New Farm Bill Consensus: No Consensus as Suggestions Cover the Map

House clears debt-limit measure with ball now in White House, Senate Democrats’ court

Inflation hasn’t gone away and neither have expectations for further Federal Reserve interest-rate hikes. Markets are pricing in a 76.7% chance of a quarter-point move next week, according to the CME FedWatch Tool. But… nearly 63% odds that there will be a pause in June. As for inflation, prices for food and energy have moderated, but those for services like air travel, education and car insurance continue to climb.

First Republic Bank’s shares rose 2.3% in premarket trading. The stock has shed roughly 60% of its value this week after it disclosed on Monday that it lost about $100 billion in deposits in the first quarter. So far this year the stock has shed more than 95% of its value amid rising interest rates and deposit outflows that are squeezing its balance sheet. Advisors to First Republic are looking to a group of bigger banks that already contributed to a $30 billion deposit lifeline in March to step in with additional support by buying some of its assets such as loans and securities, the Wall Street Journal reported.

A jump in U.S. tax inflows reduced the likelihood of a default in June, Goldman said. Tax receipt data for Tuesday — when paper checks for tax payments came in — outpaced the comparable 2022 day by 14%. We have the latest on the debt-limit situation in the Policy section.

A House Ag subcommittee hearing Wednesday was lengthy and so were the suggestions on a host of topics. Details in Policy section.

Norfolk Southern says the Ohio train derailment in February could cost the railroad almost $400 million. Meanwhile, Union Pacific, Canadian National and Mexico’s Ferromex will cooperate on a cross-border rail service aimed at competing with the newly formed Canadian Pacific Kansas City.

U.S. meat supplier Tyson Foods is eliminating 15% of its senior leadership positions and 10% of corporate jobs. Link for details via the WSJ

Russia keeps complaining about Black Sea grain deal. Details in Russia/Ukraine section.

The U.S. ethanol industry is lobbying the Biden administration to ensure lower-carbon aviation fuel made from ethanol will qualify for subsidies under the Inflation Reduction Act (IRA), arguing such provisions are crucial to meeting U.S. climate goals. More in Energy & Climate Change section.

Former President Donald Trump lost an emergency attempt to block former Vice President Mike Pence from testifying about their direct conversations after the 2020 election. Trump has repeatedly tried and failed to close off some answers from witnesses close to him in the special counsel's investigation.

Equities today: Global stock markets were mostly higher overnight. U.S. stock indexes are pointed toward higher openings, with unexpectedly strong tech earnings once again helping offset broader economic growth concerns. In Asia, Japan +0.1%. Hong Kong +0.4%. China +0.7%. India +0.6%. In Europe, at midday, London -0.1%. Paris +0.3%. Frankfurt +0.1%.

     U.S. equities yesterday: The Dow and S&P 500 finished with losses while the Nasdaq finished with a modest gain. The Dow ended down 228.96 points, 0.68%, at 33,301.87. The Nasdaq rose 55 .19 points, 0.47%, at 11,854.35. The S&P 500 was down 15.64 points, 0.38%, at 4,055.99.

Agriculture markets yesterday:

• Corn: July corn fell 6 3/4 cents to $6.01, near the session low and is the lowest close since July 25.  
• Soy complex: July soybeans fell 2 3/4 cents to $14.14 3/4, near the session low and closed at a four-week-low close today. July soybean meal dropped $7.60 at $427.40, near the session low and hit a 4.5-month low. July bean oil closed up 36 points at 52.50 cents, nearer the session high and hit a four-week low early on.
• Wheat: July SRW fell 11 cents before settling at $6.42, a penny off the intraday low. July HRW futures fell 19 3/4 cents and settled at $7.83 1/4. Spring wheat futures saw the most extensive selling of the wheat complex, falling 23 1/2 cents to $8.13.  
• Cotton: July cotton fell 26 points to 78.36 cents, near the session low and at a four-week low close.  
• Cattle: June live cattle futures rose 55 cents before settling at $164.575. May feeder futures rose 85 cents to settle at $210.275.  
• Hogs: June lean hog futures soared $3.235 to $90.275 Wednesday, leading the whole hog and pork complex higher.
   

Ag markets today: Early corrective buying dried up overnight and grain/soy futures are trading lower and on session lows this morning. As of 7:30 a.m. ET, corn futures were trading mostly 3 to 5 cents lower, soybeans were 7 to 9 cents lower and wheat futures were 8 to 12 cents lower. Front-month crude oil futures and the U.S. dollar index were both near unchanged.

Market quotes of note:

• Bloomberg: “The First Republic Bank saga continues, with the situation increasingly looking like a game of chicken between the US government and the lender’s largest rivals. Regulators have refrained from stepping in so far, even after the stock plummeted on Tuesday and Wednesday, in hope that the depositor banks will hash out a deal with the troubled lender to ensure it doesn’t collapse and lose their money. But big bank executives are keen to avoid throwing good money after bad, expecting that if they wait to see how it plays out, they may get some cash back.”
   
• “General higher costs across the structure of each business are just as important, it not more,” said Omair Sharif, founder of Inflation Insights. And core inflation indicators show wage growth is in fact slowing, according to analysis by Employ America.
   
• “Supply chain is obviously always an important part for us,” said Conagra Brands Inc. Chief Financial Officer Dave Marberger. At roughly $9 billion, it is the single biggest line item when looking at the cost of goods sold for the Chicago-based food manufacturer, which makes Hunt’s ketchup, Healthy Choice frozen meals and Slim Jim meat sticks. “But obviously with Covid and the significant impact it’s had on supply chain, it’s been even more of a priority for me.”
   

On tap today:

     • Earnings: AbbVie Inc., Amazon.com Inc., Bristol-Myers Squibb Co., Comcast Corp., Intel Corp., Mastercard Inc., S&P Global Inc. and T-Mobile US Inc. are among the companies reporting earnings today.
     • Preliminary estimate of Q1 GDP growth. The consensus call is for GDP to have grown at a seasonally adjusted annual rate of 1.8%, following a 2.6% increase in the fourth quarter, and 2.1% for all of 2022.
     • U.S. jobless claims are expected to rise to 249,000 in the week ended April 22 from 245,000 one week earlier. (8:30 a.m. ET)
     • U.S. pending-home sales for March are expected to increase 0.5% from the prior month. (10 a.m. ET)
     • Kansas City Fed's manufacturing survey is expected to fall to minus 2 in April from 0 one month earlier. (11 a.m. ET)

As Biden prepares for his re-election campaign, the WSJ looked at the U.S. economy. It says Biden launches his re-election campaign facing voters soured on a U.S. economy with high inflation, climbing interest rates and a strong but cooling labor market. “By several measures, the economy is better for many Americans since Mr. Biden took office amid its rebound from the short but severe pandemic-driven recession of 2020. Unemployment has fallen since he was inaugurated on Jan. 20, 2021, amid robust job growth and rising wages.”

     Four in five respondents to a recent WSJ-NORC Poll described the state of the economy as not so good or poor, and nearly half said they expect it will get worse in the next year.

Europe’s commercial property market slumped to its lowest level in 11 years in the first quarter of 2023 as concerns over the economy, banking sector and higher interest rates hit dealmaking. Data from MSCI, an analyst, showed that investors made deals worth €36.5 billion ($40 billion) in the three months to March, 62% lower than the same period last year. Paris overtook London as the region’s investment hotspot.

Market perspectives:

     • Outside markets: The U.S. dollar index was weaker ahead of the U.S. GDP update, even with the euro weaker against the greenback. The yield on the 10-year U.S. Treasury note was higher, trading around 3.46%, with a mostly higher tone in global government bond yields. Crude oils was higher, around $74.65 per barrel, and Brent was around $78 per barrel. Gold and silver futures were higher ahead of economic data, with gold around $2,009 per troy ounce and silver around $25.15 per troy ounce.     

     • The dollar fell behind the yuan for the first time in Chinese cross-border transactions. The greenback's use in those payments stood at 47%, while the yuan's increased to 48% last month. Beijing has been pursuing further use of the yuan to avoid currency mismatches in trade.

     • The classic commodities recession play of switching from oil to gold is well underway, but a Bloomberg assessment (link) says it’s far from a smooth progression as investors juggle signals from the Federal Reserve and China’s stuttering post-virus recovery.

     • Ag trade: Iraq purchased 150,000 MT of Australian wheat. Taiwan tendered to buy 51,925 MT of U.S. milling wheat.

     • NWS weather outlook: More rounds of heavy rain and severe weather expected to impact the southern tier states today and into early Friday, followed by portions of Texas by early Saturday... ...Severe weather with potentially large hail could occur again today near the east coast of Florida as well as southern Texas... ...Another quick round of wet snow is expected to dive into the northern Rockies today followed by the central Rockies tonight/early Friday... ...A warming trend across the West could break temperature records by Friday while below average temperatures are forecast for large portions of the U.S. from the Rockies eastward.

Items in Pro Farmer's First Thing Today include:

     • Grain price drop continues overnight
     • Argentina to pay for Chinese imports in yuan rather than dollars.
     • Indonesia to reduce palm oil domestic sales obligations
     • Slow developing cash cattle trade
     • Cash hog index taking baby steps

— The West's price caps have struck Russia’s oil export revenue, which plunged 29% — $15.6 billion — in the first quarter, a new study (link) from the Kyiv School of Economics (KSE) found. In December, the G7 and EU imposed a price cap of $60 a barrel on Russian crude, and in February they imposed additional price caps on a range of refined Russian fuels.

     But… According to KSE's study, 95% of the oil sold out of Russia's Pacific port of Kozmino sold above the price cap, with companies from G7 nations facilitating over half the shipments. "The fact that a substantial share of voyages from Kozmino involves Western-owned and/or -insured vessels while essentially all transactions show prices above $60/barrel points to potentially considerable price cap violations," the researchers said. The UAE, Hong Kong, and Singapore were among the top buyers of crude above $60 a barrel in the first quarter, they noted.

— Europe is taking steps to turn off one of the last significant supplies of Russian fossil fuels, seaborne shipments of liquefied natural gas. The WSJ notes: The question is whether the move would hurt Europe more than Russia. Because of Russia’s invasion of Ukraine, European governments last year slashed their longtime reliance on Russian fossil fuels, banning imports of its crude and diesel and seeking out new suppliers to replace its copious flows of natural gas.

— Russia continues strong rhetoric on grain deal. Russian Foreign Ministry spokeswoman Maria Zakharova said Russia does not consider the implementation of the Black Sea grain deal to be satisfactory. She reiterated Russia’s stance that only full implementation of the deal, which Moscow says would require better conditions for the export of its grains and fertilizers, is needed before the country would agree to an extension beyond May 18.

 

— The House voted 217-215 to raise the federal government’s $31.4 trillion borrowing limit. Republicans made up all votes in favor of the revised bill, while four GOP representatives joined all 211 Democrats present in voting against, setting up a showdown with the Senate and White House. The four Republicans voting with Democrats were: Tennessee's Tim Burchett, Florida's Matt Gaetz, Colorado's Ken Buck and Arizona's Andy Biggs.

     (Note: In the House, a simple majority is required for a bill to pass. The House currently consists of 435 voting members. Therefore, a bill would typically need at least 218 votes to be approved, assuming all members are present and voting. However, there may be cases where fewer than 435 members are present and voting, due to vacancies, absences, or other reasons. In such instances, a simple majority of the members present, and voting would be sufficient for a bill to pass. This number could potentially be less than 218 votes, depending on the specific circumstances.)

     The amendment struck provisions repealing three of the five biofuel-related tax credits that Midwestern GOP members sought to protect. The amendment would still repeal the other two credits but would grandfather in projects with signed contracts or "concrete investment action" undertaken up until April 19, the date GOP leaders introduced the original bill.

     Besides raising the federal debt ceiling until the gov’t incurs another $1.5 trillion in arrears, or through the end of March 2024, whichever occurs first, the 320-page legislation would cut federal funding by $130 billion in fiscal year 2024 ($4.8 trillion over the next 10 years), reverse spending to fiscal year 2022 levels and limit future budget growth to 1% per year. The GOP-authored legislation would block key provisions of Biden’s student loan forgiveness program and roll back new funding for the Internal Revenue Service included as part of the Inflation Reduction Act. It imposes new rules on low-income families that receive federal benefits, including food stamps and Medicaid, requiring them to work longer hours in exchange for help — or risk losing aid entirely. More than 10 million could lose health coverage if the law were adopted, according to an analysis from the Center on Budget and Policy Priorities, as it blasted the proposed GOP rules as unworkable.

     McCarthy comments. In a news conference after the vote, House Speaker Kevin McCarthy (R-Calif.) said the House is the “only body that passed anything… So right now, this is the only place that has lifted the debt limit.”

     Next step: The Democratic-controlled Senate will not approve the House-passed measure, but as we previously reported, there will be big pressure on the Senate to pass a debt-limit measure. They need Republicans to do it. Hence there will have to be a bargain in the Senate. “If you believe a clean debt ceiling is the way to go, then pass one in the Democratic Senate.” said Rep. Tom Cole (R-Okla.), the chairman of the House Rules Committee. “Our plan has always been the same: To avoid default, pass a clean debt ceiling — no brinksmanship, no hostage-taking,” Senate Majority Leader Chuck Schumer (D-N.Y.) said. House Ways and Means Chairman Jason Smith (R-Mo.) said Schumer’s position isn’t tenable.  “They have to get off that because he can't even get his own Democrats to vote for it… and they got to have 60 votes over there,” Smith said. Senate Minority Leader Mitch McConnell (R-Ky.) and his conference are backing McCarthy's insistence on spending cuts for raising the debt limit. “Until [Biden] and the speaker of the House reach an agreement, we’ll be at a standoff," McConnell said Wednesday.

     But President Biden this week threatened to veto the measure if it makes it to his desk. The impasse increases the odds of an emergency measure to temporarily suspend the debt limit for a few weeks.

     The Biden administration could try to unilaterally address the debt arguing the Constitution authorizes such action. The 14th amendment states: “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.” Even if this approach is taken, by no means a certainty, there would very likely be court challenges to such action.

     Timing of the debt deadline murky. The Treasury Department has warned a default is possible as soon as June, while the Congressional Budget Office has said it could be as late as September. Goldman Sachs said Wednesday that the default deadline for the U.S. government will come in July, not in June as some had feared. An early summer deadline cannot be ruled out because of unexpected changes in federal tax revenue.

     Negotiations will face tight schedules ahead. Consider: The House is out of session next week, while the Senate is in. McCarthy is off to Israel on a bipartisan codel. Shortly after he returns, President Biden will head to Australia and Japan.

     Upshot: McCarthy can use the House bill as a baseline negotiating tool in striking a deal with Democrats and the White House.

— House Ag subcommittee hearing finds groups all over the place in suggestions on new farm bill. The only consensus about what should be changed in writing a new farm bill is that there is no consensus. Commodity group representatives were all over the map on the topic during the lengthy hearing.

     Suggestions included:

• Voluntary updating of base acres, including the frequent topic of how to get base for some producers who are beginning farmers and others who have altered plantings in recent years.
• Mostly opposition to setting farm program payments on planted acres versus base acres as is currently the case.
• Increasing reference prices and/or modifying the escalator, with corn growers acknowledged any major change would cost a lot if triggered. NCGA President Tom Haag said it would take “a lot of money” to increase the statutory reference price for corn, which is now $3.70 a bushel, considerably below what he said was a $5 breakeven price. FAPRI estimates the effective reference price for corn will rise to $4.01 in 2024 for corn and hit $4.25 by 2026, because of recent increases in market prices. Some said an across-the-board hike in reference prices may not be necessary.
• Timing of reference prices increases were also called into question, with a wheat producer noting increases in reference prices due to the escalator provision happen well after market prices have dropped and growers need help, especially with rising costs of production.
• Some groups want increases in marketing loan rates.
• A commonsense acknowledgement by one witness that the decision each year to pick ARC or PLC is simply not worth the time, especially if others must agree with the decision. The suggestion: Make payments from whichever program provides growers with the most money in a given year. This would come at a cost that no one detailed.
• Rice growers again stressed that unlike other major commodities recently, rice did not see the price runup but faced stiff rising costs of production.
• Cotton growers pushed lawmakers to allow them to participate in PLC, even if they also purchase a supplemental insurance product, known as STAX — cotton farmers aren’t allowed to enroll acreage in both STAX and PLC. Removing that restriction “'would allow growers to better tailor their risk management options,” said Shawn Holladay, a Texas producer who chairs the National Cotton Council.

     Bottom line: No one says it, but it may be time to simply start all over and construct totally new safety net programs to better reflect the new world conditions and have them be more flexible than the current version.

— Senate panel advances Biden’s air, enforcement picks. The nominations of Joseph Goffman to lead the EPA’s air regulations office and David Uhlmann to be the agency’s chief enforcer now advance to the Senate floor. The nominees still face roadblocks — including a hold on all nominees —to confirmation from several Republican lawmakers.  

— China’s industrial profits slump in Q1. Profits earned by China’s industrial firms dropped 21.4% from a year earlier to 1,516.74 billion yuan ($219.1 billion) in the first three months of 2023, as factory activity struggled to recover from the slump caused by pandemic disruptions. In March, profits for the sector fell 19.2%. Among the 41 industries surveyed, 28 saw losses, namely petroleum, coal (-97.1%), non-ferrous metal smelting and rolling (-57.5%), computer, communication, & electronic equipment (-57.5%), chemical products (-54.9%), textile (-34.0%), non-metallic mineral product (-30.6%), automobile (-24.2%), agricultural & food processing (-18.4%), special equipment manufacturing (-10.1%), coal mining & washing industry (-4.9%), and oil & natural gas extraction industry (-4.8%).  

— The European Union plans to require thousands of U.S. companies to disclose extensive details about how their operations affect the climate — unless the Securities and Exchange Commission passes rules that EU officials see as tough enough to take their place. More than 3,000 U.S. companies are expected to have to gather and disclose data on their greenhouse-gas emissions and those of their suppliers and customers under a European Union law passed in 2022. The law says non-EU companies can get out of the new rules only if they face equivalent requirements elsewhere.

— China’s dominance over U.S. solar market grows. China is maintaining its tight grip on the U.S. solar market, underscoring how tough it is to supplant Chinese producers with domestic suppliers, the WSJ reports (link). The Biden administration and Congress are grappling with how best to lessen U.S. reliance on the Chinese solar industry, with lawmakers on both sides of the aisle pushing for stricter implementation of tariffs on solar panels to speed along the process.

— U.S. ethanol industry expands push for SAF. The U.S. ethanol industry is lobbying the Biden administration to ensure lower-carbon aviation fuel made from ethanol will qualify for subsidies under the Inflation Reduction Act (IRA), arguing such provisions are crucial to meeting U.S. climate goals. The campaign reflects the ethanol industry's desire to expand into aviation amid projections motor fuel demand will fall in the future due to better efficiency and the ascent of electric cars.

     The Biden administration is targeting at least 3 billion gallons (11.4 billion liters) of sustainable aviation fuel (SAF) production per year in the U.S. by 2030 as part of its broader push to fight climate change.

     At issue is a requirement in the IRA package that SAF yield a 50% reduction in lifecycle emissions compared with petroleum-based jet fuel before it can qualify for a $1.25 tax credit. The ethanol industry is asking the administration to use a methodology to calculate emissions developed by the Department of Energy called GREET that shows ethanol to have a lighter carbon footprint as an SAF feedstock than does the methodology proscribed by IRA, which was developed by the International Civil Aviation Organization.

— Some popular diets may not be good for your heart. A new report from the American Heart Association. It analyzed the most popular diets, using guidelines for heart-healthy eating, which are based on decades of studies. The findings: The keto and paleo diets got some of the lowest scores because restricting healthy carbs like fruits, vegetables, legumes and whole grains can be bad for long-term health. Link for more via the Washington Post.  

— Senate clears CRA provision reversing Biden administration rules on heavy truck emissions. The Senate cleared a Congressional Review Act (CRA) resolution that would overturn EPA’s rule limiting nitrogen oxide emissions from heavy trucks, with Sen. Joe Manchin (D-W.Va.) joining Republicans in support of the resolution. But President Joe Biden Wednesday pledged to veto the measure if it reached his desk and the vote of 50-49 is considerably distant from the two-thirds needed to override any veto.

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