U.S. Economy Contracts for First Time Since Mid-2020 in First Quarter

( )

Meat packer CEOs, put under oath, say no pact to drive up profits or limit meat supply
 

                                                In Today’s Digital Newspaper

 

Odds of a U.S. recession are growing as the U.S. first quarter GDP contracted. Personal saving rate still at 6.6%, but down from 7.7% in 4Q 2021. The benchmark 10-year Treasury yield on Thursday rose, trading around 2.88%, after the government reported that the U.S. economy contracted 1.4% in the first quarter. The Federal Reserve will pay special attention the data. But as usual, analysts who did not forecast the GDP contraction, say the reports may not be as bearish as it first appears. "We should not take that as a signal of the direction of the economy," says Ben Herzon, senior U.S. economist with S&P Global Market Intelligence. "If we peel back a couple of layers and just look at underlying domestic demand, the economy looks to be picking up a little bit of steam." Wells Fargo economists note that net exports robbed the GDP bank in the first quarter, slicing 3.2 percentage points off of the headline growth rate, inventories and government spending cuts took another 0.8 points and 0.5 points, respectively.

Russia is making slow progress in its bid to cut off Ukrainian forces. Russia's President Vladimir Putin warned the West of a "lightning fast" response to any country intervening in the Ukraine war and creating "strategic threats" for Moscow. Meanwhile, NATO's Secretary-General Jens Stoltenberg said there's a possibility that the conflict between Russia and Ukraine will last for years. Britain’s foreign minister promised to go “further and faster to push Russia out of the whole of Ukraine.” She also said the West would similarly come to the aid of Moldova if Russia were to invade there. 

Biden administration is considering naming Russia a state sponsor of terrorism, but officials haven't determined the Kremlin's actions meet the legal standard for the designation, Secretary of State Antony Blinken told lawmakers Wednesday. Meanwhile, the U.S. Justice Department has made sanctions evasion and export-control violations a central focus of its white-collar enforcement program following Russia’s invasion of Ukraine, officials said.

The U.S. is running short of some weapons and has yet to increase production to replace the depleted stocks. 

Biden administration is tapping a USDA emergency fund for food aid overseas. Six countries in Africa and the Middle East will receive $670 million in additional food aid (and associated costs to get it there) to mitigate severe food insecurity. 

Food restrictions are not widespread linked to the Russian invasion of Ukraine, according to WTO Director-General Ngozi Okonjo-Iweala. Just 13 of 164 WTO members have reported export controls on food, she said. 

Russia on Wednesday released inconsistent data that showed the economy in March was either doing fine or just treading water — in contrast with private-sector data has shown a sharp slowdown in Russia. 

The yen weakened to more than ¥130 to the dollar on Thursday for the first time since April 2002, after the Bank of Japan reinforced its commitment to low interest rates despite rising inflation. 

President Biden will travel to South Korea and Japan in May, the White House said, amid continuing tension with China and the continued nuclear threat from North Korea. 

China buys more U.S. corn, soybeans. USDA Export Sales data for the week ending April 21 noted China continues to buy US corn, with purchases of sorghum, soybeans, upland cotton, beef, and pork also reported. Net sales for 2021-22 of 729,236 tonnes of corn, 41,626 tonnes of sorghum, 165,108 tonnes of soybeans, and 61,400 running bales of upland cotton. Activity for 2022-23 included sales of 612,000 tonnes of corn, 468,000 tonnes of soybeans, and cancellations of 11,200 running bales of upland cotton. For 2022, net sales of 1,517 tonnes of beef and 120 tonnes of pork were also reported. 

USDA daily export sale: 1,088,000 MT of corn for to China — 476,000 MT for delivery during MY 2021-2022 and 612,000 MT during MY 2022-2023. 

Grain traders’ profits are rising as the Ukraine war tightens the global food supply. Archer Daniels Midland and Bunge are reaping big gains as the war in Ukraine has disrupted supplies from one of the world’s top grain-exporting regions, pushing up prices for wheat and corn. 

Indonesia, the largest producer of palm oil, is stopping exports after cooking-oil prices at home rose sharply. The topic is a hot one as big media is now focused on the subject, including the Wall Street Journal and Los Angeles Times. 

Chief executives of the nation’s four largest meatpacking companies said on Wednesday that they were not the cause of surging meat prices at the grocery store. Under oath, they told a skeptical House Agriculture chairman David Scott there was no pact to drive up profits at the expense of consumers or limit the meat supply for Americans. Details in Livestock section. 

Officials in drought-stricken Southern California declared a water-shortage emergency and mandated limited water use outdoors for about six million residents. 

EPA administrator Michael Regan commented on several topics during an interesting discussion with Agri-Talk earlier this week. We have details below… the ag sector will like what he said about WOTUS. 

New York’s top court ruled that proposed districts for the U.S. House of Representatives and state Senate were invalid and ordered that a special master prepare a set of new maps. 

Moderna has asked the FDA to authorize the use of its Covid-19 vaccine in children ages 6 months to 5 years. 

The Biden administration will cancel the loans of 28,000 student borrowers who attended a now-defunct for-profit chain of cosmetology schools. 

U.S. Election Day 2022 is 194 days away. Election Day 2024 is 922 days away.

 

MARKET FOCUS

Equities today: Global stock markets were mostly higher overnight. U.S. Dow opened up around 170 points. Asian equities ended with gains after mixed day on Wall Street. The Nikkei gained 461.27 points, 1.75%, at 26,847.90. The Hang Seng Index moved up 329.81 points, 1.65%, at 20,276.17. European equities are solidly higher in early action with the Stoxx 600 up 1.1% and regional markets advancing 0.6% to 1.6%.

     U.S. equities yesterday: U.S. stock indices closed with small gains or losses after a late-session selloff pared what had been solid gains. The Dow finished up 61.75 points, 0.19%, at 33,301.93. The Nasdaq declined 1.81 points, 0.01%, at 12,488.93. The S&P 500 was up 8.76 points, 0.21%, at 4,193.96.

     Stocks 042722

Agriculture markets yesterday:

  • Corn: July corn futures rose 10 3/4 cents to $8.12 1/4 after posting a contract high at $8.18 1/2, while May futures ended at $8.15 1/2, the highest close for a nearby contract since August 2012.
  • Soy complex: July soybeans surged 21 cents to $16.92 3/4, the contract’s highest closing price since April 21. July soymeal rose $4.00 to $441.00, while July soyoil gained 228 points to 84.72 cents.
  • Wheat: July SRW wheat fell 3 3/4 cents to $10.91 1/4, while July HRW wheat fell 10 1/2 cents to $11.54. July spring wheat rose 6 3/4 cents to $11.94 3/4, a lifetime-high closing price.
  • Cotton: July cotton rallied the 500-point daily limit to 140.68 cents per pound, the highest settlement since April 18.
  • Cattle: June live cattle fell $1.225 to $135.025, the lowest closing price since April 11. August feeder cattle fell $4.20 at $168.95, near a six-month low
  • Hogs: June lean hog futures fell 82.5 cents to $110.35, the contract’s lowest settlement since Feb. 4.
     

Ag markets today: Old-crop corn futures posted new contract highs overnight, while new-crop December corn came with 1/2 cent of its high. Wheat was also firmer, while soybeans were mixed in quiet two-sided trade. As of 7:30 a.m. ET, corn futures were trading 4 to 7 cents higher, soybeans were 2 cents lower to 2 cents higher, SRW wheat futures were 12 to 14 cents higher, HRW futures were 6 to 8 cents higher and HRS wheat is mostly 8 to 9 cents higher. Front-month U.S. crude oil futures are trading around 50 cents lower, while the U.S. dollar index is up more than 600 points, challenging the 2017 high.

Technical viewpoints from Jim Wyckoff:

     April 28 Corn

     April 28 Soybeans

     April 28 Crude

     April 28 Bonds

     April 28 Gold

The U.S. economy contracted at a 1.4% annual rate in the first three months of 2022. Economists expected U.S. GDP to have fallen by an annualized rate of 1.1%. The new data could fuel growing concerns about a recession amid steady inflationary pressures and uncertainty over the war in Ukraine. “We’ve got a resilient economy, but signs of weakness are starting to show,” said Diane Swonk, chief economist at Grant Thornton. “The reality is that rate hikes and higher prices have consequences. Among the factors dragging down the economy at the beginning of 2022 were a reduction in retailers’ inventory purchases and a growing gap between U.S. exports and imports. The country’s trade deficit for goods — the difference between incoming and outgoing products — widened to a record high in March, the Commerce Department reported this week. Many businesses bought less inventory than they normally would in early 2022 because they had leftover merchandise from late last year, when they stocked up on extra goods to guard against supply chain shortages and delays. That drop in purchasing is likely to artificially drag down GDP numbers, economists say.

     Wells Fargo economists note that net exports robbed the GDP bank in the first quarter, slicing 3.2 percentage points off of the headline growth rate, inventories and government spending cuts took another 0.8 points and 0.5 points, respectively.

     GDP 1Q

President Biden will travel to South Korea and Japan from May 20-24, it was announced Wednesday evening.

USDA and the U.S. Agency for International Development are providing $670 million in food assistance to countries in need “as a result of Putin’s unprovoked invasion of Ukraine,” USDA said in a statement.

     • $282 million from the Bill Emerson Humanitarian Trust will be used to bolster existing emergency food operations in Ethiopia, Kenya, Somalia, Sudan, South Sudan, and Yemen.
     • USDA will provide $388 million in additional funding through the Commodity Credit Corporation to cover ocean freight transportation, inland transport shipping and other associated costs. (Note this is higher than the actual amount for aid.)

BOJ bucks global trend as it signals rates will stay low. The conclusion of the Bank of Japan (BOJ) monetary policy meeting saw them issue a statement signaling it intends to keep bond yields around zero, pushing the yen to a multi-year lows. The BOJ said it left unchanged its -0.1% target for short-term interest rates and pledged to guide the 10-year bond yield around 0% via continued purchases of an unlimited level of bonds daily to defend the yield target. "We want to prevent Japan's long-term interest rates from rising in line with overseas bond yield increases," BOJ Governor Haruhiko Kuroda said in a post-meeting briefing. He also indicated no change in his view that a weak yen helps Japan. The BOJ also noted rising inflation in the country, lifting its projection that core consumer prices would rise 1.9% in the current fiscal year before moderating to 1.1% in their fiscal 2023 and 2024. Japan has been pushing to get its inflation rate to 2% for several years. The situation contrasts with other global central banks around the globe that are tightening monetary policy in a bid to break inflation which has run at multi-decade highs.

     Yen drops

Food restrictions are not widespread linked to the Russian invasion of Ukraine, according to WTO Director-General Ngozi Okonjo-Iweala. Just 13 of 164 WTO members have reported export controls on food, she said. She also noted that one of the potential outcomes at the WTO ministerial meeting next month could be an agreement among WTO members not to restrict exports of products the World Food Program deems critical for humanitarian purposes. However, the effort has been proposed for several years and so far, has not been adopted in part due to opposition from India.

The world’s agricultural trading giants are reaping big gains from disruptions in global commodities supply chains. Events ranging from Russia’s invasion of Ukraine to bad weather afflicting other big crop-producing countries are fueling a supply crunch, the Wall Street Journal reports (link), even as consumers’ food demand remains strong in the face of rising prices. That’s boosting companies like Archer Daniels Midland, Bunge and Cargill that help direct the flow of corn, soybeans, wheat and other food commodities. Bunge’s agribusiness unit reported a nearly 15% rise in sales despite falling volume, and Bunge and ADM both saw profits jump last quarter. ADM says it expects the tight supply of crops to continue for the next few years because of drought conditions in South America, a weak Canadian canola crop and the war in Ukraine, suggesting the biggest challenge will be keeping goods flowing to anxious markets.

Higher cooking oil prices around the world. Global cooking oil prices have been rising since the Covid-19 pandemic began for multiple reasons, including poor harvests in South America, coronavirus-related labor shortages and steadily increasing demand from the biofuel industry, the Los Angeles Times reports (link). The war in Ukraine — which supplies nearly half of the world’s sunflower oil, with Russia supplying an additional 25% — has interrupted shipments and sent cooking oil prices spiraling. Vegetable oil prices hit a record high in February, then increased an additional 23% in March, according to the United Nations Food and Agriculture Organization.

     Soybean oil, which sold for $765 per metric ton in 2019, was averaging $1,957 per metric ton in March, the World Bank said. Palm oil prices were up 200% and are set to go even higher after Indonesia, one of the world’s top producers, bans cooking oil exports starting Thursday to protect domestic supply. Indonesia, which provides 60% of the world’s palm oil, is barring exports of the ingredient found in candy bars, ice cream and cooking oil,

(The WSJ today reports (link) Indonesia, which provides 60% of the world’s palm oil, is barring exports of the ingredient found in candy bars, ice cream and cooking oil. The articles notes that some palm-oil analysts estimate that the ban will likely last only for a few weeks, as Indonesia has limited storage capacity and its exports are a key source of foreign exchange.)

     (Note: See the next item on more news about Indonesia broadening its palm oil trade ban hours before enactment.)

     The high cost of cooking oil is partly behind recent protests in Jakarta. Indonesia has imposed price caps on palm oil at home, and the ban on exports starting Thursday will create a new squeeze worldwide. Palm oil has been sought as an alternative to sunflower oil and is used in many products, from cookies to cosmetics.

     Big companies are feeling the pain too. London-based Unilever, maker of Dove soap and Hellmann’s mayonnaise, said it has contracts for crucial ingredients like palm oil for the first half of the year. But it warned investors that its costs could rise significantly in the second half.

     Cargill, a global food giant that makes vegetable oils, said its customers are changing formulas and experimenting with different kinds of oils at a higher rate than usual. That can be tricky because oils have different properties: Olive oil burns at a lower temperature than sunflower oil, for example, while palm oil is more viscous.

     Longer term, the crisis may lead countries to reconsider biofuel mandates, which dictate the amount of vegetable oils that must be blended with fuel in a bid to reduce emissions and energy imports. In the U.S., for example, 42% of soybean oil goes toward biofuel production, said Dr. Joe Glauber, a senior research fellow at the International Food Policy Research Institute and former top USDA economist. Indonesia recently delayed a plan to require 40% palm-oil-based biodiesel, while the European Commission said it would support member states that choose to reduce their biofuel mandates.

Indonesia broadens palm oil trade ban hours before enactment. The Indonesia government announced Wednesday that its ban on RDB palm olein that starts today (April 28) would also apply to crude and refined palm oil, broadening the export halt which has been labeled as being temporary. “Once domestic needs have been met, of course I will lift the export ban because I know the country needs taxes… foreign exchange... a trade balance surplus, but meeting the people's basic needs is a more important priority,” Indonesian President Joko Widodo said in a statement.

     The Indonesian Palm Oil Board said it things the ban will be lifted not longer after the Eid Al-Fitr holiday — likely in May. The Palm Oil Board said it still expects to hit a forecast of 22 million tonnes in 2022 for palm oil products even as the export ban will affect around 60% of Indonesian palm oil shipments.

     Palm oil futures rose in Malaysia after the announcement the ban would be expanded, but ended up finishing lower in Thursday action. Expectations are that the ban will be temporary with the country setting an apparent target of getting prices down to 14,000 rupiah per kilogram before lifting the ban; prices were around 20,000 rupiah per kilogram earlier this week.

Mexico: President pushes for agreement to lower price of 25 basic food staples. Members of Mexican President Andres Manuel Lopez Obrador's Cabinet are in the final stages of negotiations with businessmen and food producers to freeze the domestic prices of 25 food staple items to control inflationary effects on households, El Economista reported. If Mexico freezes the domestic prices of food and implements other measures to fight inflation, Lopez Obrador will likely maintain his high approval rating and ensure the continued prominence of his Morena party and alliances in Congress. However, the action would likely reduce the profits of Mexico's agricultural and food business sectors. Additionally, if food prices rise or remain high once the food subsidies are lifted, Mexico would likely experience intense inflationary pressure.

     Mexico's National Consumer Price Index has risen 7.72% from January to April, compared with 6.05% during the same time span in 2021. Global food prices have risen dramatically due to the Covid-19 pandemic and Russia's invasion of Ukraine, which threatens Mexico's access to food products as a net food importer.

Potential impact of deglobalization. Goldman Sachs economists calculated what the threat of deglobalization will mean for U.S. inflation. In a new report, they analyzed U.S. imports, production, import prices, and producer prices for more than 300 manufacturing industries in a bid to estimate the relationship between American inflation and goods imports from China and other low-wage countries. In either the case of a “blanket deglobalization” or a widescale reshoring of production back to the U.S. from China, Goldman predicted a boost to annual inflation, excluding energy and food costs, of 0.4 percentage points. “Slowbalization” is “one more reason to expect somewhat higher inflation and thus higher nominal interest rates than before the pandemic,” they warned.

     Deglobe

Market perspectives:

     • Outside markets: The U.S. dollar index is in positive territory ahead of U.S. GDP figures (which showed the U.S. economy contracted in the first quarter) as the euro and yen have weakened against the greenback. The yield on the 10-year U.S. Treasury note firmed and was trading around 2.84% amid a mostly higher tone in global government bond yields. Gold and silver futures were weaker ahead of economic data, with gold around $1,888 per troy ounce and silver around $23.10 per troy ounce.

     • The euro hit a five-year low against the dollar. Russia's halt in gas flows have darkened the economic prospects for Europe. The IMF warned that the ongoing war in Ukraine will have "severe economic consequences for Europe."

        April 28 Euro

     • Crude oil futures are under pressure ahead of U.S. trading, with U.S. crude around $101.20 per barrel and Brent around $104.20 per barrel. Prices were weaker in Asian action, with U.S. crude around $100.75 per barrel and Brent around $103.50 per barrel.

     • Corn and soybeans prices have risen nearly to records, signaling higher food inflation to come.

        Corn and soybean prices

     • California’s legislature is going to miss a May 1 deadline to kill the annual summer increase in its 51-cent gas tax, Gov. Gavin Newsom’s office said. “It is clear now that the Legislature will not act in time to provide that immediate, limited relief, but we look forward to working with lawmakers on the Governor’s proposal for direct payments to Californians wrestling with rising prices,” Newsom’s press office said in a statement. “The sooner we can move this package through the legislative process, the sooner we can deliver needed relief to Californians," the office added.

     • $893 is the average revenue per intermodal unit at Norfolk Southern in the first quarter, a 26% increase over the year-ago quarter as intermodal traffic fell 6%.

     • Transportation and logistics nuggets:

        — Drewry Shipping Consultants projects container lines collectively will earn $300 billion in profits this year.
        — The ports of Los Angeles and Long Beach will test the use of 100 electric trucks in container operations this year.
        — First-quarter profit at trucker Old Dominion Freight Line jumped more than 50% to $299.8 million as less-than-truckload shipments increased 15%.
        — First-quarter net profit at freight broker C.H. Robinson Worldwide jumped 56% to $270.3 million​.
        — Freight forwarder Hapag-Lloyd will spend $250 million to install tracking capability in nearly all its 1.6 million shipping containers.
        — Freight forwarder DSV boosted its outlook after first-quarter profit doubled.

     • Southern Californians were told yesterday to reduce outdoor watering in an “unprecedented” order amid a historic drought. Officials are specifically demanding businesses and residents in parts of Los Angeles, Ventura, and San Bernardino counties cut outdoor watering to one day a week because they “don't have enough water to meet normal demands for the 6 million people living in the State Water Project dependent areas," a spokesman for the Metropolitan Water District of Southern California said. Metropolitan is calling on residents in its region to cut their water consumption by 35% to avoid a full ban on watering later in the summer. The new restrictions will take effect June 1 and apply to areas that depend on water from the State Water Project, including northwestern L.A. and Ventura counties, parts of the San Gabriel Valley and parts of the Inland Empire. If vast improvements aren’t immediate and apparent, a full outdoor watering ban could happen as soon as September. Residents who are not complying will be given door-tag warnings for their first offense, with penalties escalating from there, he said. After three offenses exceeding 150% of the water budget, the agency would be able to install flow-restriction devices.

     • NWS weather: Developing storm system over the central U.S. on Friday to generate areas heavy snow across the northern Rockies, heavy rain over the northern Plains, and severe thunderstorms in the central/southern Plains... ...Coastal rain and inland snow to continue across parts of Maine through Friday... ...Critical to extreme fire weather located throughout parts of the Southwest, southern Rockies, and southern High Plains.

        NWS 042822
        Wx 042822

Items in Pro Farmer's First Thing Today include:

     • Corn and wheat firmer, soybeans mixed overnight
     • Indonesian palm oil ban expected to be short-lived
     • China to eliminate coal import tariffs for 11 months (Details in China section)  
     • Wholesale beef prices tumble
     • Hog futures premium to continues to narrow

 

RUSSIA/UKRAINE

— Summary: Russian officials say they are actively trying to secure all of Ukraine's eastern regions. But Ukrainian and Western officials and analysts say Moscow’s progress is slow and yet to achieve a decisive breakthrough. Russian President Vladimir Putin warned yesterday that any country interfering in Ukraine would be met with a “lightning-fast” response from Moscow. Separately, Canadian lawmakers yesterday voted unanimously to recognize “acts of genocide” being committed by Russia in Ukraine. The Kremlin, however, continues to deny any involvement in the mass killings of Ukrainian civilians.

  • Some of Europe’s largest energy companies will pay for Russian gas in rubles. Critics say their willingness to go along with the Kremlin’s terms will undercut EU sanctions and prop up the Russian economy with billions in cash.
  • NATO allies have “pledged and provided” more than $8 billion in military aid to Ukraine so far, said alliance chief Jens Stoltenberg. President Joe Biden plans to deliver remarks today on support for Ukraine as his administration looks to send to Congress a proposal for more weapons and humanitarian aid.
  • John E. Herbst, a former U.S. ambassador to Ukraine, told the current nominee for the role that the U.S. is "without good reason, holding back on the fighters, bombers, and longer-range drones that Ukraine desperately needs to deal with the Kremlin offensive" in eastern Ukraine.
  • Biden has approved more requests to export U.S. natural gas as it seeks to counteract Russia’s efforts to use the fuel as a weapon against Ukrainian allies. Golden Pass LNG, a liquefied natural gas project that Qatar Petroleum and Exxon Mobil are building in Texas, and Glenfarne’s Magnolia LNG project planned for Louisiana won Energy Department authorization to ship gas to countries that don’t have a free trade agreement with the U.S.
  • European Union is looking to suspend for one year import duties on all Ukrainian sales.
  • The U.S. is running short of some weapons more than two months into Russia’s invasion of Ukraine, and it has yet to boost production to replace the depleted stocks, the WSJ reports (link). Pandemic-driven shortages of computer chips, rocket motors, propellant and labor have exacerbated long-held concerns about the U.S. military-industrial base and its ability to increase production in times of conflict.
     
  • Russian billionaire pledges $100 million for Ukrainians. This morning, a foundation started by the Russian-born tech billionaire Yuri Milner and his wife, Julia Milner, will announce a pledge of $100 million toward humanitarian aid for refugees from Ukraine. The effort, Tech for Refugees, will also be supported by the nonprofit arms of Airbnb and the logistics company Flexport. Milner made most of his fortune by funding U.S. tech start-ups, including early investments in Facebook and Twitter, and has made a mansion in Los Altos Hills, Calif., his primary residence for over a decade.
  • Linkage with Russian cyberattacks. A new study by Microsoft suggests that many of Russia’s cyberattacks on Ukraine have been timed to coincide with missile strikes. Link to details via the NYT.


— Market impacts:

  • Russia is facing its biggest slump in oil production since the final days of the Soviet Union. Russia estimated its oil output could fall as much as 17% this year, signaling the worst crash since the 1990s, according to a new report. “More expensive ships. More expensive cargo. More expensive transit fees. Much longer transit routes. More risks of piracy. More to pay for insurance,” said Credit Suisse strategist Zoltan Pozsar, on Russia’s need for dozens of very large crude carriers to reroute Europe-bound oil to customers in China or India.
  • French energy giant TotalEnergies took a $4.1 billion charge on its natural-gas reserves, citing impacts from the Western sanctions targeting Russia.

 

POLICY UPDATE

— House Dems plan legislation, not ruling out gas tax holiday. A federal gas tax holiday is “part of the discussion” among Democratic leadership about how Congress can help lower gasoline prices, caucus Chairman Hakeem Jeffries (D-N.Y.) said Wednesday. He said that Democrats plan to pass legislation addressing gas prices. But he responded that “nothing has been ruled in, and nothing has been ruled out” when asked if leadership would support a holiday, something several Democrats, including Sens. Mark Kelly (Ariz.) and Maggie Hassan (N.H.) who introduced legislation in February providing for a holiday, have supported. As for timing, some Dems aim to have the measures adopted by Memorial Day.

     Key centrist Democrat Joe Manchin (D-W.Va.) met with Senate Majority Leader Chuck Schumer (D-N.Y.) on Tuesday to discuss the possibility of a party-line package focused on raising taxes and reducing the budget deficit, and he convened a group of lawmakers from both parties on Monday to discuss ways to bolster energy production, another priority for Manchin.

— Cargill paying a premium to Black farmers gets attention at House hearing. During Wednesday’s House Ag hearing on the meat sector, Republicans on the House Ag Committee challenged Cargill Inc. CEO David MacLennan over a program that pays a premium to Black farmers for cotton. Cargill started the program at the request of retail giant Target and plans to expand it to other minority farmers and women, MacLennan said. “I hope you get sued over that,” Rep. Austin Scott, R-Ga., told him. “I think that’s illegal and unconstitutional.” MacLennan said it was fair to target assistance to minority farmers. “I don’t think white men are underrepresented in the farming industry today,” he said.

 

PERSONNEL

— Senate will wait to confirm Biden’s Federal Reserve picks until the return of Democrats recovering from Covid, Banking Chairman Sherrod Brown (D-Ohio) said. Brown blocked votes this week on a second term for Jerome Powell as chair of the Federal Reserve and the nomination of Philip Jefferson to the Fed Board of Governors after top Republican Pat Toomey (R-Pa.) refused to postpone a procedural vote on the nomination of Lisa Cook as a governor.

— Senate confirmed eight U.S. attorneys, including new chief prosecutors in Atlanta and Cleveland, after Sen. Tom Cotton (R-Ark.) removed a months-long blockade preventing fast approval. Cotton agreed Wednesday to allow a packaged vote on U.S. attorneys, a position that traditionally gains bipartisan approval but was postponed over Cotton’s unrelated objections to the Justice Department’s handling of Black Lives Matter litigation.

 

CHINA UPDATE

— China’s State Council pledged to promote the growth of internet platform firms and give cash handouts to poor people who have lost their jobs, stepping up efforts to bolster the economy. Meanwhile, doubts are emerging over Chinese official economic data again as real-time indicators paint a gloomier picture.

— China to eliminate coal import tariffs for 11 months. China will cut import tariffs for all types of coal to zero from May 1, 2022, until March 31, 2023, the finance ministry said, as Beijing strives to ensure energy security amid soaring global prices and supply disruption concerns. Import tariffs for anthracite and coking coal, mainly used in steelmaking, will be cut to zero from the current 3%, and rates for other kinds of coal will drop from the present 3% to 6%. Chinese officials have noted the vital role of coal in the country’s energy mix despite climate pledges to gradually reduce coal use and carbon emissions.

— Biden administration criticized China’s protection of U.S. intellectual property, saying that Beijing still must make a “full range of fundamental changes” to improve protection of U.S. patents, copyrights and trade secrets. China has disputed similar claims by the U.S. in the past, saying it has made protection of intellectual property a priority because it is key for scientific advancement to its economy. China’s treatment of American know-how has been a central issue to U.S./China trade tensions over the past five years.

 

TRADE POLICY

— USDA’s APHIS hosts Mexican counterparts on potatoes in final step to end trade dispute. USDA’s Animal and Plant Health Inspection Service (APHIS) said on Twitter they are appreciative of a “successful California potato site visit with our Mexican counterparts.” The visit is part of the deal reached between the two countries to pave the way for the U.S. to ship fresh potatoes into Mexico, potentially putting a years-long trade dispute to rest. “We look forward to the successful export of U.S. potatoes to Mexico by May 15,” APHIS said via social media.

    USDA announced in early April that the two sides had concluded all the needed plant health protocols and agreed to a final visit by Mexican officials in April that would finalize the expanded access to the Mexican market no later than May 15 for all U.S. table stock and chipping potatoes. However, given the history of the dispute, some in the U.S. remain wary that the matter will be finally resolved. 

 

ENERGY & CLIMATE CHANGE

— EPA administrator Michael Regan comments on several topics. In an interesting discussion with Agri-Talk earlier this week (link), EPA Administrator Michael Regan provided the following updates on some key topics for the ag sector:

  • Indicated the pending SREs will be rejected.
  • Said the refiners have “no guarantee” they’ll be offered an alternative avenue for compliance. (Some took that as meaning they better get ready to submit RINs.)
  • Said 2020 was a “catch up year” – 2022 will be some of the most aggressive RVOs
  • Said he is surprised Congress hasn’t taken a more active role in determining what the RFS will look like after 2022.
  • Said biofuels have a big role in the Biden Administrations Climate Change efforts.
  • On WOTUS, Regan gave assurances twice that agriculture will get the exemptions that were in place prior to 2015.

 

LIVESTOCK, FOOD & BEVERAGE INDUSTRY

— Meatpacker CEOs, under oath, deny market manipulation behind beef price surge. Chief executives of four big meatpacking companies denied conspiring to manipulate beef supplies or prices as they defended themselves in congressional testimony, and under oath, Wednesday against charges of profiteering.

     President Joe Biden and some congressional Democrats have targeted the four meatpacking companies, arguing they are leveraging their market share to profiteer from the Covid pandemic and supply-chain shortages.

     Cattle producers’ share of the prices consumers pay for beef has recently rebounded a bit, to 39% in March, from as low as 31% in June 2020 when massive Covid-19 outbreaks slowed meatpacking plants during the early phases of the pandemic. But farmers’ share remains well below pre-pandemic levels, when it ranged between 60% annually in 1990 and 43% in 2019, according to USDA data.

     House Agriculture Committee Chairman David Scott (D-Ga.) asked each of the CEOs to raise their right hands and swear to tell the truth, a formality congressional hearings often skip. He then asked each to answer whether their companies had ever made an agreement among themselves to raise beef prices or manipulate supply.

     Scott released a graph showing the difference between the cost packers pay for cattle and the wholesale prices they receive for beef rapidly rising since 2015. “When you look at this chart, it explains why questions are being raised,” Scott said. “How can it jettison up?” Each of the executives answered the question on price manipulation with a “No,” or “Not that I am aware of.”

     Tyson Foods Inc. CEO Donnie King said the rise in packers’ margins are partly due to the cycle of cattle markets, as higher prices for cattle in 2014 led to an expansion of herds that then drove down livestock prices. He added that the surge in consumer beef prices since the pandemic that has captured public attention is driven by nothing more than “straightforward market forces… Tyson does not set the prices for either the cattle we buy or the beef our customers purchase,” King told the panel. “Instead, the prices are determined by supply and demand.” Tyson Foods reported the profit margin from its beef segment hit 19% in its most recent quarterly results, for the period ended Jan. 1, up from 13% a year earlier. The company said margins would drop to more normal levels later this year.

     Dave MacLennan, CEO of Cargill Inc., attributed higher beef prices to “labor constraints, transportation challenges and rising feed costs.” He said his company recognizes the importance of smaller, independent producers. “We can't survive as an industry — this country can't feed itself — without the small family ranchers and farms that we depend on,” he said.

     Production slowdowns and labor shortages during and immediately after the pandemic led to a production backlog of approximately one million cattle, said Tim Klein, CEO of National Beef Packing Co. That “negatively impacted cattle prices in 2020 and for much of 2021 before being cleared,” he said. Klein said beef market cycles shift between advantages for cow/calf operators and other producers when cattle supplies are tighter to packers when cattle supplies are near peaks. Rising cattle prices “mean calf prices will go up so the cow/calf producer will get more for his product going forward than he has the last few years.”

     JBS USA’s CEO Tim Schellpeper said JBS operates “in an extremely competitive environment” both on the buying and selling side, utilizing AMAs and cash markets. He detailed that in Iowa, his firm participates “in numerous sale barns, we have 14 sale barns, I believe,” adding that the company is supporting producers by procuring cattle through a variety of channels. Schellpeper said “more cash trade today will not help the producer today,” adding that many of the cattle that are bought in AMA's or other agreements are “because the producer wants a guarantee [purchaser] for their cattle.”

     Ranking panel member GT Thompson (R-Pa.) slammed the Biden administration and congressional Democrats for “demonizing the packing industry out of political convenience” to shift focus away from “record levels of inflation that are plaguing our economy with skyrocketing input costs across the board, not to mention severe labor shortages and continued transportation supply chain challenges.” He suggested the “decks were stacked” in advance for the hearing to veer towards a predetermined outcome to justify what he called “drastic, unvetted or controversial legislative action,” noting Democrats declined bipartisan efforts to include an ag economist in the session.

     Thompson asked whether new Biden administration regulatory moves such as under the P&SA, line-speeds and labor could harm the packing industry’s ability to innovate. Klein said a well-founded regulation is “good for everybody,” but cautioned against unintended consequences, noting his company spends $20 million on regulatory issues annually and he does not want that figure “get out of hand.”

     Ranchers were split on cattle market solutions, with a group of cattle producers opening the hearing, with two of them independent cow/calf operators. As with a producer panel in Tuesday’s Senate Ag hearing, the producers agreed on the need for strong market enforcement under the Packers & Stockyards Act (P&SA) but were divided over the best solutions.

     Cow/calf producer Coy Young said alleged market manipulation by large meatpackers — including through the use of alternative marketing agreements (AMAs) — has driven up the margin between the prices paid to farmers for cattle and those received by meatpackers for beef in the retail market. “AMA's have killed the cash market and competition within the beef industry making the markets the cow/calf producers have to compete in so depressed,” Young told the panel. “AMAs are legalized market manipulation practices that should not be allowed,” he argued. Young, a fourth-generation Missouri cattle farmer who said he’d considered killing himself as he was financially squeezed by falling prices for his livestock. “The markets are so broken they’re breaking people, breaking them to the point of ending their own lives,” Young said.

     Another cow/calf producer, Gilles Stockton, with the National Plains Research Council and Western Organization of Research Councils, shared similar sentiments.

     Don Schiefelbein, a producer and president of the National Cattlemen's Beef Association (NCBA), acknowledged the producer-packer relationship “has been a hot topic over a century.” But he argued bigger concerns for NCBA is the shortage of beef packing capacity, inflation and rising labor costs. The group also opposes the Cattle Price Discovery and Transparency Act of 2022 (S 4030) with on new cash cattle trade mandates and the Meat and Poultry Special Investigator Act of 2022 that were examined by the Senate Ag panel.

     Julie Anna Potts, President and CEO of the North American Meat Institute, an industry trade group, in a statement urged Congress not to “make radical changes” to rules governing cattle or beef, warning “such changes will upend the markets, increase costs for the entire supply chain, including for consumers.”

     Comments: The House Ag hearing on the meat sector again underscored the partisan divide on the panel about who and what were to blame for recent cattle market trends — more so than was seen during the Senate session Tuesday, confirming lawmakers appear split on the root causes and proposed solutions. As for any next step, Chairman Scott closed the hearing by saying the committee will consider legislation addressing cattle market reforms. He provided no details as to the form of the legislative initiative. A forthcoming Democratic package, some sources report, will likely include legislation giving the Federal Trade Commission more authority to go after fuel price gouging along with bills to address meat industry chokepoints.

— USDA adds $263 million for bird flu costs. USDA Secretary Tom Vilsack approved the second infusion of additional funding to the agency fighting outbreaks of highly pathogenic avian influenza from the Atlantic to the Rockies. The transfer of $263 million to the Animal and Plant Health Inspection Service followed the mid-March approval of $130 million in emergency funds. Seven of every 10 birds lost to bird flu this year have been egg-laying hens — 24.2 million at latest count. Iowa, the No. 1 egg state, was hit the hardest, with 12.7 million hens lost.

 

CORONAVIRUS UPDATE

Summary: Global cases of Covid-19 are at 511,790,165 with 6,229,165 deaths, according to data compiled by the Center for Systems Science and Engineering at Johns Hopkins University. The U.S. case count is at 81,189,379 with 992,740 deaths. The Johns Hopkins University Coronavirus Resource Center said that there have been 574,232,736 doses administered, 219,483,386 have been fully vaccinated, or 66.61% of the U.S. population.

— Fauci: U.S. is out of the ‘pandemic phase’ of Covid. Dr. Anthony Fauci says the U.S. is no longer in the “pandemic phase” of Covid-19 — more than two years after the coronavirus first began wreaking havoc on the nation. PBS NewsHour’s Judy Woodruff pressed the White House chief medical adviser on the state of the virus in the U.S., particularly as many Americans prepare to receive their second booster shots and mask requirements are lifted across the country. “We are certainly, right now, in this country out of the pandemic phase,” Fauci replied. “Namely, we don’t have 900,000 new infections a day and tens and tens and tens of thousands of hospitalizations and thousands of deaths. We are at a low level right now.” “So, if you’re saying, are we out of the pandemic phase in this country, we are,” he added. But the health adviser warned: “We’re not going to eradicate this virus.” Fauci later told CNN that the U.S. is in a “transition phase” of the pandemic. He said, in fact, Covid-19 cases are trending up again, though it's not anywhere near the rise we saw over the winter with the Omicron wave. While new cases and hospitalizations are ticking back up in most states, fewer people are dying of Covid-19 now than during most of the pandemic. Fauci said that although the coronavirus won't be eradicated, the level of virus in society could be kept very low if people are intermittently vaccinated, possibly every year.

— Moderna is seeking emergency use authorization from the Food and Drug Administration for its Covid-19 vaccine for children 6 months through 5 years of age, the company said today. “We believe mRNA-1273 will be able to safely protect these children against SARS-CoV-2, which is so important in our continued fight against COVID-19, and will be especially welcomed by parents and caregivers,” Stéphane Bancel, chief executive officer of Moderna, said in a news release.

 

POLITICS & ELECTIONS

— New York’s top court throws out district lines and delays primary. New York’s highest court voided a congressional map drawn by Democrats for being unconstitutional, casting doubt over the midterm elections. The New York Court of Appeals said Democrats violated the State Constitution and ignored the will of the voters. The judges ordered a court-appointed expert to draw replacements. In a 32-page ruling (link), a divided New York State Court of Appeals chided Democrats for defying the will of voters who adopted constitutional reforms in 2014 to curb political influence in the redistricting process. The judges additionally found that the congressional districts drawn by Democrats had violated an explicit state ban on partisan gerrymandering. The verdict, which is not subject to appeal, delivered a major defeat to Democrats in Albany and in Washington and cast this year’s election cycle into deeper uncertainty for Democrats. To accommodate the drawing of new districts, the Court of Appeals indicated that party primaries for the congressional and State Senate districts would have to be postponed from June until August. The court — where every judge was appointed by a Democratic governor — split 4–3. This is the first time that maps have been tossed in New York since the 1960s. David Wasserman, House editor for the Cook Political Report with Amy Walter, said the “NY court decision turns House outlook for Dems from terrible to horrific.” Wasserman signals a GOP takeover of the Senate, with a net gain of three seats and a net 25 seat gain for the GOP in the House. Republicans need a net gain of five seats to take control of the House in 2023.

— Education Department said it will cancel the loans of 28,000 student borrowers who attended a now-defunct for-profit chain of cosmetology schools, the latest move by the Biden administration to address the politically charged issue of student-debt forgiveness.

 

CONGRESS

Several Biden Cabinet officials are testifying before Appropriations subcommittees today. They include USDA Secretary Tom Vilsack at 10 a.m. ET. Vilsack sometimes breaks news at appearances on Capitol Hill.

— Homeland Security Secretary Alejandro Mayorkas defended the administration’s plans to lift Title 42 in two congressional hearings Wednesday, as Republicans bashed his handling of the border, going as far as to call for the secretary’s resignation.

— A bipartisan Senate group will explore options for immigration legislation this year. “The idea is to get as many bipartisan bills we can find that have goals that will add up to 60,” Senate Judiciary Chairman Dick Durbin (D-Ill.) said, referring to the Senate threshold for passing most bills. He will meet today with another Democrat and two Republicans. It will mark the most concrete step senators have taken on map immigration action this year.

 

OTHER ITEMS OF NOTE

Treasury locks down Beltsville site for new currency production plant. The Department of Treasury has taken possession of a 104-acre Beltsville site that will be developed as a new facility for the Bureau of Engraving and Printing, Maryland Gov. Larry Hogan announced Wednesday. The 1 million-square-foot, $1.4 billion facility, which will be one of two complexes in the country to produce U.S. paper currency and other security products, will be built at the Beltsville Agricultural Research Center in Prince George's County. The new facility would replace the BEP's existing production center at 301 14th St. SW, about a half-mile from the Washington Monument, where roughly 1,400 people currently work. Instead of being spread across multiple floors and wings like at 301 14th St., the new metal and glass facility will lay out more efficiently and enable the bureau to reduce its overall footprint by about 30%, the agency has said. The layout of the current D.C. plant requires currency paper to travel 1.06 miles over multiple stories from start to finish, while at the BEP's Texas facility, built in 1990, currency paper travels 0.42 miles across a single story.

— Boeing learns the art of the deal… Boeing says an Air Force One deal is expected to cost it more than $1 billion. Dave Calhoun, the CEO, said the company faced “a very unique set of risks that Boeing probably shouldn’t have taken” during the negotiations with President Donald Trump over two new planes.


 

Latest News

Schumer Sends Some Reconciliation Text to Parliamentarian; Talks Continue on Package

Waiting for Godot? U.S. to press India on subsidies for rice and wheat

Ahead of the Open | July 6, 2022

Grain, soybean futures expected higher on corrective buying, weaker USDA crop ratings.

Shanghai Reports Fresh COVID Cases | July 6, 2022

N.Y. Fed views greenback status as 'unchallenged,' Ukraine expects grain harvest to be 'not bad,' and traders anticipate near-term strength in the cash hog market...

First Thing Today | July 6, 2022

Corn futures traded lower for much of the overnight session but are mildly firmer this morning, while soybeans and wheat are showing stronger corrective gains following Tuesday’s sharp losses.

Corn, soybean CCI ratings drop, spring wheat improves

The soybean CCI rating dropped below the five-year average for the first time this growing season.

Pro Farmer's Daily Advice Monitor

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