FOMC Minutes Signal More-Aggressive Taper, Rate-Cut Timeline

Vilsack talks food/meat prices and immigration | Europe tries to cope with energy prices
 

Market Focus:
• USDA daily export sale: 102,000 tonnes soybeans to Mexico during 2021-2022 MY
• FOMC minutes signal more-aggressive taper, rate-cut timeline
• Fed official’s stock trading disclosures raise questions
• Supply-chain pressures appear to be easing
• Weather and Covid-19 continue to hit the travel industry
• German December numbers mark worst inflation year since reunification
• Attention turns to Friday’s U.S. employment situation report for December
• Gas prices in Europe more than five times higher than year ago
• Uranium prices surge over political turmoil in Kazakhstan
• Soybeans lead overnight price losses
• AgRural slashes Brazilian soybean crop estimate
• Argentina doesn’t have deal yet with IMF on debt refinancing
• Cash cattle trade starts sooner than expected
• Cash hog index jumps again 

Policy Focus:
• RMA releases insurance option for farmers who ‘split-apply’ nitrogen 

Personnel:
• Sen. Tillis to vote in favor of Kathi Vidal, to lead U.S. Patent and Trademark Office
• Biden pick starts at STB
• Trump EPA administrator Wheeler to serve under Youngkin 

China Update:
• Relatively subdued export sales activity to China in latest weekly data 

Energy & Climate Change:
• Vilsack’s son serves as general counsel for ethanol pipeline venture
• Electric vehicles dominated CES technology conference Wednesday
• Democrats press FERC to act against ‘unfairly high energy costs’

Livestock, Food & Beverage Industry Update:
• Global food prices fell in December but prices for 2021 highest in decade  
• Vilsack talks food/meat prices and immigration
• NCBA comments on White House event on meat industry this week 

Coronavirus Update:
• U.S. is now averaging nearly 550,000 new cases per day
• CDC updates recommendations for vaccine booster to include children as young as 12
• Fauci:  Clinical trials of vaccines for children six months to under 5 continuing
• Hong Kong banning passenger flights from eight countries, including the U.S. 

Politics & Elections:
• Biden will speak at Capitol on anniversary of Jan. 6 attack 

Other Items of Note:
• U.S./Japan relations
• North Korea said that missile tested on Wednesday was a hypersonic one
• Russia again issues warning to U.S. re: Ukraine
• EU warns U.S. and Russia against new ‘Yalta’ deal to divide Europe
• Operations of all financial institutions in Kazakhstan have been
• Biden delays annual report on deportations
• Report: States falling far short of targets in Chesapeake Bay cleanup plan
 

Equities today: Global stock markets were lower overnight. U.S. Dow opened slightly higher and then drifted lower. Asian equities ended mostly lower after more-aggressive stance by US Fed hit US markets. The Nikkei dropped 844.29 points, 2.88%, at 28,847.87. The Hang Seng Index bucked the trend, finishing up 165.61 points, 0.72%, at 23,072.86. European equities are under pressure in early trading but have recovered some from initial losses. The Stoxx 600 was down 1.2% with regional markets mostly down 1% or more with Spain and U.K. markets posting lesser declines.

     U.S. equities yesterday: The Dow fell 392.54 points, 1.07%, at 36,407.11. The Nasdaq dropped 522.54 points, 3.34%, at 15,100.17, its largest one-day percentage decline since February 2021. The Nasdaq is off to its worst three-day start to a new year since 2008. The S&P 500 declined 92.96 points, 1.94%, at 4,700.58.

     Yesterday’s Federal Reserve minutes and the spike in Treasury yields has sparked a selloff in bonds around the world. Germany’s 10-year borrowing costs hit the highest since May 2019, while yields in Japan and Australia also jumped. The 10-year Treasury yield is at 1.737% this morning with overnight swaps now implying an 80% chance of a 25-basis point rate hike in March.

On tap today:

     • U.S. jobless claims are expected to fall to 195,000 in the week ended Jan. 1 from 198,000 one week earlier. (8:30 a.m. ET) UPDATE: The number of people filing for unemployment benefits hovered around the lowest levels in five decades last week as firms struggle to remain fully staffed amid a resurgent pandemic. Initial jobless claims, a proxy for layoffs, totaled a seasonally-adjusted 207,000 for the week that ended Jan. 1, the Labor Department said. The four-week average for claims, which smooths out volatility, was 204,500. That was a slight increase from last month’s level, which was the lowest since 1969.
     • U.S. trade deficit is expected to widen to $81.5 billion in November from $67.1 billion one month earlier. (8:30 a.m. ET)
     • USDA Weekly Export Sales report, 8:30 a.m. ET
     • U.S. factory orders for November are expected to increase 1.7% from the prior month. (10 a.m. ET)
     • Institute for Supply Management's services index is expected to fall to 66.8 in December from 69.1 one month earlier. (10 a.m. ET)
     • St. Louis Fed President James Bullard speaks on the economy and monetary policy at 1:15 p.m. ET.

FOMC minutes signal more-aggressive taper, rate-cut timeline. Minutes from the Dec. 14-15 Federal Open Market Committee (FOMC) revealed discussions at that meeting saw a general concurrence that the Fed needed to speed the process toward tightening U.S. monetary policy in 2022 as they approved quickening the pace of tapering their bond purchases. The session also saw policymakers look at starting to raise the target range for the Fed funds rate around mid-year and to also start reducing the Fed’s portfolio shortly after that. Their concerns over inflation were also evident, marking a shift away from viewing the price increases as temporary. The FOMC will hold its first monetary policy meeting on Jan. 25-26.

     Stocks turned sharply lower after the minutes were released, and trading in interest-rate futures markets implied a roughly 70% probability that the Fed would raise rates at or before the March meeting.

     Bottom line: A new era of monetary policy is starting to hit investors after previously estimating that any tightening would be limited and gradual. The end of easy money is near.

A Fed official’s stock trading disclosures raise questions. Richard Clarida, the central bank’s departing vice chair, previously came under fire for buying shares in a fund in early 2020, a day before the Fed announced potential pandemic support measures. The Fed initially described Clarida’s purchase as a routine, planned move. But a newly amended disclosure shows that he had sold that same fund a few days before. Link for details via the New York Times.

Supply-chain pressures appear to be easing. New York Fed economists Gianluca Benigno, Julian di Giovanni, Jan J. J. Groen and Adam I. Noble developed a new supply chain barometer to gauge disruptions around the globe. "More recently, the [Global Supply Chain Pressure Index] seems to suggest that global supply chain pressures, while still historically high, have peaked and might start to moderate somewhat going forward," they write at Liberty Street Economics (link).

Weather and Covid-19 continue to hit the travel industry, as airlines canceled more than 1,700 U.S. flights on Wednesday — the 11th straight day cancellations topped 1,000, according to flight data tracking site FlightAware. Since Christmas Eve, airlines have canceled more than 21,000 U.S. flights.

German December numbers mark worst inflation year since reunification. Headline inflation increased once again, ending the year at 5.3% year-on-year. “While the December number should mark the peak of the inflation surge, inflationary pressure will first broaden before it finally abates towards the end of the year,” says ING Economics.

Market perspectives:

     • Outside markets: The U.S. dollar index is little changed — slightly weaker while the euro and British pound were slightly higher ahead of U.S. economic updates. The yield on the 10-year U.S. Treasury note remains elevated, trading around 1.73%. Gold and silver futures remain under pressure, with gold around $1,788 per troy ounce and silver around $22.05 per troy ounce.

     • Crude oil futures are posting solid advances with U.S. crude around $79 per barrel and Brent around $81.80 per barrel. Futures were under pressure in Asian trading, with U.S. crude down 76 cents at $77.09 per barrel and Brent down 86 cents at $79.94 per barrel.         

     • Attention will soon turn to Friday’s U.S. employment situation report for December, which is expected to see its key non-farm payrolls component show a rise of 425,000 after a rise of 210,000 in the November report. The overall unemployment rate is seen at 4.1% in December compared to 4.2% reported in the November report.

     • Gas prices in Europe are more than five times as high as they were a year ago. The crisis has claimed dozens of corporate victims in the U.K., where 28 small and midsize energy suppliers failed last year, the Wall Street Journal reports (link). European energy companies are racing to secure billions of euros in funds, a sign of the financial strains caused by dramatic moves in natural-gas and power prices this winter. The companies need extra cash to keep up with soaring costs. The European Union is considering new measures, including joint purchases of gas to build up the bloc’s strategic reserves, to help alleviate future energy crises.

     • Uranium prices surged over political turmoil in Kazakhstan. Kazakhstan has the largest proven oil reserves in the Caspian Sea region and is a big crude exporter, but perhaps more important than global energy markets, the country accounts for around 40% of global uranium production. Russia and its allies have sent in troops to help put down anti-government protests; the central Asian country is the world’s largest producer of the radioactive element. The Collective Security Treaty Organization (CSTO) a group made up of Russia, Belarus, Armenia, Kazakhstan, Kyrgyzstan, and Tajikistan has accepted a request from Kazakh President Kassym-Jomart Tokayev to deploy peacekeepers in the country as it experiences historic — and violent — unrest spurred by the government’s removal of fuel price caps. The Kazakh government has since resigned, and Tokayev has removed the powerful former leader Nursultan Nazarbayev as the head of the country’s Security Council. (See related item below.)  

     • USDA daily export sale: 102,000 tonnes soybeans to Mexico during 2021-2022 MY

     • NWS weather: Coastal heavy rain, mountain snow and inland icing threat from the Pacific Northwest into the Northern/Central Rockies... ...Heavy Lake effect snow continues today... ...Much below normal temperatures will spread from the Great Plains into the Midwest... ...Another winter storm possible from the Tennessee Valley to the Northeast through Friday.

Items in Pro Farmer's First Thing Today include:

     • Soybeans lead overnight price losses
     • AgRural slashes Brazilian soybean crop estimate
     • Argentina doesn’t have deal yet with IMF on debt refinancing
     • Cash cattle trade starts sooner than expected
     • Cash hog index jumps again
 

— RMA releases insurance option for farmers who ‘split-apply’ nitrogen. A crop insurance option in 11 states was released by USDA’s Risk Management Agency (RMA) for corn producers who “split-apply” nitrogen. The Post Application Coverage Endorsement (PACE) will be available in Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Nebraska, North Dakota, Ohio, South Dakota, and Wisconsin as supplemental coverage for Yield Protection (YP), Revenue Protection (RP), and Revenue Protection with Harvest Price Exclusion (RP-HPE) policies. First sales closing date is March 15. The supplemental coverage provides payments for projected yield lost when producers are unable to apply nitrogen post-emergence due to weather conditions when plants are in the V3-V10 stage.
 

— Sen. Thom Tillis announced he will vote in favor of Kathi Vidal, Biden’s nominee to lead the U.S. Patent and Trademark Office. Tillis (R-N.C.), the ranking Republican on the Senate Judiciary’s Subcommittee on Intellectual Property, said he received a commitment from Vidal to support and build upon former director Andrei Iancu’s policies at the Patent Trial and Appeal Board. Tillis is the first Republican on the Senate Judiciary Committee to support Vidal. She “will be the exact type of visionary leader we need to succeed Andrei Iancu,” Tillis said in a statement.

— Biden pick starts at STB. Karen Hedlund was sworn in this week as a new member of the Surface Transportation Board (STB), which regulates disputes involving railroad rates and mergers. Hedlund was confirmed by the Senate in December.

— Trump EPA administrator Wheeler to serve under Youngkin. Virginia Gov.-elect Glenn Youngkin (R) said yesterday he has selected former Trump EPA Administrator Andrew Wheeler to be his secretary of natural resources. In his new role, Wheeler will address Virginia’s need for a “diverse energy portfolio in place to fuel our economic growth, continued preservation of our natural resources, and a comprehensive plan to tackle rising sea levels,” Youngkin said in a statement.

— Relatively subdued export sales activity to China in latest weekly data. Soybean, sorghum and upland cotton were the main products in U.S. export sales activity to China for the week ended Dec. 30. Activity for 2021-22 the week ended Dec. 30 included net reductions of 160 tonnes of wheat, net reductions of 1,339 tonnes of corn, net sales of 22,848 tonnes of sorghum, net sales of 353,878 tonnes of soybeans, and net sales of 46,972 running bales of upland cotton. Activity for 2022-23 were net reductions of 437 running bales of upland cotton. For 2021, there were net reductions of 1,174 tonnes of beef and net sales of 1,216 tonnes of pork. For 2022, USDA reported net reductions of 557 tonnes of beef and net sales of 40 tonnes of pork.
 

— Vilsack’s son serves as general counsel for ethanol pipeline venture. Jess Vilsack, son of USDA Secretary Tom Vilsack, serves as the general counsel of Summit Carbon Solutions, a venture involved in the construction of an ethanol pipeline, Mother Jones reported (link). Asked about ethical considerations regarding USDA’s funding of ethanol projects, USDA spokeswoman Kate Waters told Mother Jones, “Secretary Vilsack fully understands his requirements under the federal ethics rules. He has and will continue to adhere to those requirements.”

— Electric vehicles dominated the CES technology conference Wednesday, the latest sign that the momentum around EVs continues to build. General Motors showed off an electric Chevy Silverado with a 400 mile range. The Chrysler brand is ditching gas engines and going to an all-electric lineup, and Japan’s Sony plans to jump into the EV fray.

— Democrats press FERC to act against ‘unfairly high energy costs.’ The Federal Energy Regulatory Commission (FERC) should use its authority to act against “unfairly high energy costs,” dozens of congressional Democrats led by Sen. Edward Markey (D-Mass.), and Reps. Jamaal Bowman (D-N.Y.) and Jan Schakowsky (D-Ill.) urged in a letter to FERC Chair Richard Glick. “Under its statutory authority, FERC has the power to influence retail rates for natural gas and electricity, including by preventing market manipulation in wholesale natural gas and electricity markets and enforcing gas spot market transparency,” the lawmakers wrote. “We urge the Commission to use its existing regulatory authority to ensure that households’ energy bills are not driven up by manipulation, obfuscation, or other malfeasance from regulated entities, and to work collaboratively with other agencies to address energy debt.”
 

— Global food prices fell in December but prices for 2021 highest in a decade. Even as prices in all categories except for dairy tracked by the U.N. Food and Agricultural Organization (FAO) declined in December, the Food Price Index for all of 2021 increased to a reading of 125.7, up 28.1% from 2020 and the highest since it was at 131.9 in 2011. And their expectations for 2022 being a better year are not encouraging. “While normally high prices are expected to give way to increased production, the high cost of inputs, ongoing global pandemic and ever more uncertain climatic conditions leave little room for optimism about a return to more stable market conditions even in 2022,” said FAO Senior Economist Abdolreza Abbassian. Within the FPI for 2021 compared with 2020, cereal prices were up 27.2%, vegoils were up 65.8% to a record high, sugar prices rose 29.8%, meat prices were up 12.7% and dairy prices gained 16.9%.

— Vilsack talks food/meat prices and immigration. USDA Secretary Tom Vilsack said Wednesday on Meet the Press Daily that lowering meat prices “will take a little time. I think you’re going to see localized price reductions, but in order to stabilize this, we have to readjust the market. People are eating more at home than they ever have. And that has caused a slight disruption in the market. That’s why it’s important for us to expand capacity, processing capacity, so that we can get a fair price for farmers and a better price and choice for consumers.”

     When asked if immigration plays a role, Vilsack said, “You can talk to farmers across the country and they’ll tell you about a deep concern about a broken immigration system and their inability to actually get a workforce that is stable. … I believe that everybody in this country who is focused on this understands and appreciates that our immigration system is broken and needs fixed. I think there a lot of folks who understand what needs to be done in order to fix it. I think what we need is the political will and courage on the part of some in Congress to get it done. There’s no question that farmers understand the need for farm work modernization act. … I would sincerely hope this is the year when members of Congress could find that courage to do so.”

— NCBA comments on White House event on meat industry this week. “The National Cattlemen’s Beef Association appreciates the Biden administration’s announcement of an additional $500 million in funding for expanded small, independent meat processing facilities, which will strengthen the business climate for American cattle producers and help alleviate the choke point in the beef supply chain,” said Ethan Lane, NCBA vice president of government affairs. “We are concerned by the administration’s unclear position on the Packers and Stockyards Act and await further details on their plan to exercise greater enforcement power. NCBA is committed to ensuring that cattle producers have the ability to realize higher profits for their cattle and make the marketing decisions that are best for their business.”
 

— Summary: Global cases of Covid-19 are at 297,950,613 with 5,467,369 deaths, according to data compiled by the Center for Systems Science and Engineering at Johns Hopkins University. The U.S. case count is at 57,762,144 with 832,148 deaths. The Johns Hopkins University Coronavirus Resource Center said that there have been 513,839,973 doses administered, 206,797,799 have been fully vaccinated, or 63.00% of the U.S. population.

     The U.S. is now averaging nearly 550,000 new cases per day — a 225% increase over the past two weeks, and by far the highest levels of the entire pandemic. Observers say that is likely an undercount, as many people are testing themselves at home.

— CDC has updated its recommendations for the Pfizer/BioNTech Covid-19 vaccine booster to include children as young as 12, at least five months after they finish their primary set of shots.

     What’s Next: White House chief medical adviser Dr. Anthony Fauci said clinical trials of vaccines for children six months to under 5 are continuing, and that there might be news for that age group “hopefully towards the earlier part of the first half” of 2022.

— Hong Kong is banning passenger flights from eight countries, including the U.S., for two weeks, closing bars and banning evening dine-in after the city’s first community Omicron infections punctured one of the world’s strictest and most effective border controls. While countries such as the U.S. and U.K. have reported record daily cases with minimal restrictions on travel and social mingling, Hong Kong has been adhering to a “Zero Covid” strategy for months.

— President Biden will speak at the Capitol on the anniversary of the Jan. 6 attack, 9 a.m. ET. The White House said that Biden will mark the first anniversary of the storming of America’s Capitol with a speech entirely blaming his predecessor, Donald Trump, for the “chaos and carnage” it caused. There will also be a moment of silence on the floor of Congress. House Speaker Nancy Pelosi (D-Calif.) and congressional Democrats are also planning a day of commemoration. An inquiry into the attack is ongoing. More than 700 people have been arrested so far. Republicans are splintered over the attack, with many interviewed on Wednesday declining to mention Trump’s name.

     Fewer rural rioters. Just 14% of Americans live in rural areas, but only 12% of rioters arrested for invading the U.S. Capitol one year ago had rural addresses, according to an analysis of arrestees. Link for details.

— U.S./Japan relations. U.S. Secretary of State Antony Blinken and U.S. Secretary of Defense Lloyd Austin meet virtually with their Japanese counterparts, Foreign Minister Hayashi Yoshimasa and Defense Minister Kishi Nobuo, under the auspices of the U.S.-Japan Security Consultative Committee. Besides discussions over security and the Indo-Pacific, the U.S. sides are likely to hear fresh calls for a first White House visit for new Prime Minister Fumio Kishida.

— North Korea’s missile test North Korea said its Wednesday missile launch involved testing a “hypersonic glide warhead,” the second time it has tested the technology designed to outwit modern missile defenses. State news agency KCNA said it “precisely hit” its target 430 miles from its launch site.

— Russia again issues warning to U.S. re: Ukraine. Russia’s lead negotiator for coming talks with the U.S. said that Moscow’s demands on Ukraine must be addressed urgently and warned the Biden administration against resorting to economic pressure.

— EU warns U.S. and Russia against new ‘Yalta’ deal to divide Europe. The EU’s top diplomat has warned Russia and the U.S. against creating “spheres of influence” in Europe ahead of talks between the two countries next week regarding proposals from Moscow that would reshape the continent’s defense and security architecture. Russia, which has stoked fears of a potential military attack on Ukraine after deploying more than 100,000 troops close to its border, has demanded the U.S. and NATO agree to security pledges that would ban former Soviet states from joining the western military alliance and restrict where U.S. troops could be stationed in eastern Europe. Next week’s negotiations will see Russian officials hold meetings with a U.S. delegation and with NATO, overlooking demands from the EU that it deserves a seat at the talks. Link for more details via the Financial Times (paywall).

— Operations of all financial institutions in Kazakhstan have been suspended, including banks and the stock exchange located in Almaty, as turmoil continues to escalate in the country. Dozens of people were killed this morning and 400 were hospitalized as authorities cracked down on protesters that were said to have stormed government buildings. At least a dozen police officers also died, including one who was found beheaded, while more than 350 were injured.

     Following an internet blackout and airport capture, Russia sent in paratroopers under the Collective Security Treaty Organization, which also includes former Soviet states like Armenia, Belarus, Kazakhstan, Kyrgyzstan and Tajikistan. Kazakh President Kassym-Jomart Tokayev had appealed for the help, blaming foreign-trained "terrorist" gangs for the violence. The move marks the second action by the Kremlin in as many years to bolster an ally facing unrest, after supporting Belarusian leader Alexander Lukashenko in 2020.

— Biden delays annual report on deportations. The Biden administration has yet to release a report that details the number of illegal immigrants removed from the U.S. in 2021, keeping the public in the dark about its handling of the immigration crisis. Immigration and Customs Enforcement (ICE) did not release its annual report in 2021, a departure from standard agency practice since at least 2011. In each of the last nine years, ICE released the report in the final weeks of the calendar year, most recently on Dec. 23, 2020, during the Trump administration. It is unclear whether ICE has completed the report, which provides a lengthy summary of the agency’s enforcement and removal operations, as well as immigration-related security threats. A release date for the report has not been determined.

— Report: States falling far short of targets in Chesapeake Bay cleanup plan. Three major states in the Chesapeake Bay watershed, responsible for 90% of pollution in the bay, will miss their targets for reducing sediment and nutrient runoff by 2025, said the Chesapeake Bay Foundation (CBF) on Wednesday. Maryland and Virginia need to step up efforts to address agricultural pollution, and “Pennsylvania remains far off track,” the foundation said. Link for details.