Evening Report | April 11, 2024

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USDA’s modest changes fail to provide bullish spark... USDA cut corn ending stocks 50 million bu., though that was less than traders expected. Soybean and wheat carryover were raised 25 million bu. each. On the global side, USDA made modest changes to the 2023-24 ending stocks forecasts. The lack of a bullish surprise failed to trigger buyer interest. In fact, futures faced pressure after the report data. Click here to view full report details.

Exchange cuts Argentine crop estimates... The Buenos Aires Grain Exchange cut its Argentine soybean and corn crop estimates, citing dry conditions and disease pressure. The exchange cut the soybean crop by 1.5 MMT to 51 MMT. It reduced its corn production forecast by 2.5 MMT to 52 MMT.

BIAV detected in South Dakota... USDA confirmed a case of Bovine Influenza A Virus (BIAV) in a dairy herd in South Dakota. This is the eighth state where BIAV has been detected – Texas (9), New Mexico (4), Kansas (3), Michigan (2), Ohio (1), Idaho (1), North Carolina (1) and South Dakota (1).

Transition to ENSO-neutral and eventually La Niña underway... During March 2024, sea surface temperature anomalies continued to weaken across most of the equatorial Pacific Ocean, reflecting a continued weakening of El Niño. The U.S. Climate Prediction Center (CDC) says there are 85% odds of a transition to ENSO-neutral (neither El Niño nor La Niña) during the April-June period, with a 60% chance of La Niña developing in the June-August timeframe and rising from there.

Winter wheat drought footprint expands in Kanas, Oklahoma... As of April 9, the U.S. Drought Monitor showed 38% of the U.S. was covered by abnormal dryness/drought, down three percentage points from the previous week. USDA estimated 18% of U.S. winter wheat areas were covered by drought, unchanged from the previous week but well below 49% on this date last year. General improvements in SRW areas were offset by increased dryness/drought in Kansas and Oklahoma.

In HRW areas, dryness/drought covered 81% of Kansas, 35% of Colorado (only a small area of D0 in wheat-heavy eastern areas of the state), 50% of Oklahoma, 45% of Texas, 28% of Nebraska (mostly in the eastern half of the state), 31% of South Dakota and 91% of Montana.

In SRW areas, dryness/drought covered 68% of Missouri, 19% of Illinois, 6% of Indiana, 0% of Ohio, 68% of Michigan, 25% of Kentucky and 25% of Tennessee.

Click here to view related maps.

Vilsack links China’s reduced ag purchases to U.S. policy shifts... USDA Secretary Tom Vilsack suggests China’s reduced purchases of American agricultural products, particularly corn and soybeans, may be linked to recent actions taken by the U.S., such as restrictions on foreign ownership of American farmland. In an interview with Bloomberg, Vilsack pointed out that China’s agriculture minister mentioned Arkansas’ enforcement of legislation forcing a Chinese-controlled company, Syngenta AG, to sell farmland. This action, taken under laws banning certain foreign entities from owning Arkansas farmland, could be seen as part of a broader pattern of Chinese retaliation against U.S. agricultural products.

Vilsack highlighted that China’s purchases of U.S. agricultural products have decreased by $6 billion compared to the previous year, and he questions whether this decline is solely due to increased purchases from Brazil or if there are other factors at play. He suggests China’s mention of Syngenta in discussions with him was a “signal” of their displeasure with U.S. actions.

Vilsack emphasized the need for the U.S. to diversify its agricultural trade partners beyond China, suggesting closer collaboration with countries in Asia, Africa and Latin America. However, he also expressed the desire to maintain trade relations with China despite current challenges.

Senate leadership joins call for year-round E15 with emergency action this summer... Senate leadership, including Majority Whip Dick Durbin (D-Ill.) and Minority Whip John Thune (R-S.D.), urged the Biden administration to permit the sale of E15 fuel year-round, extending the Reid vapor pressure (RVP) waiver nationwide for the summer driving season (June 1-Sept. 15). They addressed this request to President Joe Biden, EPA Administrator Michael Regan, Energy Secretary Jennifer Granholm and USDA Secretary Tom Vilsack. The lawmakers highlighted ongoing global energy concerns, particularly citing the Russian invasion of Ukraine and Iran-backed aggression in the Middle East, as reasons to support E15 sales. They also pointed out EPA’s decision to postpone the allowance of E15 in eight states until 2025.

Given past practice, it’s expected the Biden administration will grant the emergency action for 2024 as it did in 2022 and 2023. This action typically occurred on the last business day of April.

Of note: The emergency waivers are only valid for 20 days but were renewed during the entirety of the 2022 and 2023 summer driving seasons.

Brazil’s agricultural potential: Expanding cropland and overcoming challenges... According to analysts at FarmDoc, Brazil could increase its crop area by 35%, adding approximately 70 million acres of cropland. This expansion could be facilitated by converting overgrazed and overgrown pastureland, particularly in key agricultural states like Mato Grosso. The analysts emphasize the suitability of degraded pastureland for conversion, which refers to land that is overgrazed, overgrown with weeds and in need of restoration. They note this doesn’t necessarily reflect the productivity of the soil itself.

The potential for expansion isn’t solely reliant on converting pastureland. The analysts suggest intensifying land use for second-crop corn, known as safrinha, which could be grown immediately after the soybean harvest each year. Currently, safrinha corn occupies about 40% of soybean land.

Of note: Challenges such as increasing fuel and fertilizer costs, limitations for credit and storage, an overburdened transportation system and environmental preservation pressures could hinder the long-term growth of Brazilian agriculture. These factors underscore the complexities involved in realizing Brazil’s agricultural expansion potential.

Poland finalizing grain subsidies for farmers... Poland’s government is finalizing a package of subsidies to help farmers affected by low prices, a deputy agriculture minister said. The aid will not be available to grain trading firms. The Polish government wants to allocate about 2 billion zlotys ($503.71 million) to buy wheat, rye, triticale and barley from farmers for sales from Jan. 1 to May 31.

U.S. producer prices increase moderately in March... The producer price index (PPI) for final demand rose 0.2% last month after increasing by an unrevised 0.6% in February. On an annualized basis, PPI rose 2.1%, up from the 1.6% increase in February and the highest since April 2023. Core PPI, minus food and energy costs, rose 2.4% from year-ago.

ECB leaves rates unchanged, as expected... The European Central Bank (ECB) held borrowing costs at a record high of 4.5% but signaled it may soon cut rates. During her press conference, President Lagarde said the ECB is not pre-committed to a particular rate path and future moves will be “data-dependent, not Fed-dependent.” Lagarde said “just a few” members of the Governing Council believed it was already time to loosen policy but agreed to wait. She said ECB would have more information and issue new inflation and growth projections in June.

WTO conference addresses trade policy uncertainty... During a press conference at the World Trade Organization (WTO), Chief Economist Ralph Ossa highlighted the global uncertainty caused by numerous elections in approximately 50 countries, which contributes to fiscal and trade policy uncertainty. Ossa likened WTO’s role to that of a central bank, emphasizing the importance of managing not only trade costs but also expectations regarding those costs. He stressed the significance of a rules-based trading system in reducing trade policy uncertainty compared to a power-based system. This underscored WTO’s challenge in managing trade cost expectations, especially as international commerce transitions toward more digital transactions lacking globally agreed-upon rules.

WTO Senior Economist Coleman Nee elaborated on the forecasts, mentioning the inclusion of an “error range” but acknowledging the difficulty in predicting political variables. Nee highlighted the volatility of trade growth, which could range from as high as 5.8% to as low as minus 1.6% this year, surpassing the volatility of global GDP growth.

Goldman Sachs, Morgan Stanley raise outlook for China’s economic growth... China’s economy likely expanded at a 7.5% annualized pace in the first quarter from the prior three months, Goldman economists led by Hui Shan said in a note Wednesday — higher than their 5.6% prior estimate. The bank now sees 2024 growth forecast at 5%, in-line with Chinese policymakers’ target, versus 4.8% previously. Morgan Stanley also lifted its 2024 growth forecast to 4.8% from 4.2% previously, citing better-than-expected export growth from resilient U.S. demand and robust export volume. Beijing’s increased focus on supply-chain upgrades is also expected to lead to stronger capital expenditures in the manufacturing sector, according to the report.