ngress Set to Avert Rail Strike Next Month

Fed Chair Powell to speak as markets, traders await content | RFS info due today
 

USDA daily export sale: 136,000 metric tons of soybeans to China during the 2022-2023 marketing year.

Democrats and Republicans agree to prevent a rail strike. After a meeting with President Biden at the White House yesterday, congressional leaders said they would quickly draft the legislation needed to prevent a work stoppage. We have more on this topic in the “black box” section and in the Congress section. The Railway Labor Act empowers Congress to require rail companies and unions to accept labor agreements rejected by their members, though lawmakers can order both sides to push back a strike deadline or refer the negotiations to arbitration.

Federal Reserve Chair Jerome Powell will make remarks today. The big event, at the Brookings Institution, will touch on the economic outlook, inflation and the labor market. It will also be Powell's last chance to convey the thinking of the central bank before entering a blackout period ahead of the FOMC's meeting on Dec. 13-14.

The U.S. economy grew much faster than expected in the third quarter, according to the latest gross domestic product report, which showed GDP rose by an annualized rate of 2.9%. That's an improvement from the initial government reading in October that showed 2.6% growth in economic activity, and better than the Refinitiv forecast of 2.7%. And it's a marked turnaround from economic contractions of 1.6% in the first quarter of the year and 0.6% in the second.

Former Chinese President Jiang Zemin — who led his country out of isolation after the crushing protests in Tiananmen Square, and supported reforms that led to a decade of explosive growth — died at 96.

China hopes to calm some of the anger over its zero-Covid policy by loosening restrictions without unleashing a wave of sickness that would cripple the country’s health system. On Tuesday the National Health Commission announced a plan to “accelerate the promotion of covid vaccines for the elderly.” So far only 66% of over-80s have received a booster shot, according to officials, although that is up from 40% earlier this month. Bottom line: Chinese health officials are softening their tone on Covid-19 restrictions. It is unclear if the change in tone will translate into concrete actions by local officials who are bound by Beijing’s dual mandates of imposing Covid controls and ensuring people’s livelihoods, researchers say. Meanwhile, economic activity contracted further in November as Covid controls hit factories, and economists now expect China’s growth this year to be the weakest in decades, excluding 2020,

NATO doubles down on support for Ukraine. As top diplomats met in Bucharest to discuss bolstering Ukraine’s defenses, officials stressed their commitment to one day allowing Kyiv membership in the military alliance. More immediately, the U.S. said it will give the country $53 million for equipment to repair its battered electricity grid after weeks of Russian airstrikes.

EPA today, by court order, will finally release info on the RFS.

The Senate passed landmark legislation protecting same-sex marriage. The bill, which passed 61-36, will now go to the House, where it is expected to pass as soon as next week. President Biden said in a statement that the Senate vote reaffirmed “a fundamental truth: Love is love.”

Equities today: Stock futures are higher as traders look ahead to Fed Chair Jerome Powell’s speech today while international markets were mixed following some key economic data overnight. In Asia, Japan -0.2%. Hong Kong +2.2%. China +0.1%. India +0.7%. In Europe, at midday, London +0.6%. Paris +0.6%. Frankfurt +0.4%.

     U.S. equities yesterday: The Dow managed a positive close after a choppy trading session while the Nasdaq and S&P 500 were unable to work back into positive territory after falling lower before midday. The Dow finished up 3.07 points, 0.01%, at 33,852.53. The Nasdaq declined 65.72 points, 0.59%, at 10,983.78. The S&P 500 was down 6.31 points, 0.16%, at 3,957.63.

Agriculture markets yesterday:

• Corn: March corn futures fell 1 3/4 cents to $6.69 1/2, after rising earlier to the highest level in over a week.
• Soy complex: January soybeans rose 2 1/4 cents to $14.59 1/2, the contract’s highest close since Nov. 4. January soymeal fell $4.10 to $407.60. January soyoil fell 14 points to 72.98 cents.
• Wheat: March SRW wheat futures rose 3/4 cent to $7.81 1/2, while March HRW wheat fell 8 cents to $9.01. March spring wheat tumbled 11 cents to $9.40 1/4. SRW futures posted modest gains amid easing concerns over China.  
• Cotton: March cotton rose 166 points to 80.61 cents, up from a four-week closing low Monday.
• Cattle: February live cattle rose 12.5 cents to $154.80. January feeder cattle gained $1.125 at $178.00.
• Hogs: February lean hogs fell 60 cents to $84.15, the contract’s lowest close since Oct. 14.
   

Ag markets today: Soybean futures pushed to their highest levels since September overnight, while corn and wheat were supported by end-of-the-month corrective buying. As of 7:30 a.m. ET, corn futures were trading around a penny higher, soybeans were 8 to 11 cents higher, winter wheat futures were 5 to 7 cents higher and spring wheat was mostly a penny higher. Front-month crude oil futures were around $1.75 higher and the U.S. dollar index was about 350 points lower.

Technical viewpoints from Jim Wyckoff:

On tap today:

     • ADP's employment report, due at 8:15 a.m. ET, is expected to show that the U.S. private sector added 190,000 jobs in November. UPDATE: Private businesses in the US created 127,000 jobs in November of 2022, the least since January of 2021, and well below market forecasts of 200,000. The slowdown was led by construction and other interest rate-sensitive sectors. Consumer-facing segments were bright spots. The services-providing sector creating 213,000 jobs, led by leisure/hospitality (224,000); trade/transportation/utilities (62,000); education/health (55,000), while a fall was seen in professional/business services (-77,000); financial activities (-34,000K); and information (-24,000). The goods sector added 86,000 jobs, mainly due to mining (16,000) while the manufacturing sector shed 100,0000K jobs and construction lost 2,000. Meanwhile, annual pay was up 7.6 %. "The data suggest that Fed tightening is having an impact on job creation and pay gains. In addition, companies are no longer in hyper-replacement mode. Fewer people are quitting and the post-pandemic recovery is stabilizing,” said Nela Richardson, chief economist for ADP.
     • U.S. gross domestic product, due at 8:30 a.m. ET, is expected to grow at a 2.7% annual pace in the third quarter, a slight upward revision from the previously reported 2.6% gain. UPDATE: The U.S. economy grew an annualized 2.9% on quarter in Q3 2022, better than an initial estimate of 2.6%, and beating forecasts of 2.7%. The reading reflects upward revisions to consumer spending and nonresidential fixed investment that were partly offset by a downward revision to private inventory investment. Imports decreased more than previously estimated.
     • U.S. advance economic indicators for October are out at 8:30 a.m. ET
     • U.S. pending-home sales for October, due at 8:30 a.m. ET, are expected to fall 5.5% from the prior month.
     • Chicago purchasing managers index, due at 9:45 a.m. ET, is expected to rise to 47 in November from 45.2 one month earlier.
     • U.S. job openings, due at 10 a.m. ET, are expected to fall to 10.5 million in October from 10.7 million one month earlier.
     • Federal Reserve speakers: Gov. Michelle Bowman on the future of small banks at 8:50 a.m. ET, Gov. Lisa Cook on the economic outlook, Chairman Jerome Powell on the economy and labor market at 1:30 p.m. ET.
     • Fed releases its Beige Book report at 2 p.m. ET.

Fed Chair Powell will make a speech at the Brookings Institution at 1:30 p.m. ET today, and while the focus of the speech is the labor market, markets will be focused on whether he provides any additional commentary on 1) The December rate hike, 2) The state of inflation and 3) The terminal rate.

Eurozone inflation fell in November for the first time since mid-2021, as the consumer price index was up 10%, year-on-year, compared to a reading of up 10.6% in October, offering fresh evidence that inflation may have finally peaked in Europe. Still, the rate remains close to record levels and five times above the ECB target of 2%. President Lagarde recently told the European Parliament that Eurozone inflation has not peaked and risks are rising higher than expected. Considering the biggest economies, inflation slowed in Germany (11.3% vs 11.6%), Italy (12.5% vs 12.6%) and Spain (6.6% vs 7.3%) but remained unchanged at record levels in France (7.1%). Compared to the previous month, consumer prices edged 0.1% lower, the first decline since July last year.

The U.S. federal government is about to backstop mortgages of more than $1 million for the first time in high-cost markets, such as parts of California and New York.

U.S. mortgage rates fall for third week. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) in the U.S. fell by 18bps to 6.49% in the week ended November 25, following a 23bps drop in the previous week, data from the Mortgage Bankers Association (MBA) showed. It is the third consecutive week that borrowing costs fall and now stand at their lowest level in since mid-September, tracking a retreat in bond yields.

Roughly 197 million Americans visited stores or shopped online in the period between Thanksgiving Day and Cyber Monday, according to an estimate released Tuesday by the National Retail Federation, up 17% from last year.

India GDP growth slightly better-than-expected. The Indian economy expanded 6.3% yoy in Q3 2022, slightly higher than forecasts of 6.2%, but well below a strong 13.5% jump in Q2, as pandemic related disruptions ease and high prices, rising interest rates and slowing global demand weigh. Few countries have enjoyed as smooth an economic recovery from Covid-19 as India. This resurgence is, in part, why the IMF predicts that India will ultimately grow 7% in 2022, to displace Britain as the world’s fifth-largest economy. Growth rates are now normalizing somewhat. A cooling economy, however, may not be a bad thing. Besides reining in inflation, currently at 6.8%, economists believe weaker domestic demand could reduce worrisome fiscal and trade deficits.

Market perspectives:

     • Outside markets: The U.S. dollar index is weaker and is on track for its biggest monthly loss since 2010. The WSJ Dollar Index fell 4.2% this month through Tuesday. That would mark its largest monthly percentage decline since September 2010, according to Dow Jones Market Data. The yield on the 10-year US Treasury note has firmed to trade around 3.72%. Crude moved higher ahead of US government inventory data due later this morning, with US crude around $80.60 per barrel and Brent around $86.70 per barrel. There are some reports OPEC at its meeting next week will consider cutting its collective crude oil production. Other reports say the cartel will leave its production unchanged. Gold and silver futures are sharply higher, with gold around $1,775 per troy ounce and silver around $21.75 per troy ounce.

     • European natural gas prices rise as stocks fall. Dutch front-month natural gas futures surged more than 8% to above €140 MWh on Wednesday, the highest in over six weeks and extending a 7.3% rise in the previous session, as stockpiles started to fall and gas traders are coming to terms that frigid temperatures going forward will drain stockpiles. Storages in the EU were 93.6% full as of November 28, lower than 93.9% the day before.

     • Ag trade: South Korea purchased 69,000 MT of corn expected to be sourced from South America. 

     • NWS weather: Heavy snow for parts of the Cascades/Northern Rockies and the Sierra Nevada Mountains... ...Lake-effect snow downwind from the Great Lakes... ...There is a Slight Risk of severe thunderstorms and a Marginal Risk of excessive rainfall for parts of the Eastern Gulf Coast/Southeast.

Items in Pro Farmer's First Thing Today include:

     • Soybeans lead overnight price gains
     • Big jump in final fall HRW CCI rating
     • Ukraine shipping a lot more grain via Poland (details in Russia/Ukraine section)
     • Malaysia keeps December crude palm oil export duty at 8%
     • China to auction more wheat next week
     • Beef production remains strong
     • Hams lead sharp drop in pork cutout

— Summary: Ukrainian officials reported heavy Russian shelling in Kherson in the south, and difficult fighting further east in Luhansk and Kharkiv.

• NATO promised to send more arms to Ukraine as the U.S. committed $53 million to repair energy infrastructure destroyed by Russian missiles in the country. The alliance reiterated its support for Ukrainian membership at a meeting for foreign ministers in Romania, but outlined no timeline for this.
• Ukraine shipping a lot more grain via Poland. Around 450,000 MT of Ukrainian grain is being transported via Poland monthly, over 50% more than in the middle of the year, Poland’s infrastructure minister said on Wednesday. “Compared to October last year, the increase in grain transport in the same period of 2022 is over 16 times,” he added.
  
   

— FHWA nominee gets green light from panel. The Senate Environment and Public Works Committee on Tuesday advanced Shailen Bhatt, Biden’s nominee to lead the Federal Highway Administration (FHWA). The agency has been without Senate-confirmed leadership while implementing a large portion of last year’s infrastructure law.

— EPA air office nominee remains on hold. Members of the Senate Environment and Public Works Committee deadlocked Tuesday 10-10 on the nomination of Joe Goffman to lead the EPA air office, the office that would be responsible for implementation of climate change rules. The panel has previously been unable to forward the nomination.

     Cases like this underscore the importance of the Dec. 6 runoff election for the Georgia Senate seat because if Sen. Raphael Warnock (D-Ga.) wins re-election, that would give Democrats a 51-49 margin in the chamber. With a 50-50 Senate, membership on panels is evenly split between Democrats and Republicans, so an outright majority would also give Democrats majorities on the various committees, making it easier for controversial nominees to be approved.

— Frustrated ag groups keep pushing for Senate approval of USTR, USDA trade nominees. The group Farmers for Free Trade is again calling on Senate leadership to move forward the nominations of Doug McKalip as chief agricultural negotiator at the Office of the U.S. Trade Representative (USTR) and Alexis Taylor to be USDA undersecretary for trade and foreign agricultural services. The two were cleared by Senate panels but have not been voted on by the full Senate. The group pointed out that it takes “years” for trade relationships to be built and the fact the two US officials are not yet in place is “unacceptable and damaging to the competitiveness of U.S. food and agriculture.” 

     The snag: Sen. Bob Menendez (D-N.J.) has a hold on McKalip’s nomination as he wants more transparency from USTR, but it is not clear why Taylor’s nomination has not moved forward.

— China's former President Jiang Zemin has died at 96. Jiang led China out of isolation after the army crushed the Tiananmen Square pro-democracy protests in 1989 and supported economic reforms that led to a decade of explosive growth. A surprise choice to lead a divided Communist Party after the 1989 turmoil, Jiang saw China through a revival of market-oriented reforms, the return of Hong Kong from British rule in 1997 and Beijing’s entry into the World Trade Organization in 2001.

— China’s authorities promised to combat “hostile forces,” whom they blame for stoking countrywide demonstrations against the country’s stringent anti-covid measures. University students, among the most vocal protesters, have been sent home from campuses and police have flooded the streets to prevent further dissent. However, clashes between demonstrators and police were reported in Guangzhou on Tuesday night. On Wednesday, authorities lifted a lockdown on Zhengzhou, home to the world’s biggest iPhone factory. But restrictions keep pinching producers; China’s manufacturing-sector contracted further in November.

— China’s factory activity falls to seven-month low. China’s official manufacturing purchasing managers index declined to 48.0 in November from 49.2. That was the second straight month of contraction in factory activity and the lowest reading since April amid a new wave of Covid cases and tough restrictions in some large cities. Output, new orders and exports all declined.

     Details: Output (47.8 vs 49.6 in October), new orders (46.4 vs 48.1), and export sales (46.7 vs 47.6) all fell at faster paces. Also, employment stayed weak, dropping the most in seven months (47.4 vs 48.3); and buying activity declined for the second month in a row, with the rate of fall the steepest since April. At the same time, delivery time lengthened the most in six months (46.7 vs 47.1). On the price front, input cost rose the least since August (50.7 vs 53.3); while a fall in output charges extended for the seventh month running (47.4 vs 48.7). Finally, business sentiment turned downbeat following months of optimism (48.9 vs 52.6).

— China’s sow herd marginally increases in October. China’s sow herd increased 0.4% in October from the month prior to 43.79 million head, according to the country’s ag ministry. The sow herd was 0.7% larger than October 2021.

— EPA by court order to announce RFS plans today. Today EPA will announce the volume requirements under the Renewable Fuel Standard (RFS) for 2023 and beyond, with indications the agency will announce levels for at least 2023 and 2024. EPA told Politico that it “will meet the deadline for signature” on the proposal, referring to EPA Administrator Michael Regan signing the proposed rule. It will then appear in the Federal Register to formally open the comment period on the plan, but that could take a week or two before that happens.

     The rule will address electric vehicles (EVs) charged with electricity from biomass and biogas and how the biofuel certificates or e-Renewable Identification Numbers (eRINs) will be handled.

     This will be the first RFS plans from EPA that are up to the agency to determine as the statutory levels for the program under the Energy Independence and Security Act (EISA) only were in place through 2022. EPA is already well behind their statutory requirement to put the “set rule” forth 14 months in advance of the first year (2023), or by Oct. 31, 2021. Under the court agreement with Growth Energy, EPA committed to proposing the rule Nov. 30 after initially agreeing to a Nov. 16 deadline, and they are to finalize it by Jun. 14, 2023.

— Year-round E15 legislation. Farm-state Sens. Deb Fischer (R-Neb.) and Amy Klobuchar (D-Minn.) unveiled a bill to allow year-round sale of E15 and other blends of ethanol higher than the traditional 10 percent, with a big difference: support of the oil industry.

— Biden officials today will talk climate, EV deployment. The Biden administration today  is announcing an electric vehicle (EV) initiative aimed at ramping up EV use and deployment in tribal communities and on tribal lands. The effort, funded by the bipartisan infrastructure law, will include replacing diesel school buses with zero-emission vehicles, helping tribes purchase EV fleet vehicles, and mapping proposed areas for charging infrastructure. Senior administration officials said during a Tuesday briefing that the effort also will involve the Labor and Education departments to provide training and certification in EV infrastructure to tribal citizens.

— Tesla's market share shrinks. Tesla's dominance in the U.S. is eroding. The company's cars accounted for 65% of new registered electric vehicles through the third quarter, down from 71% last year and 79% in 2020, according to S&P Global Mobility. By 2025, the firm forecasts that figure will drop to less than 20%. Despite the declines, Tesla's sales volume is still expected to increase in coming years as EVs grow in popularity. And there's plenty of room for growth. Right now, electric models account for just 5.1% of the more than 10 million vehicles registered in the U.S.

— U.S. efforts to build up the use of solar power are stuck at the docks. Several thousand shipping containers of solar panels have been detained by U.S. Customs near ports including Los Angeles, the Wall Street Journal reports (link), while even more are being held up in factories and ports from Vietnam to Malaysia or diverted to places such as Europe. The disruptions are the result of U.S. legislation aimed at cracking down on alleged labor abuses in China, which supplies most panels in the U.S. Some big Chinese manufacturers have been avoiding Chinese silicon and using materials from American or German companies. But Customs officials are holding many panel shipments while they scrutinize documentation, and a trade group estimates that panels that could fill 4,000 shipping containers are likely stuck in warehouses at U.S. ports while the suppliers foot the bill for storage costs.

— Kroger, Albertsons CEOs face questions at congressional hearing. The chief executives of two grocery companies faced questions at a congressional hearing about how their proposed merger might alter the competitive landscape and the prices that consumers pay at the store. Lawmakers noted that the proposed deal comes at a time when groceries are taking up more of American families' budgets, with inflation driving up prices of everyday items. Kroger and Albertsons' leaders said combining their companies will help their ability to lower food prices and stay competitive as the industry undergoes dramatic changes. "The best way to compete with mega stores like Walmart and highly capitalized online companies like Amazon will be through a merger with Kroger," Albertsons CEO Vivek Sankaran said at the hearing.

— Summary:

• Global Covid-19 cases at 642,902,485 with 6,633,799 deaths
• U.S. case count is at 98,676,688 with 1,079,888 deaths.
• Johns Hopkins University Coronavirus Resource Center says there have been 653,502,647 doses administered, 267,804,921 have received at least one vaccine, or 81.28% of the U.S. population.

— Lecanemab, a drug designed to slow the onset of Alzheimer’s disease, shows promise, trial data suggested. It is the first treatment that trials suggest has an effect on the brain condition, from which an estimated 55 million people suffer. Still, the potential benefits seem small, and Lecanemab appears to work only on those in the early stages of the disease.

— Democrats will vote on a new presidential calendar, likely ending Iowa's first-in-the-nation status. Members of the Democratic National Committee's Rules and Bylaws Committee are exploring options that could move New Hampshire or Nevada into the leadoff spot and bring a new state such as Michigan or Minnesota into the early voting window.

— House votes today on legislation that to avert a rail strike. Of note, House Speaker Nancy Pelosi (D-Calif.) announced plans for a separate vote on whether to add seven days of sick leave to the contract. The decision comes after a growing chorus of Democrats voiced opposition to Congress passing a railroad deal they viewed as unfriendly to rail workers. “After hearing from our members, we are in agreement that a nationwide rail strike must be prevented — and that more must be done to secure the paid sick leave that hard-working railroaders deserve,” Pelosi said in a statement. President Biden had called on Congress to pass the legislation “without any modifications or delay.” The House vote today will be on legislation pushed by President Biden that would put in place the “tentative agreement” between workers and management reached in September. Some unions have refused to endorse that deal, and a potential strike looms as early as Dec. 9, which the administration says would cripple the economy by slowing a supply chain still recovering from problems created by the coronavirus pandemic. The separate vote on the sick days bill would allow Democrats to vote for that proposal without changing the legislation that the White House wants enacted quickly.

     "I don't like going against the ability of unions to strike, but weighing the equities, we must avoid a strike," Pelosi said after meeting with President Biden and leaders from both parties at the White House. "Jobs will be lost. Even union jobs will be lost. Product will not be going to market."

     One of the top industries on watch has been the chemicals sector, which is one of the biggest users of freight rail. According to the American Chemistry Council, the group ships more than 33,000 carloads a week valued at $2.8B and any work stoppage could lead to a recession. To prepare for a shutdown, railroads even stop accepting security-sensitive shipments, such as chemicals to treat drinking water. Upshot: retail executives say goods that retailers are counting on for the holidays will mostly not be affected because they are already in stores or at nearby warehouses. On the other hand, the oil-and-gas industry warns that a rail shutdown would spark fuel supply crunches and price spikes.

     Perspective: The last time Congress acted to settle a nationwide railroad dispute was in 1992. Following a strike by the International Association of Machinists, Congress moved to end the industrial action two days later by approving legislation, which was immediately signed by President George H.W. Bush.

— Senate voted 61-36 last evening to codify the rights to same-sex marriage and interracial marriage into federal law. Twelve Senate Republicans voted for the bill. All 36 no votes came from Republicans. The House is expected to follow quickly.
 

— Cargill buys Owensboro Grain. Grain processor and trader Cargill said it would acquire Owensboro Grain Co., a soybean processor, as part of its plan to modernize and increase its capacity in the North American oilseed market. Link for details.

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