First Thing Today | December 21, 2021
Two-sided trade overnight... Price action in grain and soy futures was relatively quiet overnight. As of 6:30 a.m. CT, corn futures are steady to fractionally lower, soybeans are 2 to 3 cents lower, SRW and HRS wheat futures are mostly 1 to 3 cents lower, while HRW futures are 1 to 3 cents higher. Front-month crude oil futures are around $1 higher and the U.S. dollar index is about 125 points lower.
Consultant cuts most South American crop forecasts amid dryness concerns... Expanding dryness is a building concern across southern Brazil, northern and eastern Argentina and Paraguay. As a result, Crop Consultant Dr. Michael Cordonnier broadly cut his South American crop forecasts. In Brazil, he lowered his production pegs by 2 MMT for soybeans to 142 MMT and by 1 MMT for corn to 115 MMT. In Argentina, Cordonnier cut his soybean crop forecast by 1 MMT to 49 MMT but maintained his corn crop estimate at 53 MMT. He also cut his Paraguay soybean crop peg by 1 MMT to 8.5 MMT. Cordonnier maintains a lower bias toward crops in all three countries.
EPA publishes RFS proposals, SRE situation remains uncertain... EPA’s proposed biofuels blending levels announced Dec. 7 under the Renewable Fuel Standard (RFS) for 2020, 2021 and 2022 have now been published in the Federal Register. EPA also continues to note that the situation regarding small refinery exemptions (SREs) remains uncertain. In a separate rulemaking, EPA is proposing to deny all pending small refinery exemptions (SREs), seeking public comment on that proposal. In its RFS rulemaking, EPA again noted that it was “still unclear at this time whether we will be granting SREs for 2020, 2021 or 2022, and if so, to what degree.” Comments on the proposed RFS levels are due Feb. 4 and EPA is holding a public hearing on its plans Jan., 4 (and Jan. 5 if needed) to gather public input. It is not clear when EPA will finalize the RFS levels and there have been changes in the final levels versus proposed levels previously, though typically not significant.
IMF: U.S. tied for highest inflation rate; global debt hits record $226 trillion... The U.S. tied for the highest level of inflation in 2021 among developed economies, the International Monetary Fund (IMF) reported. IMF data found the U.S. and Iceland were at the top of the list of 35 nations for rising consumer prices at 4.3% for both countries. For the rest of the world, Venezuela ranked the highest, with a 2,700% inflation rate, followed by Sudan (194.6%) and Zimbabwe (92.5%).
Supply chains: companies shift from ‘just in time’ to ‘just in case’... Companies around the world have encountered snags in their supply chains during the pandemic and the shipping bottlenecks that have followed. Car production lines have been halted by a lack of semiconductors, liquor distillers have run out of bottles and department stores are short of Christmas stock. Such troubles are forcing a rethink of corporate strategy. For decades, companies prioritized costs above all else when selecting suppliers, building factories and deciding how much stock to keep on hand. This philosophy was often dubbed “just in time.” Companies also moved production to low-wage locations, consolidated orders to maximize economies of scale, and tried to minimize their physical presence in high-tax jurisdictions. During the pandemic, companies are revamping existing supply chain policies to build additional resilience. Some businesses are increasing the inventory they keep on hand and entering into longer term contracts with key suppliers. Others are diversifying their manufacturing to create regional hubs with local suppliers and investing in technology to give them greater advance warning of potential bottlenecks. Some companies are also investigating ways of working with their rivals to share information to develop emergency backup facilities without falling foul of competition regulators.
Next steps after BBB blowup... Senate Democrats have a conference call scheduled tonight at 7 p.m. CT to discuss what’s ahead on the agenda. Focus is whether centrist Sen. Joe Manchin (D-W.Va.) will be on the call. President Joe Biden and Manchin spoke Monday evening. Reports note the call ended with a vague understanding that talks would continue about Democrats’ social spending and climate bill, in some form, in the new year.
Democrats likely need to overhaul plans for EV tax credits — or scrap them all together... The current bill provides a $7,500 consumer tax credit to be made refundable and expanded by $4,500 for electric vehicles (EVs) assembled domestically in union plants with an extra $500 for batteries made in the United States. Sen. Manchin, whose state is home to a non-union Toyota factory, said he is opposed to the union portion of the tax credit. He also wants income limits on the credit.
Administration to allow additional H-2B seasonal guest-worker visas... The Biden administration will make an additional 20,000 H-2B seasonal guest-worker visas available to employers ahead of the winter hiring season, the Department of Homeland Security said. The seasonal-worker program enables U.S. employers to hire as many as 66,000 temporary foreign workers a year. Since 2017, Congress has permitted the department each year to raise that cap by as many as 64,000 additional visas, though neither the Trump nor Biden administrations have approached that limit despite demand.
Interior outlines progress under ‘America the Beautiful’ (30x30) initiative... The Interior Department cited conservation investments through the 2021 bipartisan infrastructure law and the 2020 Great American Outdoors Act, as well as administrative actions to restore protections to three national monuments, among its 2021 accomplishments in a conservation progress report released yesterday. Interior also pointed to its efforts to jumpstart new reviews designed to boost protection of Alaska’s Bristol Bay; Tongass National Forest and the Arctic National Wildlife Refuge; Boundary Waters Canoe Wilderness in Minnesota; and Chaco Culture National Historical Park in New Mexico. Interior announced it would restart a federal advisory committee — the Hunting and Wildlife Conservation Council — to provide recommendations on advancing habitat conservation. The initiative is to protect 30% of the country’s lands and waters by 2030 and focus more on conservation overall.
GAO: USDA overpaid MFP payments to corn farmers... USDA overpaid corn farmers in 2019 by around $3 billion for impacts from former President Donald Trump’s trade policies, in part because the agency over-estimated the value of lost export business, according to U.S. Government Accountability Office (GAO). While Market Facilitation Program (MFP) payments to corn farmers exceeded USDA’s final estimated damages from the trade war, soybean, sorghum and cotton farmers received less than the estimated trade damage, the report found. GAO recommended USDA’s Office of the Chief Economist (OCE) be more transparent in its methodology process, as well as revise its processes for assessing the baselines by which farmers are granted aid. OCE disagreed with the report’s findings and said its team did their job, that GAO’s recommendations should not be aimed at OCE and that the problem was with policy decisions in which it was not involved, according to an Oct. 21 letter it sent to GAO.
CFAP 2 payouts edge higher... Payouts under the Coronavirus Food Assistance Program 2 (CFAP 2) increased to $19.06 billion as of Dec. 19, up from $19.04 billion the prior week. The increase was in original CFAP 2 payments, which are now shown at $14.24 billion, up from $14.22 billion the prior week. There was no major change reported in the top-up payments, which are at $4.82 billion. CFAP 1 payments are now shown at $11.74 billion, down slightly from the prior week when they were at $11.75 billion. Original CFAP 1 payments are at $10.56 billion, essentially steady with the prior week with top-up payments at $1.19 billion, also basically steady.
Sluggish start to beef trade... Choice boxed beef prices dropped 63 cents, while Select firmed $2.30 on Monday. Only 93 loads of product changed hands on the day. Beef trade is likely to be sluggish through year-end as many retailers will wait to see what they need to restock after the holidays before buying. To signal a low, retailers need to be able to raise prices and see movement strengthen.
Cash hog index firms... The CME lean hog index is up 60 cents today to $72.93. That’s the highest the index has been since Nov. 22, further indicating a seasonal low is in place. February hogs dropped $1.325 on Monday but still finished $6.545 above today’s index quote, roughly $1.50 more than the five-year average increase into mid-February over the past five years.
Overnight demand news... Turkey purchased 320,000 MT of milling wheat from unspecified origins.