Traders, Markets Keep Flipping on Impacts of Omicron Variant

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Update on WHIP+ for 2020 and 2021 ag disasters
 


In Today’s Digital Newspaper


Market Focus:
• USDA daily export sale: 132,000 MT soybeans to unknown destinations, 2021-2022 MY
• Omicron variant: Market volatility signals traders uncertain about variant impacts
• Fed chairman and Treasury secretary appears today before congressional panel
Inflation in Eurozone hit a record high in November 

America's power plants are low on coal
• FTC seeks more info on companies’ supply chains
• Gasoline costs pressuring household finances•
• Ag demand update

• Followthrough pressure overnight amid heightened risk aversion, month-end selling
• Consultant lowers Brazilian corn crop peg
• Brazil keeps diesel blend at 10% through
• U.S. winter wheat crop will go into dormancy with below-average CCI ratings
• China’s factory sector unexpectedly expands in November
• China: Olympic Games will proceed as planned
• Signs of short-term top in cattle
• Another sharp drop in cash hog index 

Policy Focus:
• Updates on CR, debt limit, BBB, National Defense Authorization Act
Dairy producers ask: When are the announced dairy aid payments coming?
WHIP+ for 2020 and 2021 disasters 

China Update:
• China’s factory sector unexpectedly expands in November 

Trade Policy:
• EU hits Russian procurement rules, U.S. maintains Appellate Body block 

Energy & Climate Change:
Brazil keeps diesel blend at 10% through 2022

Livestock, Food & Beverage Industry Update:
• Food prices are likely to stay near record highs next year: Rabobank
• Study finds consumers in France most willing to pay for biotech produced fruit

Coronavirus Update:
Omicron’s myriad mutations signal a new vaccine may be needed
Federal judge halts vaccine mandate for health workers at hospitals w/federal funding


MARKET FOCUS


Equities today: Global stock markets were mixed to lower in overnight trading. The U.S. stock indexes opened lower — the Dow and S&P were off 0.7%, the NASDAQ was off 0.4%. It’s clear traders have returned to being very anxious about the impacts of the Omicron variant. Asian equity markets were mostly lower amid concerns that current Covid-19 vaccines will be less effective against the new Omicron variant. Japan’s Nikkei lost 462.16 points, 1.63%, at 27,821.76. The Hang Seng Index fell 376.98 points, 1.58%, at 23,475.26. European equities are seeing losses. The Stoxx 600 was 1.3% lower with other markets down 1.0% to 1.8%.

     U.S. equities yesterday: The Dow added 236.60, 0.7%, to 35,135.94. The S&P 500 jumped 60.65 points, 1.3%, to 4,655.27. The Nasdaq advanced 291.18, 1.9%, to close at 15,782.83.

     Stocks

On tap today:

     • S&P/Case-Shiller 20-city home-price index for September is expected to increase 19.3% from one year earlier. (9 a.m. ET)
     • Chicago purchasing managers index is expected to fall to 67.5 in November from 68.4 one month earlier. (9:45 a.m. ET)
     • Conference Board's consumer confidence index is expected to fall to 110 in November from 113.8 one month earlier. (10 a.m. ET)
     • Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen testify at a Senate Banking Committee hearing at 10 a.m. ET.
     • Federal Reserve: New York’s John Williams speaks on food insecurity at 10:30 a.m. ET, and Vice Chairman Richard Clarida participates in a town hall and conversation with Cleveland’s Loretta Mester at 1 p.m. ET.
     • China's Caixin manufacturing index for November is out at 8:45 p.m. ET.

Powell and Yellen to testify. The Senate Banking Committee today will hear from Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen in the first of two days of congressional oversight hearings. Powell will likely be asked to respond to comments in the prepared testimony on the risks posed by the Omicron variant. Yellen will likely emphasize the need to address the debt ceiling, which she has said has a Dec. 15 deadline, while others have a longer timeframe.

     Here is what Powell will say relative to Omicron: His written testimony highlights how the new variant could put the Fed in a difficult position in the coming months if it exacerbates inflation while also holding more workers back from seeking employment, which could lead wages to continue accelerating. “Greater concerns about the virus could reduce people’s willingness to work in person, which would slow progress in the labor market and intensify supply-chain disruptions,” Powell will note.

     Here is what Yellen will say regarding the debt limit: “I cannot overstate how critical it is that Congress address this issue. America must pay its bills on time and in full. If we do not, we will eviscerate our current recovery. In a matter of days, the majority of Americans would suffer financial pain as critical payments, like Social Security checks and military paychecks, would not reach their bank accounts, and that would likely be followed by a deep recession.”

Inflation in the Eurozone hit a record high in November. Consumer prices rose 4.9% from a year earlier in November, according to Eurostat, the European Union's statistics agency. That's the fastest annual rise reaching back to 1997, when records for the currency bloc begin. The main driver was energy prices, which rose 27.4% on year. The news will add pressure on the European Central Bank to outline how it plans to combat persistently rising prices.

     Eurozone inflation

America's power plants are low on coal. Stockpiles have dwindled to their lowest point since the 1970s, and the race to build up inventories ahead of heating season has sent domestic thermal coal prices to their highest levels in more than a decade, the Wall Street Journal reports (link).

     Coal

FTC seeks more information on companies’ supply chains. The Federal Trade Commission (FTC) polled nine major retailers, wholesalers and goods suppliers including Amazon, Walmart, Kroger, Procter & Gamble and  and others about their practices, to help determine whether shortages are leading to anticompetitive behavior. The firms have 45 days to provide information on the causes of supply-chain problems, the FTC said in a statement.

     The FTC wants them to provide internal documents regarding the disruptions, including “strategies related to supply chains; pricing; marketing and promotions; costs, profit margins and sales volumes; selection of suppliers and brands; and market shares.” The agency seeks to determine whether the logjams “are leading to specific bottlenecks, shortages, anticompetitive practices, or contributing to rising consumer prices.”

     The agency also asked for “voluntary comments” that could “provide an opportunity for market participants to surface additional issues and examples of how supply chain disruptions are affecting competition,” the statement said.

     Meanwhile, President Biden told top retail leaders he was committed to making sure their shelves were stocked for the holidays, and smaller stores are hoarding far more inventory than usual.

Market perspectives:

     • Outside markets: The U.S. dollar index is lower amid strength in the euro and British pound. The yield on the 10-year U.S. Treasury note is lower, trading below 1.45%. Gold and silver futures were up, with gold around $1,794 per troy ounce and silver around $22.85 per troy ounce.

     • Crude oil prices are down, with U.S. crude around $68.50 per barrel and Brent around $71.50 per barrel. Prices were lower in Asian action, with U.S. crude off $1.87 at $68.08 per barrel and Brent down $1.93 at $71.29 per barrel.    

     • Gasoline costs are pressuring household finances. U.S. prices have climbed about 50% in a year with drivers paying an average of $3.40 a gallon for regular.

         Gas prices

     • Biden administration said it would proceed with its plan to release oil from the Strategic Petroleum Reserve despite the recent slump in prices.

     • Ag demand: Japan is seeking to buy 51,773 MT of U.S. wheat in its weekly tender.

     • Weather: 

        Wx Today

Items in Pro Farmer's First Thing Today include:

     • Followthrough pressure overnight amid heightened risk aversion, month-end selling
     • Consultant lowers Brazilian corn crop peg
     • Brazil keeps diesel blend at 10% through
     • U.S. winter wheat crop will go into dormancy with below-average CCI ratings
     • China’s factory sector unexpectedly expands in November
     • China: Olympic Games will proceed as planned
     • Signs of short-term top in cattle
     • Another sharp drop in cash hog index


POLICY FOCUS


— Update on must-do policy issues:

  • Fiscal Year 2022 spending: With lawmakers not even close to reaching any accord on final spending for the fiscal year that began Oct. 1, a stopgap spending measure being talked about would extend the current continuing resolution of Dec. 3 until mid- to late-January. That shows lawmakers think other issues, especially the Build Back Better  proposal, will take the bulk of this month or even into 2022.
  • Debt limit: We will hear a lot about this topic today as Treasury Secretary Janet Yellen appears before a congressional panel. Yellen has previously noted a Dec. 15 timeline for Congress to act again on this issue, while other private forecasts have a longer timeframe. Senate Majority Leader Chuck Schumer (D-N.Y.) continues to talk about this issue with Senate Minority Leader Mitch McConnell (R-Ky.). Various options are under discussion, including a possible debt limit suspension language that could be part of a separate reconciliation measure. But there could be some parliamentarian snags on this approach. Schumer reportedly told his deputies Monday that his negotiations with McConnell are ongoing and that the Senate is likely to consider a debt ceiling fix next week. Sen. Joe Manchin (D-W.Va.) suggested that the two parties may reach an agreement to raise the debt ceiling through reconciliation, if Republicans agree to allow the process to be expedited. The major takeaway is that leaders from both parties are no longer negotiating this topic in the press but among themselves. That signals a compromise may be at hand.
  • Build Back Better (BBB) package: Schumer wants a vote by the end of December but comments on Monday from centrist Sen. Joe Manchin (D-W.Va.) signal this could be bumped into 2022. No major clarity on this topic at this time, including uncertainty on whether or not it will be voted on this year and if so, when, and what the final package will look like, as the Senate approach will look far different than the House version.
  • National Defense Authorization Act (deadline: Dec. 31): Every year since 1961, Congress has passed the NDAA — a package setting policies and funding levels for the Department of Defense. This year, the process includes some controversial provisions to repeal the 2002 authorization of military force against Iraq and require women to register for the draft. Schumer attempted to move forward with the package on Monday, but McConnell led his caucus in blocking action on the bill: a cloture vote to advance the measure went down 45-51, with one Republican voting in favor, five Democrats voting against, and four Republicans not voting. McConnell is pushing for more amendments to be voted on before he’ll allow the NDAA to advance; Schumer has protested, saying it was GOP senators who blocked a plan to hold 19 amendment votes before Thanksgiving recess.

— Dairy producers ask: When are the announced dairy aid payments coming? Some are “coming soon” contact say while other payments announced Aug. 19 regarding Covid aid payouts appear to be bogged down because of USDA constraints put on the program (production limits, etc.).

— WHIP+ for 2020 and 2021. Not a day goes by where a producer doesn’t ask or email about this topic. Some key points:

  • WHIP+ payments have been authorized for 2020 and 2021 disasters, including for the livestock and dairy sectors.
  • Operation of the coming program will have include some statutorily required improvements to the program required by Congress relative to the prior WHIP+ program but otherwise key lawmakers expect the program to be administered in the same way that the 2018 and 2019 programs were run.  The program for past years was very complex and saw much delayed payouts; presumably USDA has the kinks worked out now and there is no need to recreate the wheel.
  • Decisions regarding whether to use the APH policy price election or the Harvest Price Option (HPO) price election have not been finalized, despite reports to the contrary.  The price election by which a producer is indemnified on a crop loss is determined in February. But with HPO, if the crop price rises, the producer will be indemnified at the higher price (sort of like replacement insurance, one contact noted). However, depending on how USDA implements the WHIP Plus Plus program (and this is still to be determined), it could result in zero payment for producers who bought HPO coverage if they calculate expected crop revenue using the APH policy price election while crop insurance indemnities that are subtracted from any WHIP Plus benefit are determined using the HPO price election.  If USDA gets this wrong, it will have effectively gutted the WHIP program Congress just created.
  • On dairy, about one-third of all milk in the U.S. is now covered under crop insurance. Milk losses are covered under WHIP+. High-valued commodities such as milk should receive the $900,000 pay limit.
  • Congress made clear to USDA that they want the 2020 and 2021 WHIP+ program to be administered more smoothly and to get the payments out quicker than in the past. Those two goals are difficult for any government program, but in the case of a streamlined and more efficient WHIP+, most of the work is done.  This does not need to be hard for USDA.
  • USDA Secretary Tom Vilsack previously told us on AgriTalk that program details could be known yet this year, but even if that were to occur, actual payments would likely be made in 2022, some USDA sources add. Why so long for a program that is already stood up? Make the tweaks Congress required and get help out to producers who need it is the refrain I hear in the countryside.  

CHINA UPDATE


China’s factory sector unexpectedly expands in November. China’s official manufacturing purchasing managers index (PMI) rose to 50.1 in November from 49.2 in October. This marked the first expansion in China’s manufacturing sector since August amid an easing of power shortages and a sharp drop in the price of some raw materials. The subindex for production rose to 52.0 in November from 48.4 in October while new orders fell at a slower pace, although November marked the fourth straight month of declines in customer demand. Analysts warn there could be new restrictions on manufacturing in northern China due to the upcoming Beijing Winter Olympics and the new Omicron strain of Covid.


TRADE POLICY


— EU hits Russian procurement rules, U.S. maintains Appellate Body block during WTO DSB session. Russia blocked the European Union’s (EU) first request for a dispute panel to examine Russian government import procurement rules, Costa Rica challenged the Dominican Republic’s antidumping measures for corrugated steel bars, and the U.S. maintained its blockade on Appellate Body appointments, during a Nov. 29 session of the World Trade Organization’s (WTO) Dispute Settlement Body (DSB). Overall, activity in the session was subdued, with just two new dispute panel requests. The session took place a day before WTO’s 12th Ministerial Conference (MC12) had been scheduled to begin, with that gathering now postponed tentatively in March, due in part to new travel restrictions imposed to curb the spread of the newly emerged Covid-19 Omicron variant.


ENERGY & CLIMATE CHANGE


— Brazil keeps diesel blend at 10% through 2022. Brazil’s National Energy Policy Council (CNPE) decided on Monday to maintain a 10% biodiesel blend in diesel for 2022, citing “the interests of the consumer in terms of price, quality and supply of products.” Earlier this year, Brazil cut its biodiesel blend rate from 13%. Brazil’s soy industry was hoping the rate would be returned to that level and have advocated for a gradual increase to 15% in 2023. “The federal government's decision destroys the national biodiesel program imposing a maximum blending of 10% (B10) in 2022 and gives a signal contrary to the commitments established at COP26”, according to a joint statement from the Brazilian Association of Vegetable Oil Industries (Abiove), the Association of Biofuel Producers in Brazil (Aprobio) and the Brazilian Union of Biodiesel and Biokerosene (Ubrabio).


LIVESTOCK, FOOD & BEVERAGE INDUSTRY


— Food prices are likely to stay near record highs next year due to consumers stocking up, high energy and shipping prices, adverse weather and a strong dollar, according to Rabobank.

— Study finds consumers in France most willing to pay for biotech produced fruit. A new study from the University of Florida has looked into consumers’ willingness to buy fresh biotech-produced fruits, finding the widest acceptance among younger and more educated consumers. Conducted among 5,367 respondents from the U.S., Canada, the United Kingdom, France, and South Korea in April 2019, the study also found that consumers in France (49%) were most willing to buy such products, followed by consumers in South Korea (36%), where consumers may have associated biotechnology with higher nutritional benefits and better food safety. In the U.S., in comparison, just over a quarter of consumers (27%) expressed willingness to buy fresh fruit produced with the use of biotechnology. The study also found that respondents who eat more fruits, feel healthier than peers, have environmental awareness, and eat away from home on a regular basis are more willing to buy biotech-produced fruits. It also suggested that respondents might associate biotechnology with better food safety, more nutrition, and ease of consumption — all providing a positive perception of biotechnology. The study was published Nov. 21 in the journal Sustainability.


CORONAVIRUS UPDATE


Summary: Global cases of Covid-19 are at 262,295,087 with 5,210,524 deaths, according to data compiled by the Center for Systems Science and Engineering at Johns Hopkins University. The U.S. case count is at 48,438,037 with 778,601 deaths. The Johns Hopkins University Coronavirus Resource Center said that there have been 457,529,056 doses administered, 196,806,194 have been fully vaccinated, or 59.96% of the U.S. population.

— Omicron’s myriad mutations signal a new vaccine may be needed, according to executives from vaccine manufacturer Moderna Inc. Stéphane Bancel, the CEO of Moderna, told the Financial Times that he expected a “material drop” in current vaccines’ effectiveness against the variant, and Regeneron said that tests showed its antibody drug was less effective against the new strain. "There is no world, I think, where [the effectiveness] is the same level... we had with [the] Delta [variant]," Bancel said. "I think it's going to be a material drop. I just don't know how much because we need to wait for the data. But all the scientists I've talked to... are like, 'This is not going to be good.'"

     Albert Bourla, Pfizer’s CEO., said his company’s new Covid pill should work against Omicron.

     There is still not enough patient data to properly assess whether the new variant is predominantly mild, with public health experts saying studies are needed. President Biden said Omicron is a “cause for concern, not a cause for panic” while urging people to get booster shots. But Biden said new lockdowns aren’t being considered. Biden also directed federal agencies to be ready to move quickly to approve additional vaccines or boosters tailored to shield against the new variant, though symptoms linked to Omicron have been described as "extremely mild" by the South African doctor who first sounded the alarm over the new strain.

     Federal Reserve Chair Jerome Powell said the new variant poses downside risks to employment and growth while adding to uncertainty about inflation. Those growth risks are evident as governments around the world continue to tighten travel restrictions.

— A federal judge on Monday halted the Biden administration’s vaccine mandate for health workers at hospitals that receive federal funding. The ruling applies to 10 states that sued to block the Nov. 5 rule. “The scale falls clearly in favor of healthcare facilities operating with some unvaccinated employees, staff, trainees, students, volunteers and contractors, rather than the swift, irremediable impact of requiring healthcare facilities to choose between two undesirable choices — providing substandard care or providing no healthcare at all,” wrote Judge Matthew Schelp.


 

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