First House Ag Farm Bill Hearing Shows Battles Ahead Via Political Party Differences

Covid policy reaches a turning point as countries start opening up, changing positions

Market Focus:
• Bank of England raises interest rates for second straight meeting
• Turkey’s annual inflation rate soared to 48.7% in January, a 20-year high
• Coffee prices are getting a jolt
• U.S. in talks with gas producers & importers about potential disruption of Russian supply
• Hopes rising Europe will avoid a winter energy crisis
• Group of Senate Democrats call to limit U.S. exports of natural gas
• Shell announces highest fourth-quarter profits in eight years
• Dangerous travel conditions grounded more than 2,300 U.S. flights yesterday, more today
• Ag demand update
• Price pressure overnight
• Ukraine raises grain export forecast
• Wholesale beef prices continue to weaken
• Pork cutout holding strong

Policy Focus:
• House Ag farm bill hearing on conservation programs provides glimpse into potential battles

Personnel:
• Three Fed nominees set to testify at their Senate confirmation hearing today  
• Toomey: Fed nominee Raskin likely to face ‘significant Republican opposition’

China Update:
• On Friday, Xi hosts Putin and Winter Olympics 2022 opening ceremony begins  
• U.S. export sales to China continue solid for upland cotton, new-crop soybeans

Energy & Climate Change:
• USPS defying Biden’s climate plans by ordering a fleet of gasoline-powered trucks  

Livestock, Food & Beverage Industry Update:
• Another blow to livestock market reform bill as NCBA votes to oppose cash trade mandate
• Global food prices resume climb to near-10-year highs, spurred by record for vegoils 

Coronavirus Update:
• Airline & travel groups urge end of pre-flight Covid test for vaccinated travelers to U.S.
• New Zealand announced plans to reopen its borders in phases
• France allowed workers to return to offices full time Wednesday
• Canadian truckers protesting Covid-19 health restrictions by staging a blockade

Politics & Elections:
• Canada’s opposition leader out 

Congress:
• Sen. Ben Ray Luján (D-N.M.) expected to return to Washington within four to six weeks

Other Items of Note:
• U.S. deploys more troops to Europe
• U.S. announces killing of ISIS leader in raid

Equities today: Global stock markets were mixed overnight. U.S. stock indexes are pointed toward weaker openings. China’s markets are closed this week for the Lunar New Year holiday. Asian equities were mostly lower as some markets reopened after being closed for the Lunar New Year holiday. Markets in mainland China and Hong Kong were still closed. The Nikkei fell 292.29 points, 1.06%, at 27,241.31. Australia’s S&P/ASX was off 9.7 points, 0.14%, at 7,078.0. European equities are mostly lower in early dealings, with the Stoxx 600 down 0.6% while most regional markets were seeing losses of 0.2% to 0.4%.

     U.S. equities yesterday: The Dow rose 224.09 points, 0.63%, at 35,629.33. The Nasdaq gained 71.54 points, 0.50%, at 14,417.55. The S&P 500 was up 42.84 points, 0.94%, at 4,589.38.

On tap today:

     • Bank of England releases a policy statement at 7 a.m. ET. UPDATE: BOE raises interest rates; ECB expected to pause. The Bank of England (BOE) raised interest rates 25 basis points, though four of the nine members voted for a 50-basis-point increase, to contain inflation. BOE said consumer price inflation, which stood at 5.4% in December, now looks set to peak at around 7.25% in April. The BOE also said it would begin slowly reducing the size of its bond-buying program by no longer reinvesting the cash it receives from maturing bonds in its portfolio, the first time a major central bank has embarked on a sustained effort to shrink its balance sheet. Meanwhile, the European Central Bank is expected to keep interest rates unchanged later this morning, despite record consumer and producer price inflation in the bloc.
     • European Central Bank releases a policy statement at 7:45 a.m. ET. UPDATE: The ECB kept policy unchanged as expected on Thursday, curbing stimulus over the coming months but maintaining plenty of support for the economy even after inflation unexpectedly hit a fresh record high.  
     • U.S. jobless claims are expected to fall to 245,000 in the week ended Jan. 29 from 260,000 one week earlier. (8:30 a.m. ET)
     • U.S. labor productivity for the fourth quarter is expected to increase at a 4.4% annual pace from the prior quarter. (8:30 a.m. ET)
     • USDA Weekly Export Sales report, 8:30 a.m. ET.
     • Federal Reserve: Senate Banking Committee holds a hearing for President Biden's nominees to the Federal Reserve — Sarah Bloom Raskin, Lisa Cook and Philip Jefferson — at 8:45 a.m. ET. See related item below.
     • IHS Markit's U.S. services index for January is expected to tick up to 51 from a preliminary reading of 50.9. (9:45 a.m. ET)
     • Institute for Supply Management's services index is expected to fall to 60 in January from 62 one month earlier. (10 a.m. ET)
     • U.S. factory orders for December are expected to fall 0.4% from the prior month. (10 a.m. ET)
     • Reserve Bank of Australia releases a policy statement at 7:30 p.m. ET.

Turkey’s annual inflation rate soared to 48.7% in January, a 20-year high and the highest level since the ruling Justice and Development Party came into power in 2003. Recep Tayyip Erdogan, the president, disagrees with the widely accepted economic belief that higher interest rates temper inflation. He has repeatedly forced the central bank to slash rates, even as inflation has surged.

Coffee prices are getting a jolt. Extreme weather and supply-chain disruptions are driving up costs for coffee sellers and roasters who are passing the pain on to consumers, the Wall Street Journal reports (link). Arabica coffee futures finished 2021 up 76%, the largest annual percentage gain since 2010, after a year when drought, then frost, hammered Brazil, the world’s top coffee-growing region. The surge in prices is dripping down to local coffee shops where higher costs for beans, syrups and to-go cups are prompting menu markups. Nestlé expects to raise prices this year and J.M. Smucker says the disruptions pushed it to boost prices for coffee it sells through the Dunkin’ Donuts, Café Bustelo and Folgers brands. Higher shipping and freight costs are also a factor in the coffee rally, with the Baltic Dry Index up 62% in 2021, its biggest percentage gain since 2016.

Market perspectives:

     • Outside markets: The U.S. dollar index is firmer in action ahead of U.S. economic data, with the euro and British pound weaker versus the greenback. The yield on the 10-year U.S. Treasury note was firmer around 1.79% with a mostly higher tone in global government bond yields. Gold and silver futures were lower ahead of U.S. economic data, with gold around $1,802 per troy ounce and silver around $22.33 per troy ounce.

     • Crude oil futures remain under pressure ahead of U.S. trading, with U.S. crude around $87.30 per barrel and Brent around $88.60 per barrel. Futures were lower in Asian action with U.S. crude around $87.80 per barrel and Brent around $89.20 per barrel.

     • U.S. in talks with gas producers and importers about potential disruption of Russian supply. Bloomberg reports (link) that “the U.S. and its European allies have approached several major natural-gas importers in Asia, including China, about sending their fuel to Europe if a conflict over Ukraine erupts.” According to Bloomberg, Biden administration officials have “spoken to officials in Japan, South Korea and India as well as Beijing,” although “the engagement with China has been limited.” Bloomberg reports that “European and U.S. officials are concerned Moscow may react to any additional sanctions against it in the event of a war by reducing gas flows to Europe, which gets around 40% of its supplies from Russia.” Bloomberg adds that “the White House also is talking to gas producers to see if they can increase output in an emergency. They include Qatar, Nigeria, Egypt and Libya.”

     • Hopes are rising that Europe will avoid a winter energy crisis that some feared would play to Russian President Vladimir Putin’s advantage as Moscow prepares for a possible invasion of Ukraine. The Wall Street Journal reports (link) that a record influx of liquefied natural gas, combined with mild and windy weather, has slowed withdrawals from the region’s heavily depleted underground gas-storage caverns. A boost to flows of gas from Russia via Ukraine is helping, too. Supplies are still slim, but the shortfall compared with previous winters is narrowing and prices are retreating from record highs.

        But note this: Despite efforts to diversify its energy sources, Europe buys much of the gas it needs to generate electricity, heat homes and power factories from Russia.

     • A group of Senate Democrats are calling on Energy Secretary Jennifer Granholm to limit U.S. exports of natural gas "and examine their impact on domestic energy prices." The lawmakers noted that U.S. consumers are facing higher heating bills while the U.S. is exporting record levels of natural gas. The letter to Granholm acknowledged there are "geopolitical factors" at play along with global and regional markets, but they said the Biden administration "must also consider the potential increase in cost to American families because of higher export volumes."

     • Shell announced its highest fourth-quarter profits in eight years. Higher commodity prices and rebounding global economic growth drove adjusted earnings up 55% compared with the previous quarter to $6.4 billion, beating analysts’ forecasts by $1.2 billion. Russia’s decision to restrict supplies to Europe and increasing Chinese imports have driven up prices.

     • Ag demand: Japan purchased 53,957 MT of wheat from its weekly tender, including 26,807 MT from Canada and 27,150 MT from Australia.

     • Dangerous travel conditions grounded more than 2,300 U.S. flights yesterday and thousands more have already been canceled today. More than 100 million people are under winter weather alerts across at least 25 states stretching from the Mexican border to New England as a massive winter storm pummels much of the US. In the South and Midwest, a triple whammy of snow, ice and sleet is hammering the region and could leave many without power. Market impact: the price of natural gas is soaring — causing a spike in home heating costs as millions of Americans crank up the heat to stay warm.

     • NWS weather: An ongoing significant winter storm is expected to impact much of the central and Northeastern U.S. through Friday night... ...There is a Slight Risk of excessive rainfall over parts of the Central Gulf Coast, Tennessee Valley, and Southeast through Friday morning... ...There is a Slight Risk of severe thunderstorms for southern Mississippi into central Alabama through Friday morning... ...Temperatures will be 20 to 40 degrees below average over parts of the Plains and Mississippi Valley; Temperatures will be 10 to 25 degrees above average along the East Coast.

Items in Pro Farmer's First Thing Today include:

     • Price pressure overnight
     • Ukraine raises grain export forecast
     • Wholesale beef prices continue to weaken
     • Pork cutout holding strong

— House Agriculture initial farm bill hearing on conservation programs provides glimpse into potential battles. The initial hearing in the process to write a new farm bill took place Wednesday, with the House Agriculture Conservation and Forestry Subcommittee examining current conservation programs. But the session appeared to focus more on concerns primarily by Republican lawmakers over a potential push for more climate-oriented efforts relative to conservation programs. Those lawmakers argued that adding the climate aspect to these programs cannot take away from their current primary focus. House Agriculture Committee Ranking Member GT Thompson (R-Penn.) said that farmers’ climate efforts do need to be recognized but said the conservation programs in the bill cannot be “repurposed as the climate title.”

     Farm Service Agency (FSA) Administrator Zach Ducheneaux pointed to expanded climate-related efforts under the venerable Conservation Reserve Program (CRP) were boosting interest and enrollment in the program with Natural Resources Conservation Service (NRCS) Administrator Terry Cosby pointing to their efforts to bolster climate-smart agriculture.

     Lawmakers from both parties also raised questions on staffing levels relative to increased activities related to climate.

     Another of the panel’s subcommittees will hold a hearing next week on farm policy with USDA Undersecretary for Farm Production and Conservation Robert Bonnie, a chief architect of USDA’s climate-smart efforts. Given what unfolded in the initial session on reviewing conservation programs, Bonnie’s appearance will likely be as contentious if not more so, especially on the topic of inserting more climate-related activities into U.S. farm policy.

— Toomey: Fed nominee Raskin likely to face “significant Republican opposition.”  In an appearance on CNBC’s Squawk Box, Sen. Pat Toomey (R-Pa.), a member of the Senate Banking Committee, which will hold a hearing today on President Biden’s Federal Reserve nominees, said, “I have supported Fed noms from the opposite party in the past, and I’d like to be able to get to yes in some cases here,” but “I think this set of noms, and specifically Sarah Bloom Raskin, her candidacy for vice chair of supervision, in some ways it’s a referendum on the idea of whether or not the Fed...should be empowered to engage in policy decisions that have nothing to do with their mandate.” Toomey said Raskin has “expressly advocated that financial regulators generally, and the Fed in particular, advocate capital away from the fossil fuel sector...because she thinks climate change is such a serious thing that the Fed simply has to step up and do this. ... That’s not a decision to be made by unelected Fed governors who never face the voters.” Toomey predicted that “there will be very significant Republican opposition to” Raskin, and “it’s hard for me to see how I could get to yes in this case.”

     Biden picked Raskin to serve as the Federal Reserve’s vice chairwoman for banking supervision. She is set to appear at her confirmation hearing along with two economists nominated for other Fed board seats: Lisa Cook, a professor of economics and international relations at Michigan State University, and Philip Jefferson, a professor and administrator at Davidson College in North Carolina. The three nominees said in their prepared testimony that the Fed must make it a priority to tackle high inflation. Cook, who has written extensively about the economic consequences of racial disparities and gender inequality, as well as wages, poverty and income distribution, currently serves as a Michigan State economics professor and formerly worked as a senior economist on Obama's Council of Economic Advisers. Jefferson is a former Fed economist who currently serves as dean of faculty and academic-affairs vice president at North Carolina's Davidson College.

— On Friday, Chinese President Xi Jinping hosts his Russian counterpart Vladimir Putin and the Winter Olympics 2022 opening ceremony begins. Foreign Ministers Wang Yi and Sergey Lavrov meet today in the Chinese capital to finalize preparations for the meeting the first held in-person by Xi since the onset of the coronavirus pandemic in March 2020. The two men are expected to sign further agreements on gas supplies, Kremlin aide Yury Ushakov said on Wednesday, while Putin outlined some of the likely talking points in a Xinhua guest piece (link), where he extolled the two countries’ “stabilizing role in today’s challenging international environment.”

— U.S. export sales to China continue solid for upland cotton, new-crop soybeans. Export sales activity for the week ended January 27 continued to show solid demand from China for upland cotton and new-crop soybeans even as there were net reductions on old-crop soybeans. Activity for 2021-22 included net sales of 3,878 tonnes of corn, 141,100 tonnes of sorghum, net reductions of 28,554 tonnes of soybeans, and 90,185 running bales of upland cotton. For 2022-23, sales of 660,000 tonnes of soybeans and 61,600 running bales of upland cotton were reported. For meat, sales activity for 2022 included net sales of 857 tonnes of beef and net reductions of 481 tonnes of pork.
 

— EPA, White House environmental office boost pressure on Postal Service over vehicle purchase plans. A plan by the U.S. Postal Service (USPS) to purchase mostly gasoline-powered vehicles as it seeks to replace its aging fleet is generating considerable pushback within the Biden administration, with EPA and the White House Council on Environmental Policy both urging USPS to buy electric vehicles.

     The USPS plan “represents a crucial lost opportunity to more rapidly reduce the carbon footprint of one of the largest government fleets in the world,” EPA Associate Administrator Vicki Arroyo said in a letter. Arroyo took issue with environmental analysis by USPS in making its decision, contending it underestimated greenhouse gas emissions and was conducted after a contract for next-generation delivery vehicles was already awarded.

     Brenda Mallory, head of the Council on Environmental Quality, chided the USPS for committing to “walk down a path before looking to see where the path was leading.” She called the transition to “a modern, clean and efficient USPS vehicle fleet” a “top priority” for the administration.

     The USPS countered it viewed the concerns as being based on “policy disagreements with the decision and not a reflection of the adequacy” of their environmental review. “While we can understand why some who are not responsible for the financial sustainability of the Postal Service might prefer that we acquire more electric vehicles, the law requires us to be self-sufficient,” the agency said. “For that reason, given our current financial condition, the total cost of ownership of our delivery vehicle fleet must be a part of our analysis.”

— Another blow to push by some for livestock market reform bill as NCBA votes to oppose cash trade mandate. While a Sens. Deb Fischer (R-Neb.) and Chuck Grassley (R-Iowa) continue to push their livestock market reform bill via the Senate Ag panel, a National Cattlemen’s Beef Assn. (NCBA) committee voted Wednesday to oppose cash trade mandates, a major feature of the bill sponsored by the two senators. The American Farm Bureau Federation previously opposed those requirements, upping the odds the senators will fail in their legislative attempt.

     Meanwhile, after JBS settled a lawsuit over beef price-fixing, Grassley and the National Cattlemen’s Beef Association expressed dissatisfaction with the decision. In a statement, JBS said it did not admit liability but that settling was in its best interest. It also said it will defend against beef price-fixing claims by other plaintiffs, Reuters reported. “If there were any doubt about the shenanigans Big Packers play to line their pockets at the expense of consumers and independent producers, look no further than JBS’ $52.5 million settlement in price-fixing litigation,” Grassley said in a statement. “The other members of the Big Four packers continue to face similar allegations. Although the settlement is a spit in the ocean compared to JBS’ record profit throughout the pandemic, it validates what cattle producers have been telling me when they try to get a fair price in the marketplace. It’s time to put an end to these price fixing schemes once and for all. Congress must pass the Cattle Price Discovery and Transparency Act to bring access and accountability to the meatpacking industry. Those who oppose efforts to improve market access for independent producers — especially national organizations who claim to back America’s farmers and ranchers – need to take a serious look at Big Packers’ anticompetitive tactics, and ask themselves whose interests they are really serving,” Grassley said.

     NCBA said it finds the settlement “deeply disturbing.” NCBA said that in August 2019, following a fire at the Tyson plant in Holcomb, Kan., it was the first national organization to request a government investigation of beef markets in 2019. “Now there are settlements occurring without Department of Justice (DOJ) having released findings or even providing cattle producers with an update on progress,” NCBA said. “America’s cattle producers expect and deserve full transparency on any, and all, information related to the ongoing market investigations. NCBA encourages the government to finalize its investigation so we can fully understand any damage that may have been caused,” said NCBA CEO Colin Woodall. “It is clear from this settlement that cattle producers still don’t have all the information they have demanded and is deserved. The DOJ has an obligation to finish their investigation. Cattle producers do not have years to wait for the government to determine whether there has been wrongdoing. We demand answers now.”

— Global food prices resume climb to near-10-year highs, spurred by record for vegoils. The U.N. Food and Agricultural Organization (FAO) Food Price Index moved up to 135.7 in January, near 10-year highs and an increase from an upwardly revised December tally of 134.1. The rise in the index came on a 4.2% increase in the vegoil price index to a record mark on reduced export availability and supply constraints. Boubaker Ben-Belhassen, with the FAO Markets and Trade Division, also cautioned there was a “concern the impacts of these constraints will not ease quickly.”

     Also feeding the rise in prices was an increase of 2.4% in the dairy price index, a fifth straight monthly increase. Cereal prices, by contrast, were up just 0.1%.

     The FAO’s sugar price index registered the only monthly decline in the components of the Food Price Index.

     This continues to underscore that inflationary pressures remain evident in areas like food which are already a more-volatile component of consumer prices.

— Summary: Global cases of Covid-19 are at 385,387,094 with 5,702,539 deaths, according to data compiled by the Center for Systems Science and Engineering at Johns Hopkins University. The U.S. case count is at 75,681,309 with 894,316 deaths. The Johns Hopkins University Coronavirus Resource Center said that there have been 540,630,198 doses administered, 212,130,684 have been fully vaccinated, or 64.62% of the U.S. population.

— Airline and travel groups call for end of pre-flight Covid test for vaccinated travelers heading to U.S. Removal of the policy requiring those who have been vaccinated for Covid-19 traveling to the U.S. have a pre-flight test for Covid is being requested by travel and airline groups. In a letter to White House Covid response coordinator Jeffrey Zients, the groups said the change is needed due to the “pervasiveness of Covid cases in all 50 states, increased immunity and higher vaccination rates as well as new treatments.” With Covid cases waning, the groups noted other countries have removed similar restrictions. “Removing the requirement will greatly support the recovery of travel and aviation in the United States and globally without increasing the spread of Covid-19 and its variants,” said the letter, signed by Airlines for America and 28 other organizations.

— New Zealand announced plans to reopen its borders in phases, having been closed for nearly two years. Vaccinated New Zealanders, along with some skilled workers, will soon be allowed to enter.

— France allowed workers to return to offices full time Wednesday amid signs the Omicron wave of Covid-19 is approaching its peak in Europe. Other restrictions lifted included a requirement to wear masks on ski lifts, at markets and at outdoor gathering points. The easing of rules was part of a two-step process aimed at restoring normalcy.

— Canadian truckers are protesting Covid-19 health restrictions by staging a blockade of 18-wheelers in Ottawa. Police have declared the week-long assembly an "unlawful" occupation of the country's capital and say they're looking at "every single option, including military aid” to bring the situation to an end. The truckers are a part of the "Freedom Convoy” and are protesting a recent mandate requiring drivers entering Canada to be fully vaccinated or face testing and quarantine requirements. The group is also protesting against other health restrictions, like mask mandates and Covid-19 lockdowns. The dozens of trucks are blocking traffic, and forcing businesses in the area to shutdown, officials said.

— Canada’s opposition leader out. Canada’s opposition Conservative Party is in search of a new leader, its third in five years, after Erin O’Toole was voted out of the role by caucus members on Wednesday. O’Toole led the Conservatives to a popular vote victory in Canada’s snap September elections, a margin that failed to translate into a parliamentary majority as Justin Trudeau’s government held on. O’Toole, a moderate, was only in the role for 17 months. He did not take his firing lightly, proclaiming that “I’m not going anywhere and I’m not turning back.”

— Sen. Ben Ray Luján (D-N.M.) is expected to return to Washington within four to six weeks barring any unforeseen complications, Punchbowl News reported, citing a source familiar with his plans. Luján had a stroke last week and needed surgery to relieve swelling in his brain. He’s currently hospitalized in Santa Fe. No Supreme Court nominee is expected to be named until the end of February, giving Democrats breathing room as they await Luján’s return. “Sen. Lujan's absence is not expected to affect the Senate’s timeline for moving a SCOTUS nominee,” a spokesman for Senate Majority Leader Charles Schumer (D-N.Y.) said in a statement.

— U.S. deploys more troops to Europe. The U.S. will send approximately 2,000 additional troops to Europe to bolster NATO allies and send a “strong signal” to Vladimir Putin, Pentagon spokesman John Kirby said on Wednesday. The deployment will involve roughly 3,000 U.S. troops in total, 1,000 of whom are already stationed in Germany, heading to Poland and Romania. Kirby said the moves, which would happen in the coming days, were not permanent and emphasized, "These forces are not going to fight in Ukraine." The deployments are a show of support to NATO allies feeling threatened by Russia's steady military buildup near the Ukrainian border. Polish Defense Minister Mariusz Blaszczak praised the move as a “strong signal of solidarity,” while Kremlin spokesman Dmitry Peskov said the deployment was “the best proof that we, as Russia, have an obvious reason to be worried.”

— U.S. announces killing of ISIS leader in raid. President Biden said Abu Ibrahim al-Hashimi al-Qurayshi was dead following a U.S. operation in northwest Syria. “All Americans have returned safely from the operation,” Biden said.