up to $10,000 per violation. Additionally, failure to disclose leases or purchases of farmland by foreign entities could lead to fines of up to 25% of the property's value per violation.
• Increased oversight powers: The law grants the state attorney general, Brenna Bird, enhanced oversight powers, including the ability to subpoena financial records and land purchase agreements from foreign landowners for investigations into potential violations of foreign farmland owner restrictions.
• Rationale behind the law: Governor Reynolds and supporters argue that Iowa's strong laws restricting foreign farmland ownership are crucial for protecting American agriculture. Reynolds emphasizes that Iowa's fertile soil and high production capacity make it a prime target for foreign entities seeking to gain an advantage in the global market. The governor contends that stricter regulations are necessary to combat evolving threats to American agriculture, particularly from countries like China.
• Reaction and enforcement: Governor Reynolds and Attorney General Bird encourage Iowans to report any instances of improper foreign ownership of farmland in the state. Bird assures that her office will investigate such reports and emphasizes the importance of enforcing the new law to safeguard Iowa's farmland.
• Foreign landownership statistics: According to 2022 data from USDA, foreign investors currently hold nearly 514,000 acres of agricultural land in Iowa, accounting for approximately 1.6% of the state's total privately held agricultural land. Canada and Italy are identified as the largest foreign owners of Iowa land, with China having a relatively minor presence.
   

— Biden admin sets first national standard for 'forever chemicals' in U.S. drinking water. The Biden administration has implemented the first national standard to restrict harmful "forever chemicals" found in nearly half of the drinking water across the United States. This rule has been hailed by some environmentalists as a significant breakthrough and a historic change that can safeguard human health. Under the new regulation, water utilities are required to filter out five of over 12,000 types of these persistent chemicals. Despite their use in products to repel water and oil, forever chemicals persist in the environment and accumulate in the human body, leading to various health issues such as cancer, thyroid disease, reproductive problems, and heart damage. According to the CDC, these chemicals are present in the blood of nearly 97% of all Americans.

— Arizona’s Supreme Court revived a law from 1864 that criminalizes abortions except when a mother’s life is in jeopardy. There is no exception for victims of rape or incest. It carries a penalty of up to five years of imprisonment for providers. The state’s 15-week abortion ban will stay in place until a lower court hears more challenges to the law. The ruling indicated the ban cannot be retroactively enforced, and the court stayed enforcement for 14 days. Democratic Gov. Katie Hobbs issued an executive order last year giving all power to enforce abortion laws to the state attorney general instead of county prosecutors. Attorney General Kris Mayes, also a Democrat, has vowed not to prosecute any abortion case, and she reaffirmed that position Tuesday. “No woman or doctor will be prosecuted under this law as long as I am attorney general," Mayes said. "Not by me, nor by any county attorney serving in our state, not on my watch.” One effect of the ruling could be more support for a ballot measure in the works for this year to put abortion access into the Arizona Constitution. Advocates say they've already got more than 500,000 signatures, well above the threshold of 383,923 signatures needed by an early July deadline.

     Bottom line: The case is the latest high-profile example of the battle over abortion access that has played out across several states since the U.S. Supreme Court struck down Roe v. Wade in June 2022. The ruling came a day after Donald Trump said abortion should be left to individual states. Some political analysts say it could upend November’s election in the battleground state.

— Push for presidential debates. Five major U.S. television networks are joining forces to urge President Joe Biden and former President Donald Trump to commit to participating in televised debates for the upcoming 2024 election. The networks, including NBC, CBS, ABC, Fox News, and CNN, are seeking a public commitment from the presumptive nominees to engage in general election debates, allowing them to share their visions for the nation's future. While Biden has not yet publicly committed to debating Trump, he hasn't ruled it out, citing concerns about Trump's behavior. In contrast, Trump has expressed willingness to debate under any circumstances.

— NWS weather: Heavy rain, flash flooding and severe weather threat associated with an intensifying low pressure system will sweep across the Arklatex region today, reaching into the interior South tonight... ...The low-pressure system will bring an expanding heavy rain and high wind threat into much of the eastern U.S. on Thursday with severe weather threat across the Southeast and upper Ohio Valley... ...High winds along with widespread moderate to heavy rain expected to impact the entire Eastern Seaboard into the Great Lakes Thursday night into Friday morning.

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