Evening Report

Posted on Fri, 02/14/2020 - 15:07

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Pro Farmer newsletter now available!... Questions remain about China’s Phase 1 purchase commitments due to the coronavirus outbreak, which has limited buying in some markets. But the surge in Chinese inflation means we expect it will soon need to ramp up imports of pork and other protein sources. USDA could shed more light on how purchases might play out at its Ag Outlook Forum next week. Attention is also on South America, where crop prospects are climbing and soybean harvest is underway. There’s no need to wait for the mail. You can access this week’s letter here.

 

Happy Presidents Day…. Markets and government offices will be closed Monday for the holiday. We’ll resume our daily Pro Farmer schedule on Tuesday.

 

EPA to announce a response to recent court decision striking down waivers by March 9… EPA is holding discussions with the White House regarding how to respond to a recent U.S. appeals court decision saying it must reconsider three “hardship waivers” it gave to oil refineries that exempted them from their Renewable Fuel Standard blending obligations, a source familiar with the matter told Reuters. The court ruled that for the waivers to have been valid, they would have had to be extensions of previous waivers. They were not. This calls into question many exemptions the agency has issued in recent years. The source indicated EPA will announce a response to the decision by March 9.

 

Abiove raises its Brazilian soybean crop estimate, but lowers exports… Brazilian crush organization Abiove raised its estimate of Brazil’s soybean crop to 123.7 MMT, a 900,000-MT increase from its January forecast. But the group cut its 2020 soybean export forecast by 1.5 MMT to 73.5 MMT, noting the U.S./China trade agreement. Abiove said it does not expect the outbreak of coronavirus in China to curb shipments of the oilseed.

Abiove is now calling for Brazil to process a record 44.5 MMT of soybeans in 2020, which is a 500,000 MT increase from its January projection. It expects Brazil to export 16.2 MMT of soymeal, a 900,000-MT increase from its previous outlook, based on strong global consumption.

 

EU lifts its brief ban on EU poultry… Ukraine’s deputy economy minister today announced that the European Union had lifted its ban on poultry meat from Ukraine. The ban had been introduced in January after Ukraine reported an outbreak of highly pathogenic bird flu. The official did not specify when Ukraine would be able to resume deliveries. Ukraine is a major supplier of poultry meat to Europe.

 

USDA updates long-term projections, but still using pre-trade deal assumptions… USDA updated its ag projections to 2029 that were initially released in November, but today’s update offered little “new” information and it did NOT consider recent major trade deals. The department detailed: “Short-term projections in this report commence with the October 2019 USDA World Agricultural Supply and Demand Estimates report, and most of the narrative reflects expectations at that time. Recent trade deals or discussions such as the Phase 1 deal with China, the USMCA agreement, and a Japan-U.S. free trade agreement were not considered for these projections. The macroeconomic assumptions were completed in August 2019. These projections assume that the agricultural sector will continue to adjust to the China-U.S. trade tensions as they existed in October 2019 (which were assumed to last the duration of the projection period).”

USDA goes on to say this this assumption results in an expected shift away from U.S. soybean plantings due to lower returns relative to corn.

These long-term projections are primarily a budgetary exercise. USDA may delve into how recent trade deals impact its balance sheet at its Ag Outlook Forum late next week.

 

The IHS Markit Materials Index (industrial commodities) fell to the lowest level since 2017… William May, senior economist for pricing and purchasing with IHS Markit, said: “The key question for commodity demand remains the same one posed last week — how long do Chinese factories remain idle? Estimates range widely, but for regions less affected by the coronavirus in the north and west, the outlook for something close to normal production resuming across February seems increasingly likely. Indeed, closer to the epicenter of the outbreak, the Shanghai government claims that up to 70% of manufacturing enterprises have resumed operations in the greater metropolitan area.

“Better news is that the number of newly confirmed cases outside Hubei province has declined for six consecutive days to Feb. 9, providing hope that the government’s clampdown is containing the virus. If this indeed proves to be the case, markets will calm, with prices potentially recovering some of their recent losses even by the end of February.”

 

Major barge line files for Chapter 11… Last Friday, the USDA American Commercial Lines, filed for Chapter 11 bankruptcy. Several news outlets reported creditors for the carrier had previously been arranged regarding a restructuring plan that included $1 billion of debt reduction. A 2019 report from IEG Vantage shows ACBL owns 2,497 (19%) of the U.S.’s jumbo covered barges that are used for grain transport. The sector has struggled with navigational challenges and trade-related shipping disruptions.

 

Chicago Fed Bank sees slight rise in banker optimism… Central Corn Belt ag bankers responding to the Chicago Federal Reserve’s fourth-quarter survey “sounded more optimistic than a year ago,” reports David B. Oppedahl, senior business economist with the bank, who conducts the quarterly survey. The slight gain in optimism comes “even though the results for farmland values mirrored those from the fourth quarter of 2018.”

In the fourth quarter of 2019, Indiana and Iowa saw year-over-year increases in land values of 2%, while Illinois and Wisconsin had annual decreases of 1% and 2%, respectively. Oppedahl notes Michigan farmland values seemed to be flat, but not enough Michigan bankers responded to provide a conclusive result.

After adjusting for inflation, district farmland values eased a little more than 1% on an annual basis in 2019. “In real terms, the decrease in 2019 was smaller than the one in 2018 because of a dip in inflation This was the sixth straight annual real decline,” Oppedahl observes. Get more details here.

 

Major hurdle for Trump Fed nominee… Republican senators dealt a blow to one of President Donald Trump’s nominees to the Federal Reserve Board when they raised concerns over her writings and public statements at a confirmation hearing. Lawmakers of both parties on the Senate Banking Committee said they were uncomfortable with at least some of Judy Shelton’s policy preferences. Senate Democrats are in agreement that Shelton, a conservative commentator, was too radical to be placed on the Fed board.

They cited years of her writings favoring the gold standard and devaluation of the dollar as an acceptable goal of monetary policy. White House officials said later Thursday they were confident Shelton would overcome any lingering doubts to win Senate backing and disputed a report that said she would withdraw from consideration.

Shelton defended her writing, saying she had been “intellectually consistent” if not part of the “mainstream.” She said she would work closely with her Fed colleagues and act to make sure the Fed was independent from political interference. “I think the intellectual diversity would strengthen the discussion,” she said.

Trump has also nominated Christopher Waller, the director of research at the St. Louis Fed, to the Fed board. Waller’s nomination is not considered controversial.

 

Senate votes to block Trump from further attacks on Iran… Senators passed, as amended, the legally binding measure from Senator Tim Kaine (D-Va.) by a vote of 55-45. The final vote included eight Republicans voting in favor. The privileged resolution, offered under the 1973 War Powers Act, would require Trump to immediately end any hostilities against Iran without a vote of Congress. It comes amid continuing fears about the prospects for war following the early January targeted drone killing by the United States of Iran’s top military commander, Major General Qassem Solemani. The measure now goes to the House where it is expected to easily pass.

However, Trump is expected to veto the resolution and supporters of constraining his ability to unilaterally attack Iran lack the two-thirds vote necessary in both chambers to overturn such a veto.