Humbled Fed Pivots to Accelerated Tapering & Faster Rate Hikes

( )

Biden admin. to unveil plans to ease shortage of truck drivers
 


In Today’s Digital Newspaper


Market Focus:
• Federal Reserve pivots; equities rally on hawkish talk but dovish actions
• Bank of England boosts interest rates
Banks will see big impacts from rising interest rates 

U.S. healthcare spending surged nearly 10% last year to more than $4 trillion 
Turkey’s currency crisis escalates ahead of possible rate cut
Europe's energy crisis grows with Russian troops massed on Ukraine's border
• Fertilizer prices have more than doubled over the past year
• Argentina cuts export taxes on organic soybeans, corn, wheat, and other crops
Record Dec. heat in middle of U.S. crates ‘unprecedented’ extreme weather threat
California, Arizona, Nevada to cut water use
• Ag demand update

• Soybeans and corn firm, wheat mixed this morning
• AgRural cuts Brazilian soybean, corn crop estimates due to drought
• Reuters poll: Brazilian soybean production to rise 5%
• China reiterates it will take measures to stabilize fertilizer market
• BOE raises interest rates as inflation mounts
• Winds close some beef processing plants
• Cash hog index showing more signs of a seasonal low 

Policy Focus:
Odds rising BBB timeline is punted into 2022 

Biden plan seeks to ease shortage of truck drivers

Personnel:
Senate confirms Behnam to chair CFTC
• Biden nominates Mersinger, Pham for CFTC
• Biden nominates Caroline Kennedy as ambassador to Australia
• Schumer files cloture on 22 stalled Biden administration nominations

China Update:
China's 'Covid zero' policy hits economy .
• China to resume imports of Brazilian beef while European grocers limit imports
• China reiterates it will take measures to stabilize fertilizer market
• China reports new ASF case in Hebei
• China and Russia to step up efforts to cut reliance on U.S. financial system

Trade Policy:
• WTO rules against India’s sugar subsidies

Livestock, Food & Beverage Industry Update:
• European supermarkets to stop selling Brazil beef over deforestation link
• Winds close some beef processing plants

Coronavirus Update:
U.K. reports highest daily number of cases of Covid-19
• Canada urged its citizens to avoid all non-essential international trips

Other Items of Note:
Iran’s nuclear program update
South Korea’s largest milk company has apologized over an ad


MARKET FOCUS


Equities today: Global stock markets were mostly up in overnight trading. U.S. stock indexes are pointed toward solidly higher openings. Asian equities ended with gains in the wake of advances in US markets Wednesday. The Nikkei rose 606.60 points, 2.13%, at 29,066.32. The Hang Seng Index rose 54.74 points, 0.23%, at 23,475.50. European equities are seeing solid advances in early trading. The Stoxx 600 was up 1.7% with other markets up 1% to 1.7%.

     U.S. equities yesterday: The Dow finished up 383.25 points, 1.08%, at 35,927.43. The Nasdaq gained 327.94 points, 2.15%, at 15,565.58. The S&P 500 was up 75.76 points, 1.63%, at 4,709.85.

     Stocks

On tap today:

     • Bank of England issues a policy statement at 7 a.m. ET. UPDATE: The Bank of England has fired a salvo against inflation via a rate increase, taking interest rates to 0.25% from a prior mark of 0.1%. The U.K. central bank said the move was needed as a preemptive strike against the risk of inflation. The vote was eight-to-one in favor of the rate increase. Strength in the U.K. economy allow for the increase as conditions for a rate increase had been met and their viewed the situation with the Omicron variant Covid virus as “unclear at this stage.”
     • European Central Bank issues a policy statement at 7:45 a.m. ET.
     U.S. jobless claims are expected to rise to 195,000 in the week ended Dec. 11 from 184,000 one week earlier. (8:30 a.m. ET)
     • U.S. housing starts are expected to rise to an annual rate of 1.56 million in November from 1.52 million one month earlier. (8:30 a.m. ET)
     • Philadelphia Fed's manufacturing survey is expected to fall to 30 in December from 39 one month earlier. (8:30 a.m. ET)
     • USDA Weekly Export Sales report, 8:30 a.m. ET.
     • U.S. industrial production for November is expected to rise 0.6% from the prior month. (9:15 a.m. ET)
     • IHS Markit's preliminary U.S. manufacturing index for December is expected to tick up to 58.6 from a final reading of 58.3 in November. The services index is forecast to inch up to 58.2 from 58.0. (9:45 a.m. ET)
     • Kansas City Fed's manufacturing survey is expected to tick up to 25 in December from 24 one month earlier. (11 a.m. ET) 

Federal Reserve set the stage for a series of interest rate increases beginning next spring, completing a major policy pivot that showed much greater concern about the potential for inflation to linger. Most central bank officials, in projections released Wednesday at the conclusion of their two-day FOMC meeting, penciled in at least three quarter-percentage-point rate increases next year. In September, around half of those officials thought rate increases wouldn’t be warranted until 2023. Said Fed Chairman Jerome Powell: “We’re not going back to the same economy we had in February of 2020, and I think early on, the sense was that that’s where we were headed.”

     In new economic projections released by the Fed on Wednesday following its two-day policy meeting, officials forecast that inflation would run at 2.6% in 2022, compared to the 2.2% projected as of September. They also predicted the unemployment rate would fall to 3.5% from the current 4.2%. The Fed said it had met its inflation mandate and added that any rate hikes in 2022 would hinge solely on the path of the job market.

     Reaction to the Fed’s pivot. “My concern is that we’re going to go from a patient to a panicked Fed on inflation,” said Diane Swonk, chief economist at accounting firm Grant Thornton and a longtime Fed watcher. William Spriggs, chief economist at the AFL-CIO, argues that it would be a mistake for the Fed to start pulling back on support for the economy and raising interest rates soon in response to inflation. The economy is not overheating, he said, noting that the sharp drop in the unemployment rate in recent months doesn’t reflect the fact that many people are struggling to get back on their feet. There are over 1 million more unemployed people today than in February 2020, before the pandemic, plus several million more people who have left the labor force. “We’re in the middle of a storm, and the last thing you want to do is cut power to the engine,” Spriggs said. A Wall Street Journal editorial wrote: Left unsaid is that Mr. Powell and the Fed this year badly underestimated both the rise of inflation and the strength of the labor market. The chairman made it sound as if the inflation revelation had come to him in November, right around the time of the last FOMC meeting when the Fed stood pat on a very slow pace of withdrawing monetary accommodation. A lightning bolt of data struck, and he saw the light. We guess this is as close as the Fed ever gets to admitting a mistake.” 

     Fed taking aim
     Fed dot map
     Wages and salaries

Banks will see big impacts from rising interest rates. For the nation’s biggest banks, even a small increase in the Fed’s benchmark rate could lead to billions of dollars in revenue, since the banks can charge more on loans but aren’t likely to pay depositors more.

     Banks and rates

U.S. healthcare spending surged nearly 10% last year to more than $4 trillion as the federal gov’t poured billions of dollars into assisting hospitals, states and medical providers with the pandemic. The report from actuaries at the Centers for Medicare and Medicaid Services shows the increased role the federal government played in providing financial support to the U.S. health system.

     Health care spending

Market perspectives:

     • Outside markets: The U.S. dollar index is slightly weaker amid a generally firmer tone in foreign currencies versus the greenback. The yield on the 10-year U.S. Treasury note has risen to trade above 1.46% with a mostly firmer tone in global government bond yields. Gold and silver futures are seeing strong advances ahead of U.S. economic updates. Gold is trading above $1,784 per troy ounce and silver above $22.18 per troy ounce.         

     • Turkey’s currency crisis escalates ahead of possible rate cut. Turkey’s currency crisis deepened in the lead-up to a central bank meeting today, when officials might bow to pressure to resume interest-rate cuts despite soaring inflation. Previous rate cuts demanded by Turkish President Recep Tayyip Erdogan have triggered a collapse in the Turkish lira in recent months. The currency has lost 40% of its value against the dollar since September, making it one of the worst performing investments in the world.

        Lira

     • Crude oil futures are firmer ahead of U.S. trading with U.S. crude around $17.20 per barrel and Brent around $74.30 per barrel. Futures were stronger in Asian trading, with U.S. crude up 72 cents at $71.59 per barrel while Brent was up 66 cents at $74.54 per barrel. 

     • Europe's energy crisis has intensified with Russian troops massed on Ukraine's border. Cold weather and fear of a Russian invasion of Ukraine sent natural-gas prices to record highs this week and propelled electricity markets to levels rarely experienced in Germany, France and the U.K.

        Europe energy

     • Fertilizer prices have more than doubled over the past year. Some frustrated U.S. farmers are now adjusting spring planting plans and warning about the potential for higher food prices. A global shortage of the chemical ingredients used to make fertilizer has sent prices soaring, according to the Wall Street Journal (link).

        Fertilizer prices

     • Argentina cuts export taxes on organic soybeans, corn, wheat, and other crops. The Argentine government announced it will cut export taxes on organic soybeans, corn, and wheat, with some products expected to see a complete elimination of the export duties. The tariff cuts will include organic wines, sauces, fruits and vegetables. Organic corn and wheat will be subject to an export duty of 7%, down from 12%, while organic soybeans will be at 28% (33% currently) and 25% (30% currently). Organic crops are planted on only about 2.5% of Argentine cropping areas, according to the country’s Agriculture Ministry.

     • Ag demand: Japan purchased 228,783 MT of wheat from its weekly tender, including 129,201 MT from the U.S. and 99,582 MT from Canada. Iran purchased around 500,000 MT of milling wheat – likely sourced from Russia, Germany and/or the Baltic Sea region. The Philippines bought around 110,000 MT of feed wheat to be source from Australia, Europe or the Black Sea region. Results are still awaited on a separate tender from the Philippines to buy 120,000 MT of feed wheat.

     • Record December heat in the middle of the U.S. has created an “unprecedented” extreme weather threat that has led to hurricane-force winds, fires, and more tornadoes over the Great Plains and the Midwest. At least 55 reports of wind gusts of over 75 mph were tracked in the region yesterday, setting a single-day record. A tornado in the southeastern portion of Minnesota was the first ever reported in the state in the month of December, according to NOAA data.

     • California, Arizona, Nevada to cut water use. Trying to stave off dangerously low levels of water in Lake Mead, officials in California, Arizona and Nevada have reached an agreement to significantly reduce the amount they take from the Colorado River. The problem took on new urgency in the summer when the federal government declared a first-ever water shortage in the 86-year-old reservoir near Las Vegas. The agreement, which was signed Wednesday after four months of negotiations, aims to keep an extra 1 million acre-feet of water in the lake over the next two years. Water agencies in Southern California, Arizona and Nevada agreed to find water savings from various sources and split the $200-million cost with the federal government.

     • NWS weather: There is a Marginal Risk of excessive rainfall over parts of the Ohio, Tennessee, and Lower Mississippi Valleys through Friday morning... ...There is a Slight Risk of excessive rainfall over parts of the Ohio, Tennessee, Middle/Lower Mississippi Valleys, and Southern Plains on Friday into Saturday morning... ...Heavy snow over the Sierra Nevada Mountains will wind down on Thursday; Chance of freezing rain over parts of the Upper Midwest and Northern New England early on Thursday... ...Temperatures will be 20 to 30 degrees above average for the Lower Mississippi Valley, Great Lakes/Ohio Valley, into the Northeast.

        NWS
        Wx Today

Items in Pro Farmer's First Thing Today include:

     • Soybeans and corn firm, wheat mixed this morning
     • AgRural cuts Brazilian soybean, corn crop estimates due to drought
     • Reuters poll: Brazilian soybean production to rise 5%
     • China reiterates it will take measures to stabilize fertilizer market
     • BOE raises interest rates as inflation mounts
     • Winds close some beef processing plants
     • Cash hog index showing more signs of a seasonal low


POLICY FOCUS


— Odds rising the BBB timeline is punted into 2022. Movement on the Build Back Better (BBB) measure has hit a pause as talks between President Biden and centrist Sen. Joe Manchin (D-W.Va.), a critical swing vote, have not produced any resolution. One of the most pivotal issues holding up progress is the child tax credit. For Biden, it's a major priority that delivers aid to families and reduces child poverty. Manchin, however, wants it out of the bill and into a separate measure. The House is out now and won’t come back until Jan. 10 — unless the Senate passes the BBB in the next two weeks, which most think is unlikely.

— Biden plan seeks to ease shortage of truck drivers. The Biden administration will announce a three-pronged plan to recruit and retain truck drivers to combat a driver shortage that has contributed to the supply chain problems plaguing the globe since the start of the Covid-19 pandemic, senior administration officials said Wednesday. Link to White House fact sheet. The officials said the plan will not only look at the immediate driver shortage but also address long-standing challenges in the trucking industry that predate the arrival of Covid-19. The plan includes connecting veterans who left the service with extensive military trucking experience — 70,000 over the last five years — with trucking jobs as they transition to civilian life. The administration will be working closely with the private sector to engage in a “90-day apprenticeship challenge” to recruit as many employers as possible to start registered apprenticeships. Transportation Secretary Pete Buttigieg, Labor Secretary Marty Walsh and National Economic Council Director Brian Deese are scheduled to announce the plan Thursday after a roundtable with trucking industry and labor leaders. The industry is facing a shortage of 80,000 drivers, according to the American Trucking Associations.


PERSONNEL


— Senate confirms Behnam to chair CFTC. The Senate on Wednesday confirmed Rostin Behnam as chairman of the Commodity Futures Trading Commission (CFTC). Behnam has served as a commissioner on the CFTC for four years, and was nominated for a second term earlier this year.

— Biden nominates Mersinger, Pham for CFTC. President Biden on Wednesday nominated Summer Mersinger and Caroline Pham to be commissioners of the Commodity Futures Trading Commission (CFTC). Mersinger and Pham are Republicans who are likely to move in tandem with Kristin Johnson and Christy Goldsmith Romero, Democrats Biden nominated earlier as CFTC commissioners. Meanwhile, Dawn Stump, a Republican member of the CFTC, announced she will not seek a second term on the commission when her term expires next April.

— Biden nominates Caroline Kennedy as ambassador to Australia. President Biden on Wednesday nominated Caroline Kennedy to serve as ambassador to Australia. Kennedy, the daughter of the late President John Kennedy, served as ambassador to Japan from 2013-2017 during the Obama administration.

— Senate Majority Leader Chuck Schumer (D-N.Y.) filed cloture on 22 stalled Biden administration nominations, including Rahm Emanuel for U.S. ambassador to Japan and Nicholas Burns for U.S. ambassador to China. This move is aimed at trying to pressure Republicans. Votes on these nominations won’t start until Friday and could extend into the weekend absent a time agreement with Senate Minority Leader Mitch McConnell (R-Ky.). Schumer said about 150 nominees that should have been confirmed by now are on ice.


CHINA UPDATE


— China's 'Covid zero' policy hits economy. China’s lockdown of many factories in the Yangtze River Delta last week in a prolonged battle with Covid-19 has underlined the economic costs of China’s stringent pandemic-control measures. The sudden lockdown of districts in the cities of Shaoxing and Ningbo has left business owners scrambling to pacify clients over delayed deliveries and listed companies apologizing to shareholders for expected losses. Last year, China’s draconian lockdown measures helped restart the economy well ahead of other major nations. This year, stringent measures to control outbreaks come with economic costs.

— China to resume imports of Brazilian beef while European grocers limit imports. China’s blockade of Brazilian beef has come to a halt, according to the Brazilian industry group Abrafrigo. China halted imports from Brazil in September after the country reported two atypical cases of BSE and announced Wednesday (Dec. 15) that imports of boneless beef products from animals less than 30 months would restart that day. But six European grocery-store chains announced they will halt imports of some or all Brazilian beef products over Amazon rainforest destruction, while others put a more-broad restriction on imports from South America. However, it is not clear what volume of beef/beef products would be involved with the coming halts. It would also seem unlikely the U.S. would be able to capture any market share given the long-standing beef trade issues between the U.S. and European Union (EU) over the use of growth hormones in U.S. beef production.

— China reiterates it will take measures to stabilize fertilizer market. China’s state planner again said it would guarantee domestic fertilizer supplies for spring planting. Without giving specifics, the National Development and Reform Commission also said it would take “timely, targeted” measures to ensure the stability of the fertilizer market.

— China reports new ASF case in Hebei. China reported African swine fever was found in two trucks in Hebei province transporting pigs from other provinces. This was the first official reporting of ASF since July, though there have been unreported cases.

— China and Russia to step up efforts to cut reliance on U.S. financial system. Presidents Xi Jinping and Vladimir Putin agree to accelerate attempts to create a system that cannot be influenced by “third parties.” The two leaders also want to increase the number of deals settled in their own currencies as sanctions threaten to limit U.S. dollar transactions. Xi said trade between China and Russia in the first three quarters of the year had already topped $100 billion for the first time. The yuan accounted for more than 17% of bilateral trade settlements between the two and more than 12% of Russia’s international reserves in 2020, according to Chinese Communist Party mouthpiece People’s Daily.

     Xi told Putin that China would always support Russia’s efforts to maintain the nation’s long-term stability, while Putin backed Beijing’s approach to Taiwan, which Beijing views as a breakaway province. Xi also said the two nations should further promote energy cooperation and development of renewable energy. In the first 10 months of this year, Russia has significantly increased its exports of natural gas to China.


TRADE POLICY


— WTO rules against India’s sugar subsidies. The World Trade Organization (WTO) ruled that India’s sugar subsidy regime violates its obligations under its membership. A WTO dispute panel initiated by Australia, Brazil and Guatemala in early 2019 investigated India’s massive sugar subsidy regime and found it was not compatible with New Delhi’s WTO commitments. In an analysis, the American Sugar Alliance (ASA), which represents U.S. cane and beet producers, noted that India is one of the largest sugar producers in the world, producing more than 30 million tons of milled sugar in most years with the support of government production subsidies and also uses export subsidies to place 6 to 7 million metric tons of sugar on the world market. ASA noted that the panel found that India’s provision of domestic support to its sugarcane producers vastly exceeds the level permitted under the terms of relevant provisions of the Agreement on Agriculture and the Agreement on Subsidies and Countervailing Measures. “India has not been playing by the rules for years to the detriment of other sugar producers,” said Rob Johansson, director of Economics and Policy Analysis at the American Sugar Alliance (ASA). “This case focused on domestic sugar and export subsidies provided by India since 2014 and illustrates how much time these actions currently require to play out. We can now anticipate that India will use every procedural tool at its disposal in Geneva to drag the case out even longer.”


LIVESTOCK, FOOD & BEVERAGE INDUSTRY


— European supermarkets to stop selling Brazil beef over deforestation link. Six European supermarket chains will stop selling some or all beef products from Brazil in 2022 due to links with destruction of the Amazon rainforest. Some chains will stop selling all beef originating in Brazil, while others will stop sales of beef products such as corned beef or beef jerky. Many of the products affected are linked to the world's largest meatpacker, JBS SA. The action comes after an investigation revealed JBS SA purchased cattle that had been “cattle laundered” – when cattle raised on an illegally deforested plot of land are sold to a legitimate farm before sale to a slaughterhouse, to hide its origin. It would be unlikely the U.S. would capture any market share in Europe given the long-standing beef trade issues between the two sides over the use of growth hormones in U.S. beef production.

— Winds close some beef processing plants. At least three major beef plants in the Southern Plains closed their second shifts on Wednesday due to high winds. If there’s no damage, they will likely resume normal operations today. This was expected to be the last full kill of the year given holiday schedules the next two weeks. But now this week’s slaughter won’t reach expectations.


CORONAVIRUS UPDATE


Summary: Global cases of Covid-19 are at 272,314,6332 with 5,332,638 deaths, according to data compiled by the Center for Systems Science and Engineering at Johns Hopkins University. The U.S. case count is at 50,374,552 with 802,511 deaths. The Johns Hopkins University Coronavirus Resource Center said that there have been 488,296,089 doses administered, 202,845,886 have been fully vaccinated, or 61.79% of the U.S. population.

— U.K. reported its highest daily number of cases of Covid-19 on Wednesday, as a senior British health official warned the fast-spreading Omicron variant posed the most significant threat since the start of the pandemic. Chris Whitty, England’s chief medical officer, warned that the Omicron variant was “moving at an absolutely phenomenal pace.” The prime minister, Boris Johnson, is resisting calls for more stringent anti-covid restrictions. Some 656,000 Britons received booster injections on Wednesday; 80% of vulnerable people are now triple-jabbed. Meanwhile, Johnson faces a crucial by-election in North Shropshire today; political analysts have warned that a loss of the historically safe Tory seat could mean that the prime minister’s days are numbered.

     UK Covid

— Canada urged its citizens to avoid all non-essential international trips, to stem the spread of Omicron. “I say very clearly: now is not the time to travel,” Jean-Yves Duclos, the health minister, said. Justin Trudeau, the prime minister, commiserated: “I understand, this sucks.” Ontario, the most populous province, capped the capacity of ice-hockey stadiums at 50%.

 

OTHER ITEMS OF NOTE     


— Iran’s nuclear program. Iran has agreed to replace monitoring cameras at a key nuclear facility, ending months of negotiations with the International Atomic Energy Agency (IAEA). Cameras at the facility were damaged during a sabotage attack in June. Although IAEA officials will be permitted to replace the cameras, Iran said the recorded footage will not be made available until U.S. sanctions are lifted.

— South Korea’s largest milk company has apologized over an ad it released featuring women depicted as cows. Seoul Milk’s 40-second spot features a man with a camera exploring a forest before coming across a field of yoga-practicing women who suddenly turn into dairy cows — a trick intended to highlight the purity of the product. Seoul Milk’s parent company apologized to “everyone who felt uncomfortable” viewing the ad, which has ignited debate over sexism in the country.


 

 

Latest News

H&P Report negative compared to pre-report expectations
H&P Report negative compared to pre-report expectations

Nearly every category topped the average pre-report estimates.

After the Bell | March 28, 2024
After the Bell | March 28, 2024

After the Bell | March 28, 2024

Pro Farmer's Daily Advice Monitor
Pro Farmer's Daily Advice Monitor

Pro Farmer editors provide daily updates on advice, including if now is a good time to catch up on cash sales.

PF Report Reaction: Bullish USDA data for corn
PF Report Reaction: Bullish USDA data for corn

Corn planting intentions and March 1 stocks came in lower than expected.

Report Snapshot: USDA shows lighter-than-expected corn acres and stocks
Report Snapshot: USDA shows lighter-than-expected corn acres and stocks

USDA reported corn acres of 90.036 million acres for 2024 and March 1 stocks of 8.347 billion bu., both well below trade estimates. Soybean acres were slightly lower than expectations, while stocks were higher.