Vilsack’s Friday Visit to Nebraska: ‘Big Announcement’ or Another ‘Milk Dud’?
FOMC minutes | Gas prices nearly $1 higher than year ago | EU carbon tax $-maker
In Today’s Digital Newspaper
Market Focus:
• Traders to dissect FOMC minutes for any clues on tapering, interest rates, inflation
• Daily trading limits expand today for some ag markets
• U.S. pressures EU to drop digital tax plan
• Biden team spoke to Saudis, UAE about OPEC+ talks and oil prices
• Average price of a gallon of regular gasoline up nearly a dollar from year ago
• Ever Given is set to sail from the Suez Canal today
• Freight rail kept goods moving while other modes of transport were contrained
• Jump in coffee bean prices to filter through to your morning brew
• U.S. apparel imports rose 35.3% in the first five months of 2021
• Ag demand update
• Some corrective buying after yesterday’s dive
• Anec expects Brazil’s soybean exports to slow, corn shipments to pick up this month
• Pace of Argentine soybean sales a bit ahead of 2019-20
• Bigger German wheat and rapeseed crop prospects
• Russia’s wheat exports climbed 10% in 2020-21
• Weak monsoon phase worries Indian farmers
• Uptick for Choice beef
• July hog futures and CME lean hog index narrowing the gap
Policy Focus:
• Biden plans executive order aimed at big agribusiness
• USDA making permanent change on cover crops
• CFAP 2 payments again nudge higher
China Update:
• Chinese corn production likely to climb at least 6% in 2021-22
• Chinese authorities are planning rule change
Trade Policy:
• No TAA without TPA
• USMCA anniversary to be marked today in Mexico City
Energy & Climate Change:
• EU carbon border tax will raise nearly $12 billion annually
Livestock, Food & Beverage Industry Update:
• Supermarkets stockpiling food inventory ahead of anticipated price increases
• Groups press Vilsack on animal testing
Coronavirus Update:
• Covid-19 vaccine-related blood clots linked to amino acids in new research
Politics & Elections:
• Eric Adams wins New York City Democratic mayoral primary
Other Items of Note:
• Pentagon ends its $10 billion cloud contract with Microsoft
• Russian hackers breach GOP, or did they?
MARKET FOCUS
Equities today: Global stock markets were mixed but mostly firmer overnight. The U.S. stock indexes are pointed toward slightly higher openings. Yields on the 10-year Treasury have dropped to a four-month low as a gauge of U.S. service-sector activity faltered, with short covering exacerbating the move. Traders are looking ahead to the Federal Reserve minutes today for more clues on when the U.S. central bank may begin tapering the substantial asset purchases (see related item below). In Asia, The Shanghai Composite Index added 0.7% by the close of trading, while Japan’s Nikkei 225 retreated 1%.
U.S. equities yesterday: The Dow declined 208.98 points, 0.60%, at 34,577.37. The Nasdaq finished up 24.32 points, 0.17%, at a record 14,663.64. The S&P 500 fell 8.80 points, 0.20%, at 4,343.54.
On tap today:
• U.S. job openings and labor turnover survey for May is out at 10 a.m. ET.
• Federal Reserve releases minutes from its June 15-16 meeting at 2 p.m. ET.
• Atlanta Fed President Raphael Bostic speaks to the National Association of Black Journalists at 3:30 p.m. ET.
• EIA short-term energy outlook is scheduled to be released today.
What to watch in release of June FOMC minutes. Minutes from the June 15-16 Federal Open Market Committee (FOMC) meeting will be released at 1 pm CT today and will be monitored for additional perspective from the US central bank on several fronts. While no policy shifts were announced after the June session, attention will be on how the minutes recap the updated forecasts from Fed officials that moved up the expectation for the Fed to need to increase the target range for the Fed funds rate. A majority of Fed officials said they expected that two rate increases would be needed during 2023 versus their March expectation that no increases would be needed before the end of 2023. The meeting also marked the start of the Fed’s discussion on when to start tapering their bond purchases that have been taking place at $120 billion per month. There will not likely be any specific timeline signaled in the minutes as they are expected to indicate the discussions will continue at upcoming meetings. Fed views on inflation will also be of note as most Fed officials have continued to insist they view the boost in inflation readings to be “transitory” and not sustained enough to prompt a policy response. However, the meeting recap will likely indicate officials would be willing to act if inflationary pressures are not temporary.
U.S. is urging the European Union to back off plans to enact a digital tax that Washington believes will discriminate against American companies. Treasury officials ahead of this week’s Group of 20 finance ministers’ meeting said the dispute could undermine the drive for a global corporate-tax deal.
Market perspectives:
• Outside markets: The U.S. dollar index is slightly weaker with a generally weak tone in global currencies relative to the greenback. The yield on the 10-year U.S. Treasury note has lower, trading under 1.34% and echoing a lower trend in global government bond yields. Gold and silver have moved higher in electronic trading, with gold above $1,806 per troy ounce and silver above $26.50 per troy ounce.
• Daily trading limits expand to 60 cents for corn futures after yesterday’s limit-down close for several contracts. Soybean limits expand to $1.50, with limits expanding to $45 for soybean meal and 550 points for soybean oil.
• Crude oil futures have trimmed advances ahead of U.S. trading but still remain more than 1% higher. U.S. crude is trading around $74.40 per barrel and Brent around $75.55 per barrel. Futures edged up in Asian action after sharp drops Tuesday, with U.S. crude up 19 cents at $73.56 per barrel and Brent up 17 cents at $74.72 per barrel.
• Biden team spoke to Saudis, UAE about OPEC+ talks and oil prices. Biden administration officials are “encouraged” by ongoing OPEC talks and have spoken with officials in Saudi Arabia and the United Arab Emirates in hopes of reaching an agreement to stem the rise in crude prices, White House Press Secretary Jen Psaki said yesterday. The U.S. hopes talks will lead to an agreement that “will promote access to affordable and reliable energy,” she said. “We’re not a party to these talks but over the weekend and into this week, we’ve had a number of high-level conversations with officials in Saudi Arabia, the UAE and other relevant partners,” Psaki said. She declined to specify which U.S. officials were involved but signaled that she didn’t expect President Joe Biden to personally make calls. A Wall Street Journal editorial (link) says “The president wants the cartel to pump more oil, but the U.S. to pump less.” Meanwhile, Saudi Deputy Defense Minister Khalid bin Salman, who’s visiting Washington, met with top Defense Department officials yesterday, Pentagon spokesman John Kirby said, without providing details on the talks. Khalid will take part in meetings at the State Department today.
• Average price of a gallon of regular gasoline is up nearly a dollar from a year ago, AAA said, and may rise another 20 cents through the end of the summer. The disagreement between Saudi Arabia and the United Arab Emirates (see previous item) over production quotas appears unlikely to be solved soon.
• Ever Given container ship to finally set sail. The ship that blocked the Suez Canal for almost a week earlier this year is due to sail after its owners reached a multimillion-dollar compensation deal with Egyptian authorities for its release, ending a monthslong saga. The 1,300-foot cargo ship ran aground and blocked the Suez Canal for six days in March. It set sail Wednesday after the ship’s owners reached what the Wall Street Journal said was “multimillion-dollar compensation deal” with Egyptian authorities for its release. The Suez Canal Authority and owners of the ship signed the deal Wednesday, allowing for the ship’s departure. Details of the settlement were not made public, but a preliminary deal was struck in June that was reported as about $200 million. However, Egyptian media has said the settlement was much higher and the deal also included a tug boat.
• Freight rail kept goods moving while other modes of transport were constrained or delayed during the Covid-19 pandemic, according to a new report (link) by the Northwestern University Transportation Center. “Railroads proved to be nimble and flexible in dealing with the pandemic disruptions and post-pandemic surges in demand, fulfilling their key role to keep the nation’s supply chains moving,” said Mahmassani, NUTC director.
• Jump in coffee bean prices to filter through to your morning brew. Drought in Brazil and issues at other major exporters has sent market prices soaring.
• U.S. apparel imports rose 35.3% in the first five months of 2021, with growth in shipments from China outpacing gains from Vietnam and Bangladesh.
• Ag demand: Jordan issued a new tender to buy 120,000 MT of wheat. Algeria tendered to buy a nominal 50,000 MT of milling wheat. Japan’s ag ministry said it will seek 80,000 MT of feed what and 100,000 MT of feed barley via a simultaneous buy and sell auction. South Korea's Nonghyup Feed Inc. made no purchase in an international tender to buy up to 138,000 MT of corn, citing high prices. But the feed maker did buy 65,000 MT of animal feed wheat. South Korea's Major Feedmill Group (MFG) also bought around 65,000 MT of feed wheat in a private deal.
• NWS weather outlook: Damaging winds, dangerous storm surge, and heavy rainfall likely across the west coast of Florida as Elsa moves through the region, with tropical storm conditions extending into the Southeast and coastal Mid-Atlantic by Thursday. Excessive heat will continue in the Northwest and Great Basin and the Northeast and Mid-Atlantic. Heavy rainfall and flash flooding likely across South Texas.
Items in Pro Farmer's First Thing Today include:
• Some corrective buying after yesterday’s dive
• Anec expects Brazil’s soybean exports to slow, corn shipments to pick up this month
• Pace of Argentine soybean sales a bit ahead of 2019-20
• Bigger German wheat and rapeseed crop prospects
• Russia’s wheat exports climbed 10% in 2020-21
• Weak monsoon phase worries Indian farmers
• Uptick for Choice beef
• July hog futures and CME lean hog index narrowing the gap
POLICY FOCUS
— White House signals executive order coming to direct USDA to draw up regs coming on agriculture, including ‘right to repair’ issue, boost competition. President Joe Biden will soon sign an executive order that will direct USDA to develop new rules on concentration in the industry and will also address the issue of tractor owners being able to repair their own machinery or use independent repair shops — often referred to as the “right to repair.”
White House Press Secretary Jen Psaki said the action will focus on several fronts to “increase competition in agricultural industries to boost farmers’ and ranchers’ earnings, fight back against abuses of power by giant agribusiness corporations, and give farmers the right to repair their own equipment how they like.” The news comes about a month after more than two dozen Republicans and Democrats in the House and Senate signed a letter to Attorney General Merrick Garland contending that “the anticompetitive practices” in the meatpacking industry today “are unambiguous.” The lawmakers said that over the years, the price of live cattle in the U.S. market has fallen, while the price of boxed beef has greatly increased, a disconnect that has resulted in higher costs at the grocery store for consumers.
The effort will also direct USDA to develop regulations relative to the Packers and Stockyards Act. Those regulatory actions are not new as USDA Secretary Tom Vilsack has previously said the agency was going to develop new rules covering certain areas of the law. Psaki said the order also aims to make it easier for farmers to bring claims against corporate agriculture companies under the Packers and Stockyards Act to prevent chicken processors from underpaying farmers and would protect from retaliation those farmers who report companies that are not following the rules.
Further, Psaki said that the order will also direct USDA to come up with new rules relative to the “Product of the USA” labeling effort which is voluntary. To crack down on what the Federal Trade Commission called “Rampant Made in USA Fraud” the White House said it will unveil an executive order which directs USDA to clarify that meat can only receive a “Product of USA” label if that livestock is raised in the U.S. rather than abroad. Vilsack said in a statement last week that the agency would initiate a “top-to-bottom” review of the “Product of USA” label that will help determine what the label means to consumers. “We have taken note of the many comments submitted to USDA and the FTC regarding meat labeling and understand that the current ‘Product of USA’ label on meat products may no longer effectively serve either of those purposes, to the detriment of consumers, producers, and fair and competitive markets,” said Vilsack.
USDA will also be ordered to come up with plans to “increase opportunities for farmers to access markets and receive a fair return, including supporting alternative food distribution systems,” Psaki said, including farmers markets, and “developing standards and labels that consumers can choose to buy products that treat farmers and agricultural workers fairly.”
Reaction: Stocks in agriculture equipment companies like Deere and others fell after a Reuters report Tuesday on the machinery repair issue, something that major agribusiness firms argue could potentially raise safety issues if farmers are allowed to repair the machines themselves instead of dealers that have proprietary tools and software for certain systems on the machines.
Comments: The populist streak continues with the Biden administration. Look for court challenges. The order hinges on the ability of regulators to write legislation that could survive legal challenges. Labor economists see many of the policies set at the state level - like licensing requirements — meaning they can only have a limited federal role. "The president made clear during his campaign that he is committed to increasing competition in the American economy, including by banning non-compete agreements for workers and protecting farmers from abusive practices," White House spokesperson Emilie Simons said earlier this month.
Meanwhile, Psaki is clearly taking a stance on the labeling issue, stating during the press briefing, "Something I learned that I found a little outrageous — we’ll see what you all think — is that under current labeling rules, most grass-fed beef labeled “Product of USA” is actually raised and slaughtered abroad, and then imported to the U.S. for processing."
Real news goes mostly unreported. Mostly unnoticed in the flurry of news accounts on the coming executive order, including a push by some ag media to find out the “big news” of Vilsack’s visit to Nebraska later this week, is word that the Committee on Foreign Investment in the U.S. (CFIUS) is getting an expanded role as the Biden administration urges cooperation among allies to compete with China. CFIUS, which reviews business deals for national-security concerns, is looking to share information with similar review bodies set up by allies and is paying closer attention to Biden priorities, including securing supply chains.
As for Vilsack’s “big news” in Nebraska, at least according to some in the ag media, recall he canceled his last visit to farm country, in what some called the “Milk Dud” incident when he pulled back what was thought to be an announcement of another direct payment to dairy producers. All too frequently so-called “big news” has been anything but.
Nonetheless, USDA said Vilsack’s travel to Nebraska on Friday will include "a major announcement." Vilsack will come to Omaha for the event. In notifying the Nebraska news media, USDA said more details will be announced later. If I had to guess, and it’s only a guess, Vilsack will likely have something to say on cattle prices and transparency. Whether or not that will be big news, I will leave to others and any actual announcement.
— USDA making permanent change on cover crops. Farmers will be able to hay and graze the cover crops planted on prevent-plant (PP) acres without waiting until November. Previously, farmers who grazed or cut cover crops before Nov. 1 would only get 65% of their prevent-plant payment. USDA’s Risk Management Agency (RMA) is making a change (link) for 2021 that will become permanent via a regulatory modification. Sen. John Thune (R-S.D.) welcomed the rule change. Link to frequently asked questions. Last year, Thune asked USDA (link) to move up the previous Nov. 1 requirement, and he cosponsored the Cover Crop Flexibility Act (link) which would have forced the administration to take this action if they did not do so unilaterally.
— CFAP 2 payments again nudge higher. Payments approved under the Coronavirus Food Assistance Program 2 (CFAP 2) stood at $13.75 billion as of July 5, up slightly from the prior week. Acreage-based payments total $6.28 billion, with $3.45 billion for livestock, $2.74 billion for sales commodities, $1.22 billion for dairy and $63.77 million for eggs/broilers.
Payments under the CFAP 1 program also edged up to $10.59 billion.
There is still no word yet from USDA on the timing of payments to contract hog producers that were announced earlier even as USDA has cleared making payments to contract poultry growers.
CHINA UPDATE
— Chinese corn production likely to climb at least 6% in 2021-22. Chinese corn production is likely to surge in 2021-22, cooling the country’s demand for imports of the grain. Record-high domestic prices are expected to fuel a surge in corn plantings at the expense of soybeans, sorghum and small grains. JCI predicts a 6.2% (14.9-MMT) rise in corn production to around 253.9 MMT. The government think tank China National Grains & Oils Information Center is calling for a 4.9% increase in corn production. But other forecasters and farmers say these estimates are too conservative. At least one major brokerage is calling for a 14.5% surge in production. China has reversed its policy in recent years of encouraging producers to diversify away from corn. Estimates for how much this might curb China’s corn imports vary widely. JCI expects China to import 27 MMT of corn in 2021-22, USDA pegs imports at 26 MMT, a U.S. ag attaché in Beijing expects imports to slide to 20 MMT and StoneX expects Chinese corn imports to drop to 15 MMT. On the other hand, smaller soybean production could add to already strong Chinese soybean imports.
— Chinese authorities are planning rule changes which would allow them to block companies from listing overseas, closing a two-decade loophole which has allowed giants such as Alibaba Group Holding Ltd. and Tencent Holdings Ltd. to attract foreign capital. The move comes as Beijing tightens its control over the country’s largest tech companies.
TRADE POLICY
— No TAA without TPA. President Biden on July 1 officially lost Trade Promotion Authority, or TPA/fast track. But TPA expiration coincided with the end of enhanced Trade Adjustment Assistance, or TAA — a program renewed along with the fast-track authority six years ago. TAA provides aid for Americans who lose their jobs or whose hours and wages are cut due to competition from imports. An estimated 48,000 workers, primarily in service industries, will lose eligibility for benefits over the next year, according to the Department of Labor. Black and ethnic minority workers are over-represented in the applicants for help, according to Department of Labor figures, and the people getting the help tend to be older, with the portion of claims coming from over 50s greater than their share of the workforce. According to the Department of Labor’s 2020 report, 96,000 workers were eligible for assistance in 2020, a 6% increase compared with 2019. Just 23,000 received any benefits, down 17% from the previous year. Industrial states tended to be the biggest beneficiaries, but the state receiving the highest lump sum amount of federal cash was California. Illinois, Indiana, Ohio, and Pennsylvania were all notable recipients. Observers say this is a dent in President Biden’s worker-centric trade policy.
— USMCA anniversary to be marked today in Mexico City. U.S. Trade Representative Katherine Tai is in Mexico City today and Thursday to mark the one-year anniversary of the U.S.-Mexico-Canada Agreement (USMCA). In a session with Canadian Trade Minister Mary Ng in Washington Tuesday, Tai raised issues relative to softwood lumber, dairy market access, and other trade commitments. A recap of the meeting also included the two officials talking about the “safe and continued operation” of the Line 5 pipeline which Michigan’s governor has threatened to shut down. Expectations are that Tai could raise trade issues with Mexico, including the country’s coming actions on imports of GMO corn and glyphosate. Plus, labor-related issues are also expected to be raised as the U.S. and Mexico have each filed actions under USMCA.
ENERGY & CLIMATE CHANGE
— Wait until far-left U.S. Dems see this: EU carbon border tax will raise nearly €10 billion ($11.8 billion) annually. The revenue raised by the green policy will be used to help repay €750 billion ($886.5 billion) in pandemic recovery debt.
— Coal use is picking up in the U.S., China and Europe as electricity demand rebounds from the pandemic, illustrating the challenges for countries looking to wean themselves off the dirty but reliable fossil fuel. While analysts and executives say the resurgence of coal is likely to be short-lived, observers note it shows the world’s continued dependence on fossil fuels until renewable-energy capacity grows further and storage technologies improve.
LIVESTOCK, FOOD & BEVERAGE INDUSTRY
— Food is getting costlier, so supermarkets are stockpiling supplies. Grocery stores are stocking up on staples from sugar to frozen meat before inflation drives their prices even higher, as executives anticipate some of the sharpest price rises for groceries in recent memory, the Wall Street Journal reports (link). Associated Wholesale Grocers, which is the nation's largest wholesaler for more than 3,000 grocery stores, said it has recently purchased as much as 20% more inventory. Michigan-based SpartanNash said it is stockpiling up to 25% more frozen meat and boxed foods after more than 100 suppliers notified it that prices would rise. With suppliers such as General Mills, Campbell Soup and J.M. Smucker raising prices, grocery stores are stockpiling to protect their profit margins. The trend among grocers is a reversal from the onset of the pandemic last year when consumers hoarded groceries amid concerns over food shortages. Grocery sales in the U.S. for the week ended June 19 rose about 15% from two years earlier and increased 0.5% from a year earlier, according to Jefferies and NielsenIQ data. Stockpiling by food retailers is driving shortages of some staples, grocery industry executives said, and is challenging a U.S. food supply chain already squeezed by transportation costs, labor pressure and ingredient constraints. Now, retailers themselves are stockpiling to keep costs down and protect margins.
Bottom line: While some call the new shift from just-in-time to just-in-case, others simply call it hoarding.
— Groups press Vilsack on animal testing. USDA must bar its commodity research and promotion boards from funding animal experiments with assessment fees required of agricultural producers, a national advocacy group for Black farmers wrote in a letter (link) USDA Secretary Tom Vilsack. Family Agriculture Resource Management Services (FARMS) joined animal rights organization People for the Ethical Treatment of Animals (PETA) in an effort to curb spending by agricultural checkoff programs on tests the nonprofits say are meant to boost food marketing. Struggling farmers “don’t need barbaric tests on animals to sell their agricultural commodities,” wrote FARMS founding director Jillian Hishaw in the letter. “Rather, they need economic relief from inflated assessment fees that are wasted on worthless experiments on animals.”
CORONAVIRUS UPDATE
— Summary: Global cases of Covid-19 are at 184,653,591 with 3,994,220 deaths, according to data compiled by the Center for Systems Science and Engineering at Johns Hopkins University. The U.S. case count is at 33,747,198 with 605,905 deaths. The Johns Hopkins University Coronavirus Resource Center said that there have been 331,214,347 doses administered, 157,636,088 have been fully vaccinated, or 48.0% of the U.S. population.
— Covid-19 vaccine-related blood clots linked to amino acids in new research. The findings offer fresh clues to what causes rare blood clots associated with the AstraZeneca shot and could help doctors rapidly test for and treat it.
POLITICS & ELECTIONS
— Eric Adams wins Democratic Primary for New York City mayor. Eric Adams, the president of Brooklyn borough, won the New York City mayoral Democratic primary on Tuesday, narrowly defeating Kathryn Garcia and cemented himself as the favorite to replace outgoing Mayor Bill de Blasio (D) in November. Adams held on in the final batch of ranked-choice ballot counting with 50.5 percent support to 49.5 percent for Garcia. In the previous tabulation from last week, Adams led with 51.1% to 48.9% for Garcia. The Associated Press called the race shortly after the New York City Board of Elections released the latest update. Fewer than 1,000 votes remain to be counted but the Board of Elections won’t declare an official winner until next week.
OTHER ITEMS OF NOTE
— Pentagon ends its $10 billion cloud contract with Microsoft. The 10-year project, known as JEDI, had been overshadowed by an Amazon lawsuit arguing that it was steered away from Jeff Bezos’s company under pressure from Donald Trump. Instead, the Pentagon will split the work with Microsoft, Amazon Web Services, and possibly three other U.S. providers, senior Pentagon officials announced. (The decision will open up the new cloud project—rebranded as Joint Warfighter Cloud Capability — to other bidders, including Google, Oracle and IBM.) The Biden administration said the dispute had stretched out so long that the underlying technology would soon be outdated. Awards could come as early as 2022.
— Russian hackers breach GOP, or did they? Russian government hackers reportedly breached the computer systems of the Republican National Committee (RNC) last week, about the same time of the massive ransomware attack, according to reports. The government hackers were part of a group known as APT 29 or Cozy Bear. Bloomberg News reported Tuesday that the Russian advanced persistent threat (APT) 29 group had breached the RNC’s computer systems last week by compromising Synnex, a third-party technology provider. The APT29 group, also known as “Cozy Bear,” is the same group that hacked the Democratic National Committee (DNC) ahead of the 2016 elections. It was also linked by U.S. intelligence agencies to last year’s SolarWinds hack, which compromised nine federal agencies. But Republican Party communications director Danielle Alvarez tweeted that the Bloomberg News story about the breach of RNC's systems was “not true.” Meanwhile, Biden will meet officials at 9:30 a.m. ET today to discuss efforts to counter ransomware.
