McCarthy Works to Secure Votes for Debt Limit Plan

Biden officially announces re-election in 3-minute taped message with focus on Trump

Russia’s crude oil exports are showing no sign of dropping, even as the government says output has been cut. Details in Russia/Ukraine section.

The Ukraine grain export pact saga continues, and we have updates in this dispatch.

Ukrainian drone boats attacked a fleet in Crimea. Russian authorities said three unmanned Ukrainian boats attacked a Russian-controlled military port in Crimea, the base of Russia’s Black Sea Fleet in Sevastopol. A symbol of Russia’s naval power in the region, the Black Sea Fleet has been used to fire missiles at Ukrainian cities since the beginning of the war.

The deficit reduction plan put forward by House Speaker Kevin McCarthy (R-Calif.) would notably slow economic growth and increase unemployment next year if enacted, according to an analysis by Moody’s Analytics released Monday. And despite optimistic statements from GOP leaders that the votes are there for passage, an item in the Policy section notes that enough lawmakers are upset about the repeat of biofuel tax credits to thwart the plan, at least for now.

ERP Phase 2 program is close to reaching the $200,000 payment mark. Details in Policy section.

On the new farm bill front, we have more information about an effort to transfer $37 billion originally authorized for other purposes. Meanwhile, ag research supporters want a $5 billion deposit via the farm bill. More in Policy section.

First Republic’s quarterly earnings report yesterday sent its share price plunging, after the bank revealed that customers pulled billions in deposits, profits fell by about a third and it planned to cut a quarter of its work force. Customers pulled $102 billion out of First Republic last month, well over half of the $176 billion it held at the end of last year. Over that same period, it borrowed $92 billion, mostly from the Federal Reserve and government-backed lending groups.

Falling diesel prices may signal an industrial slowdown, says a WSJ report. U.S. diesel prices are half last May’s record, providing relief for companies that use diesel to power machinery or haul supplies, but also raising concerns over the waning manufacturing output and trade that have dented appetite for the fuel. The darkening industrial outlook, which contrasts with low unemployment and a robust service sector, has pulled benchmark diesel futures down nearly 25% this year, to $2.53 a gallon.

The Supreme Court turned away appeals by oil companies seeking protection from potential liability under state laws for harms caused by climate change.

Indonesia is the latest country barring export of raw materials critical to electric-vehicle production in an effort to attract investment for related industries at home.

Sabato's Crystal Ball: Is Biden's approval too weak for him to win? More in Politics & Elections section, including whether Chris Christie will run again for the GOP presidential nomination.

If you love tater tots, the Associated Press has an interesting story for you. See Food section.

Global military spending hits record amid Ukraine war, China tensions. The war in Ukraine and tensions over China’s increased military clout pushed worldwide military spending to a record last year. Military spending rose by 3.7% to a record high of $2.24 trillion in 2022, according to the Stockholm International Peace Research Institute. The figures mark the eighth consecutive year of spending growth.

Equities today: The U.S. Dow open around 45 points lower. In Asia, Japan +0.1%. Hong Kong -1.7%. China -0.3%. India +0.2%. In Europe, at midday, London -0.3%. Paris -0.7%. Frankfurt -0.1%.

     Grains trader Archer-Daniels-Midland Co gains in early trading after topping EPS expectations with its Q1 earnings report on revenue growth of 1.8%. Results from the ag services segment were much higher than the first quarter of a year ago. In South American origination, excellent risk management was cited and higher export demand due to the record Brazilian soybean crop that drove significantly higher year-over-year results. Crushing results were in line with the first quarter last year, while refined products and other results were substantially higher than the prior-year period.

     General Motors on Tuesday raised key guidance for 2023 after reporting first-quarter results that topped Wall Street’s top- and bottom-line forecasts.

     $500 billion: The stock market capitalization reached yesterday by LVMH, the French luxury group, making it the first European company to do so. Shares of the company have surged on the back of booming sales in China, making its founder, Bernard Arnault, the world’s richest person.

     U.S. equities yesterday: The Dow and S&P 500 finished higher while the tech-heavy Nasdaq was lower. The Dow gained 66.44 points, 0.20%, at 33,875.40. The Nasdaq fell 35.25 points, 0.29%, at 12,037.20. The S&P 500 rose 3.52 points, 0.09%, at 4,137.04.

     Other markets yesterday: Gold prices firmed as the dollar weakened. Oil prices rose on optimism about fuel demand in China.

Agriculture markets yesterday:

• Corn: May corn fell 12 cents to $6.51 1/4, the lowest close since April 6.
• Soy complex: May soybean futures fell 18 1/4 cents to $14.65 1/4, settling near the low. May soymeal futures settled at $439.5, $6.2 lower on the day and three ticks off the low. May soyoil fell 84 points to 52.56 cents.
• Wheat: May SRW futures fell 18 1/4 cents to $6.43 1/2. July SRW wheat fell 16 cents at $6.57. July prices closed near the session low and hit a 22-month low today. May HRW futures dropped 7 3/4 cents to $8.33 and July HRW wheat fell 8 cents to $8.17 1/2.
• Cotton: May cotton rose 57 points to 78.98 cents, near the session low, while July cotton rose 54 points to 80.69 cents.
• Cattle: June live cattle gained 2 1/2 cents to $164.55, closing near the session high. May feeder cattle closed down $1.65 at $210.75 and nearer the session high.
• Hogs: May lean hog futures rallied $1.275 to settle at $87.35.
   

Ag markets today: Grain and soy markets worked higher on corrective buying earlier in the overnight session, but buyer interest is drying up this morning. As of 7:30 a.m. ET, corn futures were trading fractionally to a penny lower, soybeans were steady to 4 cents lower, SRW wheat was around a penny lower, HRW wheat was 3 to 5 cents lower and spring wheat was around a penny higher. Front-month crude oil futures were around 50 cents lower, and the U.S. dollar index was up more than 200 points.  

Market quotes of note:

• Electric autonomous drones get approval to spray California crops. Farm fields in California’s Central Valley soon will be managed by crop-spraying autonomous drones after Guardian Agriculture received approval from the Federal Aviation Administration to deploy its machines. Use of drones on farms has been surging but Guardian is the first to get authorization in the U.S. to commercially operate so-called eVTOL aircraft, which are electric and take off and land vertically. Demand for the drones is so strong that Guardian is booking orders for late-2025, said Adam Bercu, cofounder and chief executive officer and a one-time Battlebots competitor. “We’ll be bottlenecked by manufacturing capacity for years,” Bercu told Bloomberg of his drone factory outside of Boston. “We’re turning folks down.”
   
• Cheap Brazilian corn. Observes grain trader/analyst Richard Crow: “The cash value of corn in Brazil is at such a discount to the U.S., all export business should be done by Brazil now thru U.S. new crop… Brazil will dominate.  I is surprising how cheap Arg is being offered with their small crop.”
   
• "U.S. hard red winter wheat areas will get the needed rain this week," said Terry Reilly, a senior analyst at Futures International.
   

On tap today:

     • S&P CoreLogic Case-Shiller 20-city home-price index for February is expected to rise 0.4% from one year earlier. (9 a.m. ET)
     • U.S. new-home sales are expected to fall to an annual pace of 634,000 in March from 640,000 one month earlier. (10 a.m. ET)
     • Conference Board's consumer confidence index is expected to tick down to 104.0 in April from 104.2 one month earlier. (10 a.m. ET)
     • Federal Reserve Bank of Richmond's manufacturing survey is expected to fall to minus 7 in April from minus 5 one month earlier. (10 a.m. ET)

First Republic: Depositors pulled $102 billion during first quarter. First Republic Bank revealed that depositors pulled about $102 billion out of the bank in the first quarter of the year, and shares of the bank fell more than 20% in aftermarket trading following the release of the news. Chief Executive Michael Roffler said during the earnings call that the bank will reduce its uninsured deposits and focus on cost-cutting measures such as reductions in executive compensation, cutting its workforce by as much as 25% and lowering loan volumes and nonessential activities. Link to more via the Washington Post.

UBS draws billions in new customer funds. The Swiss bank said today that it gained $28 billion in new assets in the first quarter, including $7 billion after it announced a deal to buy Credit Suisse. Its stricken rival lost $69 billion in customer money during the same period.

The Federal Reserve, along with other global central banks, announced a plan to scale back the frequency of auctions for U.S. dollar funding after the banks had increased access following uncertainty in the market amid the collapse of several U.S. banks. Starting May 1, central banks will offer the auctions on a weekly rather than daily basis, a decision that signals monetary policymakers' view that the financial system is stabilizing.

Market perspectives:

     • Outside markets: The U.S. dollar index was higher, with the euro, yen and British pound all weaker against the greenback. The yield on the 10-year U.S. Treasury note was lower, trading around 3.44%. Crude oil is under pressure, with U.S. crude around $78 per barrel and Brent around $81.80 per barrel. Gold and silver were lower, with gold around $1,987 per troy ounce and silver around $24.58 per troy ounce.

     • A nationwide freight slowdown has helped cut U.S. diesel prices by half from last year’s record, raising concerns that parts of the economy have begun to slow. Wholesale diesel prices surged last May, after Russia’s invasion of Ukraine sent commodity markets haywire. Prices began falling months ago, when a warm winter cut demand for heating fuel and a reshuffling of global oil trade left a glut of diesel supplies on the market. Now, waning manufacturing output and trade have also dented U.S. appetite for the fuel, the Wall Street Journal reports (link).

       

     • Europe is taking its first step in creating a pool of natural gas purchasers and pairing them with sellers to avoid a repeat of last year’s energy-market turmoil. The new buyers’ club, known as AggregateEU, opened Tuesday.

     • Turkey will impose a 130% tariff on imports of some grains, including wheat and corn, via a presidential decree published Tuesday. The tariff takes effect May 1 and reverses a decision around one year ago to end import tariffs completely after lowering them on grains and other agricultural products during the pandemic. This follows some European Union (EU) countries banning imports of grain from Ukraine last week.

     • Argentina raises domestic biofuels prices. The Argentine government raised the price of ethanol and biodiesel for compulsory blending with gasoline used in the local market. The ethanol price was raised to 148.479 pesos per liter (about $0.68), up from the previous 141.409 pesos. The price of biodiesel was raised to 294,430 pesos (about $1,347.38) per metric ton from 283,106 pesos previously.

     • Ag trade: Tunisia tendered to buy 75,000 MT of optional origin soft milling wheat. 

     • NWS weather outlook: Heavy rains, isolated flash flooding and severe weather possible across portions of the Central to Southern Plains... ...Heavy wet snow expected to develop over the Colorado Rockies and into portions of the Front Range later today... ...Below average temperatures for large portions of the nation to the east of the Rockies, while above average temperatures expand across the West... ...Elevated to Critical Fire weather conditions to persist across the southern Rockies to southern High Plains.

Items in Pro Farmer's First Thing Today include:

     • Buyer interest in grain markets fading this morning
     • HRW CCI rating continues to deteriorate, SRW rating slips
     • Argentina’s small soybean crop getting smaller
     • Argentine strike ends
     • Cold Storage Report out this afternoon
     • Cattle bulls defend their turf
     • Still waiting on low in cash hogs

— Update on Russian oil exports. The volume of Russian crude on tankers heading to China and India, plus smaller flows to Turkey and unspecified destinations, rose to a record 3.35 million barrels a day in the four weeks to April 21. India took almost 1.95 million barrels a day of Moscow’s crude in the four weeks to March 31 and, with most of the cargoes showing unknown end-points also likely to end up there, it could exceed that amount this month, according to Bloomberg (link).

     India’s Oil Secretary Pankaj Jain admitted some barrels are being purchased above a Group of Seven price cap. The country’s banks had earlier told authorities they wouldn’t process payments for volumes priced above the threshold.

— Russia’s shipyards are running out of key engine parts. The shortfall at the country’s big United Shipbuilding operation is delaying or halting the production of tankers and ocean vessels the country needs to move its oil and cargo. The Wall Street Journal reports (link) the shortfall is the result of sanctions since Russia invaded Ukraine, disrupting the flow of engine parts, propellers and fuel pumps. Clients for the ships are mostly from inside Russia and so production problems will mostly be felt within the country, with a limited impact on global shipbuilding. Still, delays could send waves across some markets such as the oil sector, where prices for older tankers have been rising sharply as companies seek vessels to move Russian crude. Yards are trying to make some parts themselves or replace them with imports from China, but creating new supply chains in shipbuilding is slow and costly.

—  Russia continues to oppose continuing or even expanding the Black Sea Grain Initiative in the wake of a letter that U.N. Secretary General Antonio Guterres gave to Russian Foreign Minister Sergei Lavrov to deliver to Russian President Vladimir Putin which outlined ways to continue and expand the effort. "Despite the fact that so much time has passed, (the deal) has not yet been implemented, it has not come together as a package, the conditions that concerned us have still not been realized," Kremlin spokesman Dmitry Peskov told reporters. "Therefore, while the circumstances don't add up in favor of this deal, we continue to observe.”

     A U.N. spokesman said that the Guterres letter outlined a “way forward aimed at the improvement, extension and expansion” of the agreement, but did not provide any details. Some of the potential actions proposed by the U.N. could include using Turkish banks to process payments in Russia, sidestepping a Russian demand that the Russian Agricultural Bank be returned to the SWIFT banking system.

     Upshot: During a U.N. Security Council meeting Monday, Guterres called on the parties involved to continue with both grain and fertilizer agreements.

— Firm expects sharp drop in Ukraine grain production, exports. Consulting firm APK-Inform forecasts Ukraine will produce 45.6 MMT of grain this year, which would be down 13% from 2022. That total is expected to include 22.9 MMT of corn and 16.2 MMT of wheat – both of which would be down around 14% — and 5.2 MMT of barley. The firm forecasts Ukraine’s exports in 2023-24 will plunge 23% for corn to 18.2 MMT and 37% for wheat to 8.8 MMT. APK-Inform also said Ukraine’s 2023 sunflower seed harvest could increase by 15% to 12.8 MMT thanks to a larger sowing area. The bigger production could allow Ukraine to increase sunoil output by 5% to 4.9 MMT in 2023-24 and export 4.5 MMT.

 

— ERP Phase 2 payments nearing $200,000. Payments under the Emergency Relief Program (ERP) Phase 2 effort have increased to $195,617 as of April 23, with 112 payments issued. Payouts under ERP Phase 1 and both Coronavirus Food Assistance Program (CFAP) efforts were little changed.

— Despite House GOP leaders saying they have the votes to clear debt-limit hike proposal, the votes are currently shy of the 218 needed. GOP leaders insist they will not alter the plan, despite efforts to do so. The biggest issue appears to be the repeal of biofuel tax credits, with eight to 10 House Republicans possibly voting against the GOP package because it eliminates Democratic-passed biofuel tax credits. The House Rules Committee is scheduled to begin marking up the Limit, Save, Grow Act at 4 p.m. today. The top members from the Appropriations, Budget and Ways and Means panels will testify.

     Upshot: If House GOP leaders postpone a tentative Wednesday vote on the plan, that means they still haven’t convinced enough members to approve the package. Assuming no Democratic House members will vote for the plan, that means GOP leaders can only afford to lose four GOP member votes.

     Of note: After this week, the House will be out until May 9.

— Some farm-state senators want to transfer $37 billion into farm bill originally earmarked for other purposes, including climate programs. That’s what John Newton, an economist for Republicans on the Senate Agriculture Committee, told the North American Agricultural Journalists meeting, according to reports. While the transfer topic is nothing new, the amount is larger than previously reported.

— Ag research proponents urge $5 billion in farm bill spending. The Association of Public and Land-grant Universities and more than 300 agriculture groups called on farm bill leaders to support $5 billion in mandatory funding for the Research Facilities Act in the bill. In a letter (link), the group says around 70% of the agriculture research facilities at colleges and universities are at the end of their useful life.

     What the funding is needed for: “The U.S. cannot rebuild our agricultural research prominence or keep up with international competitors with facilities built in the 1950s and 1960s,” the groups said. “An investment of $5 billion in agricultural research infrastructure at colleges of agriculture would be a significant step in an overall strategy to ensure that the U.S. remains globally competitive.”

— Senate Majority Leader Charles E. Schumer (D-N.Y.) could move today on the nomination of Anthony Devos Johnstone of Montana to serve on the U.S. Court of Appeals for the 9th Circuit, a sign that Democrats believe some judicial nominees can be confirmed even with Sen. Dianne Feinstein (D-Calif.) still out while she recovers from shingles.  

— China makes breakthrough in global race to provide ultra-high-speed 6G. Researchers used terahertz waves to achieve ultra-high-speed next-generation communication.

— China is pushing to join a huge Pacific trade deal but faces opposition from major members of the bloc. Chinese officials “appear increasingly concerned about being isolated in international trade” and view joining the CPTPP bloc as key to “breaking through US containment efforts,” the South China Morning Post reported. Beijing will require unanimity from existing members to join, however, and Japan, Canada, and Australia are opposed. “A successful outcome … is not completely impossible,” two Chinese scholars wrote recently. Those countries know, they argued, that the bloc will struggle to meet its broader goals “if China is not admitted.”

— Nineteen countries expressed an interest in joining the BRICS group of nations ahead of an annual summit in South Africa. The emerging-markets bloc of Brazil, Russia, India, China and South Africa will meet in Cape Town in June to discuss its enlargement after China initiated the conversation when it was the chair last year. The world’s second-biggest economy wants to use the platform to build diplomatic clout and counter the dominance of developed countries in the United Nations.

— DOE’s Granholm pushes FERC to accelerate remaining Mountain Valley Pipeline approvals. The Federal Energy Regulatory Commission (FERC) is being urged to move “expeditiously” on any remaining actions they have relative to the Mountain Valley Pipeline (MVP). Natural gas and infrastructure like MVP are “an important role as part of the clean energy transition, particularly with broad advances in and deployment of carbon capture technology facilitated by the Bipartisan Infrastructure Law and Inflation Reduction Act,” Granholm said in a letter to FERC Commissioners. She said pipeline infrastructure is key for the “rapid growth of hydrogen as an emissions-free fuel” and to provide transport for carbon dioxide. She also stressed the Department of Energy (DOE) takes no position on the outstanding FERC actions relative to MVP.

     Background. FERC completed its regulatory review for the project and issued a four-year extension in August 2022. Sen. Joe Manchin (D-W.Va.), who has been pushing the project which would transit through his home state, welcomed the Granholm push in a statement sent to Bloomberg. Environmentalists quickly noted their disappointment at Granholm’s stance.

— The Supreme Court will allow cases from municipalities and cities that aim to hold oil and gas companies accountable for climate change to move forward in state court in Colorado, Maryland, California, Hawaii and Rhode Island, in a blow to oil and gas companies that are more likely to face damage awards in state court. Companies including BP PLC, Chevron Corp. and Shell PLC have lost in lower courts in all five cases. Link to details.

— Reuters: President Joe Biden will veto legislation to overturn his administration's waiver on solar panel tariffs, as a measure to repeal the two-year waiver on four Southeast Asian nations is expected to come up for a full House vote as soon as this week. The House Ways and Means Committee last week voted to restore the tariffs to support domestic manufacturers who say the tariffs would help them compete with cheaper solar panels made overseas. Link to details via Reuters.

— General Motors Co. and Samsung SDI will invest more than $3 billion to build an electric vehicle battery manufacturing plant in the United States, as GM looks to diversify its supply of components. The plant is expected to start production of high-nickel prismatic and cylindrical battery cells in 2026 with an annual capacity of 30 gigawatt hours, although the companies did not disclose the location of the plant.

— McDonald's beats Q1 sales estimates with higher prices, more visits. McDonald's Corp's global comparable sales rose 12.6% in the first quarter, it said on Tuesday, blasting past Wall Street estimates as the burger chain banked on higher menu prices and more customer visits.

— Tater Tots were invented to reduce waste. According to the Associated Press (link): If Tater Tots are your favorite fast-food side, you have the ingenuity of two brothers — Golden and Francis Nephi Grigg — to thank. However, when the pair invented the crispy potato composites in the 1950s, they didn’t set out to change snack food history. Instead, their potato creation came from a quest to reduce the amount of food waste produced at their frozen foods plant.

    
     Source: Interesting Facts

— President Joe Biden formally announced his 2024 re-election campaign Tuesday, becoming the de facto nominee of the Democratic Party, which is expected to largely unite behind him despite concerns from voters about his age. The president announced his re-election in a three-minute video, in which he pledged to continue his “battle for the soul of America” and positioned himself as a champion of “personal freedom.”

     Key quote: “When I ran for president four years ago, I said we are in a battle for the soul of America, and we still are,” Biden said. “The question we are facing is whether in the years ahead we have more freedom or less freedom, more rights or fewer.”

— Former South Carolina governor Nikki Haley will give a speech today to establish herself as a leader in the party on how to talk about opposition to abortion without alienating voters, the Washington Post reports (link). She isn’t expected to endorse any specific policies when she speaks from the headquarters of Susan B. Anthony Pro-Life America in Virginia. But her goal “is to change the way abortion is discussed.”

— Sabato's Crystal Ball: Is Biden's approval too weak for him to win? Key points from the article (link):

• Presidential approval is typically a good predictor of the share of the vote an incumbent president will receive.
• Recent presidents often ran a little ahead of their approval as opposed to a little behind, although the sample size is very small.
• Assuming President Biden’s approval, which is mired in the low-to-mid 40s, does not spike to 50% or better before Election Day, he is likely going to have to perform well with those who only “somewhat” disapprove of his job performance. Democrats held their own with these voters in 2022.

— Is Christie running for president? Former New Jersey Republican Gov. Chris Christie told The Daily Beast (link) that “I am the viable Trump alternative” in the GOP primary race, adding that “I intend to be the nominee.” Christie has not officially announced a bid.

— H-2A resolution ahead. A Congressional Review Act resolution will be introduced to try and repeal the Labor Department’s new wage standards for H-2A workers, House Ag Committee Chair G.T. Thompson (R-Pa.) said on Monday. “There will be a Congressional Review Act that will be introduced, this week or next week, which will really try and repeal what the Department of Labor just did,” Thompson said. “I think we need to make the case that that wage increase could be a fast track to food insecurity in this nation.” Thompson also revealed the Ag Committee would be setting up an agriculture workforce task force, which he said will hopefully produce “one bill that we can all rally around.”  
 

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