Strike at Deere | Grassley tweets White House on ethanol | Kerry downplays COP26
In Today’s Digital Newspaper
Market Focus:
• U.S. jobless claims fall to 293,000
• USDA daily export sale: 132,000 MT soybeans to unknown destinations during 2021-22 MY
• Inflation: transitory or structural?
• Big Social Security COLA increase, as expected
• Bottom line of FOMC minutes released Wednesday
• Sen. Warren (D-Mass.) calls for breaking up Amazon.com
• About 10,000 unionized Deere & Company workers went on strike early today
• EU considering proposals to alleviate energy crises
• Natgas shortage exposes Russia’s rising leverage
• Demand for coal is far outstripping supply
• Household heating costs expected to rise sharply this winter
• Soaring natural-gas and coal prices forcing move to using oil
• White House looking to address rising fuel, natural gas shortages
• Gold prices hit a four-week high overnight, trading above $1,800.00 an ounce
• Annualized premium on bitcoin futures has doubled this
• What will 2022 U.S. plantings look like?
• Ag demand update
• Break from the selling overnight
• Weekly USDA export sales report delayed to Friday
• Attaché reins in forecast for Argentine soybean plantings given strong corn prices
• Another bumper canola crop for Australia
• UAW has called a strike against Deere & Co
• U.K. importing butchers to deal with pig crisis
• Cash cattle action picks up near upper end of last week’s trade
• Pork cutout value stabilizes
Policy Focus:
• EPA asks for proposals on WOTUS roundtables
• Biden seeks to address some logistical issues
• Pelosi: Democrats face ‘difficult decisions’ to trim $3.5 trillion spending plan
China Update:
• China’s PPI surged 10.7% YOY in September, fastest pace in 25 years
• Shares and dollar bonds of Chinese real estate firms continue to slide
• China raises minimum purchasing price for wheat for first time since 2014
Trade Policy:
• USDA’s Vilsack to meet with Mexican counterpart next week in Iowa
Energy & Climate Change:
• Grassley tweets White House should focus on ethanol, not just fossil fuels
• U.S. climate envoy John Kerry says COP26 may not get all the results he has been working toward
Livestock, Food & Beverage Industry Update:
• White House again points to big packers as cause of some food inflation
Coronavirus Update:
• Vaccination rates against Covid-19 in U.S. rise by more than 20 percentage points
• FDA panel to consider Moderna’s Covid-19 boosters today
• WHO assembles new team to investigate origins of the coronavirus
Other Items of Note:
• Fraud pattern tends to start in U.K.
MARKET FOCUS
Equities today: Global stock markets were mixed but mostly higher in overnight trading. The U.S. Dow opened sharply higher, went up over 400 points and is not around 360 points higher. Asia markets mostly ended higher, and Europe was up at midday. Asian equities ended mostly higher as tech shares advanced. Japan’s Nikkei rose 410.65 points, 1.46%, at 28,550.93. China’s Shanghai Composite was off 3.48 points, 0.10%, at 3,558.28. Markets in Hong Kong were closed for a holiday. European equities are seeing gains in early trading. The Stoxx 600 is up 0.9% with most regional markets seeing gains of 0.7% to 1.0%. Swiss markets, however, were little changed. Japan’s Topix index closed 0.7% higher as Prime Minister Fumio Kishida dissolved parliament ahead of the Oct. 31 election, which will pit Kishida against unpopular opposition in a battle over who can better fix the pandemic-battered economy. Kishida was appointed prime minister on Oct. 4 after replacing his unpopular predecessor, Suga Yoshihide, as head of the ruling Liberal Democratic Party. In the U.S., investors are parsing earnings for signs of erosion from supply-chain bottlenecks and higher costs. BlackRock rose 3.8% after beating analysts’ expectations. Delta Air Lines dropped 5.8% after it posted a profit but noted pressure from rising fuel prices. JPMorgan fell 2.6% after reporting essentially flat revenue. More major banks are reporting today — Morgan Stanley beat estimates on record investment banking and asset management results
U.S. equities yesterday: The Dow ended down 0.53 point, 0.00%, at 34,377.81. The Nasdaq was up 105.71 points, 0.73%, at 14,571.64. The S&P 500 added 13.15 points, 0.30%, at 4,363.80.
On tap today:
• U.S. jobless claims are expected to fall to 318,000 in the week ended Oct. 9 from 326,000 one week earlier. (8:30 a.m. ET) UPDATE: Initial jobless claims fell below 300,000 for the first time since the early days of the Covid-19 pandemic, the Labor Department said today. First-time claims for unemployment insurance totaled 293,000, the best level since March 14, 2020, which saw 256,000 claims just as the Covid-19 spread intensified.
• U.S. producer price index for September is expected to rise 0.6% from one month earlier. (8:30 a.m. ET)
• Federal Reserve speakers: St. Louis’s James Bullard on the legacy of Covid-19 at 8:35 a.m. ET, Atlanta’s Raphael Bostic to the National Black MBA Association at 9 a.m. ET and to the Global Inclusive Growth Summit at 10 a.m. ET, New York’s John Williams at the Economic Club of New York at 1 p.m. ET, Richmond’s Thomas Barkin to the Forecasters Club of New York at 1 p.m. ET, San Francisco’s Mary Daly at an Equitable Access to Small Business Credit virtual event at 1 p.m. ET, and Philadelphia’s Patrick Harker on the economy at 6 p.m. ET.
Inflation: transitory or structural? That’s the latest guessing game in financial circles. Recent U.S. inflation data did little to help those arguing that the spike in prices will be brief, while there is growing evidence that the energy shortage is feeding into a wider range of factory inputs. Oil is trading close to $81.50 a barrel this morning after an International Energy Agency (IEA) report said the shortage of natural gas in Europe and Asia is deepening the already sizeable supply deficit in crude markets. U.S. inflation data came in higher than expectations as consumer prices rose 0.4% in September and 5.4% on an annual basis. That’s the fifth straight month that the consumer price index recorded an annual gain of at least 5%. Transitory? Still, the forward-looking markets were unfazed; bond yields moved lower, the Dow closed flat and the S&P 500 even edged higher. Meanwhile, the VIX volatility index, which measures expected volatility for the S&P 500 over the next 30 days, dropped sharply to its lowest level in three weeks Many will keep an eye on the VIX for signs of stability ahead.
Big Social Security COLA increase, as expected. Seniors and other Americans receiving Social Security benefits in 2022 will see the largest increase in their payments in four decades, reflecting surging inflation during the pandemic. Next year’s cost-of-living adjustment, or COLA, will be 5.9%, the Social Security Administration said Wednesday. The increase will translate to an addition of $92 to retirees’ average monthly benefit next year, bringing the amount to $1,657, the agency estimates. The nearly 6% cost-of-living adjustment is the largest since 1982, according to Social Security Administration data. The adjustment is calculated based on the Labor Department’s measure of inflation faced by blue-collar workers. “You’re glad that you get a 5.9% increase,” said Nancy Altman, the president of Social Security Works, an advocacy group, “but it doesn’t feel like you’re getting 5.9% when all of your other costs are going up much higher.”
Bottom line of FOMC minutes released Wednesday: (1) No decision on tapering was reached at September FOMC; (2) Tapering of bond buys getting closer, but conditions not yet met; (3) Test for raising interest rates far more stringent than tapering. Even though no decision was reached, the minutes indicated that FOMC members “generally assessed that, provided that the economic recovery remained broadly on track, a gradual tapering process that concluded around the middle of next year would likely be appropriate.” If that were to happen at the Nov. 2-3 meeting, “the process of tapering could commence with the monthly purchase calendars beginning in either mid-November or mid-December.” The path? Reductions in the asset purchases of $10 billion in Treasury securities and $5 billion in agency mortgage-backed securities.
Market impact: Investors mostly took confirmation of likely imminent tapering in stride, with 2-year Treasury yields rising slightly. As for U.S. growth, IHS Markit cut its third-quarter forecast to 1.4% — compared with a first-half average of 6.5% — citing the drop in consumer spending.
Sen. Elizabeth Warren (D-Mass.) called for breaking up Amazon.com and Indian retailers demanded a government probe of the company after a Reuters investigation showed the e-commerce giant had copied products and rigged search results in India. Meanwhile, a bipartisan group of U.S. lawmakers plans to introduce a bill that would bar Big Tech platforms from favoring their products and services — the bipartisan Senate bill is set to be unveiled today. A similar House bill, passed in committee, awaits floor action — amid intense industry lobbying.
About 10,000 unionized Deere & Company workers went on strike early today after overwhelmingly rejecting a contract proposal that the tractor manufacturer had worked out with the union’s negotiators. The decision comes as the United Auto Workers union and Deere attempt to reach a new contract agreement. The strike started overnight at midnight. Deere does not currently have an estimate of when striking employees with resume activities or when contract negotiations will be completed. Depending upon how long the work stoppage lasts, this could add to shortages of tractors, farm equipment and parts. This is the largest private-sector strike in the U.S. in two years. If the strike is successful for workers, some analysts say others could follow and if so this could be another cog ahead.
Market perspectives:
• Outside markets: The U.S. dollar index was slightly weaker ahead of U.S. wholesale inflation data — several foreign rival currencies are firmer against the greenback. The yield on the 10-year U.S. Treasury note was effectively steady just under 1.54% while there is a weaker tone in global government bond yields. Gold and silver futures were higher ahead of U.S. economic updates. Gold was trading around $1,796 per troy ounce and silver around $23.28 per troy ounce.
• Crude oil futures are higher ahead of U.S. gov’t inventory data due this morning, delayed a day by the Monday U.S. holiday. U.S. crude is trading around $81.35 per barrel and Brent around $84.15 per barrel. Futures were higher in Asian action, with U.S. crude up 64 cents at $81.08 per barrel and Brent up 64 cents at $83.82 per barrel.
• EU is considering proposals to alleviate energy crises like the one Europe now faces. It also endorsed short-term measures being taken or planned by around 20 of the bloc’s 27 members, including emergency income support to help cover energy needs, tax cuts and working with international partners on gas supplies to ease price pressures. The EU also said it would look at voluntarily buying gas jointly to build up reserves, which currently cover around 20% of the bloc’s annual demand. EU leaders are set to discuss the proposals at a meeting next week.
• Natural gas shortage that drove prices to records in Europe has exposed Russia’s rising leverage over global energy markets, with Moscow now playing a key role in everything from OPEC negotiations to coal exports to China, the WSJ reports (link). Russia, the world’s largest exporter of gas and the source of more than a third of Europe’s gas, has emerged as a critical supplier with the power to quickly alleviate the continent’s gas deficit.
• Demand for coal is far outstripping supply. The price of coal on the Nymex exchange in New York reached $274 per tonne on Oct. 5. A year ago, it was $57.
• Household heating costs expected to rise sharply this winter. Consumers “face a more expensive winter than last time around, especially those who keep their homes warm with propane or heating oil,” the U.S. Energy Information Administration (EIA) said.” Spending “on energy for those households primarily using heating oil will rise 43% compared with last winter, the agency said in a base-case forecast published as part of its Winter Fuels Outlook on Wednesday.” The EIA “expects home heating prices to rise across the country, for all heating fuels and under a variety of weather contingencies. The forecast reflects a spike in energy costs, especially oil and natural gas. U.S. oil prices recently closed above $80 a barrel for the first time since 2014. Natural gas, the most common fuel used to heat homes, has surged to prices unseen since 2008.”
• Soaring natural-gas and coal prices are forcing power-generation companies and manufacturers to switch to using oil, a move that could add half a million barrels a day to global demand, the International Energy Agency said today.
• White House looking to address rising fuel, natural gas shortages. The White House is discussing options to address fuel and natural gas shortages that have driven prices higher, White House press secretary Jen Psaki said Wednesday.” Psaki said, “The president has asked his economic team, as they do on any range of issues impacting the public, to continue to discuss what the options are that we can take to address these shortages.”
• Gold prices hit a four-week high overnight and are trading above $1,800.00 an ounce. One analyst said it appears gold traders may be finally realizing that rising inflationary pressures are bullish for metals, as history shows.
• Annualized premium on bitcoin futures has doubled this month as investors wager that the SEC will soon approve the first futures-based bitcoin ETF. Meanwhile, the U.S. is now the world’s largest bitcoin miner, overtaking China following a crackdown on the practice by Beijing authorities. The U.S. share of computers connected to the bitcoin network is now at 35.4%, with Russia and Kazakhstan in second and third place, according to research by Cambridge University. China had previously accounted for 75% of bitcoin mining as recently as 2019, but that number has crashed to zero after its financial regulator banned banks from offering cryptocurrency services.
• What will 2022 U.S. plantings look like? Analysts polled signal no major change for corn or soybeans from 2021, despite a big boost in corn production costs coming from surging fertilizer prices — most farmers are loathe to adjust their crop rotation plans. One reason for the corn and soybean acreage outlook, analysts said, is higher expected plantings for wheat (around 2 million acres) and cotton (1 million to 1.5 million acres).
• Ag trade: Turkey has provisionally purchased 275,000 MT of animal feed corn in a tender in which it was seeking around 325,000 MT of the grain. Turkey also tendered to buy around 300,000 MT of red milling wheat. Japan bought 58,319 MT of food-quality wheat from the U.S., as well as 32,475 MT of the grain from Canada and 28,718 MT from Australia.
• NWS weather: Tropical moisture from former hurricane Pamela continues to bring heavy rain and flash flooding today from south-central Texas to southeastern Oklahoma... ...Threat of severe weather increases later on Friday for the Ohio Valley ahead of a developing ow-pressure system... ...The cold in the West and the warmth in the East will shift eastward heading toward the weekend.
Items in Pro Farmer’s First Thing Today include:
• Break from the selling overnight
• Weekly USDA export sales report delayed to Friday
• Attaché reins in forecast for Argentine soybean plantings given strong corn prices
• Another bumper canola crop for Australia
• UAW has called a strike against Deere & Co
• U.K. importing butchers to deal with pig crisis
• Cash cattle action picks up near upper end of last week’s trade
• Pork cutout value stabilizes
POLICY FOCUS
— EPA asks for proposals on WOTUS roundtables. EPA pledged to hold a series of regional roundtables this fall and winter as part of their plant to put a new definition of waters of the U.S. (WOTUS) in place. On Wednesday, EPA announced it was asking communities to “propose roundtables” to give the agency input on regional impacts regarding WOTUS. “The regional roundtables will engage stakeholders representing diverse perspectives in meaningful dialogue to help inform the agencies’ work to develop an enduring definition of WOTUS that supports public health, environmental protection, agricultural activity, and economic growth,” the agency said.
EPA wants stakeholders to submit nomination letters listing participants to potentially be selected as one of 10 geographically focused roundtables. EPA said they want the letters no later than Nov. 3.
As for the potential participants, EPA said they “must” include proposed participants including those from “agriculture; conservation groups; developers; drinking water/wastewater management; environmental organizations; environmental justice communities; industry, and other key interests in that region.”
This comes as EPA has forwarded to the Office of Management and Budget (OMB) a proposed rule for an updated definition of WOTUS, presumably the action to put the pre-2015 definition back in place as the roundtables indicate the agency has not yet developed its plans for a new definition of WOTUS.
— President Joe Biden sought to address some logistical issues, announcing Wednesday that the Port of Los Angeles would begin operating 24 hours a day, seven days a week. Administration officials promised a “90-day sprint” to clear a path for cargo. Several companies participating in the White House event, including Walmart, made specific volume commitments about containers they will remove from California docks. Leaders of the International Longshore and Warehouse Union have agreed to work longer hours, “provided individual terminal operators pay up.”
President Biden President said, “If federal support is needed, I’ll direct all appropriate action, and if the private sector doesn’t step up, we’re going to call them out and ask them to act.
The announcement followed a White House meeting at which Vice President Kamala Harris met with shipping, retail and labor leaders to determine how best to alleviate a growing logjam in the nation’s supply chain.
White House press secretary Jen Psaki told reporters Biden could not guarantee there would be no holiday disruptions.” Psaki said, “What we can do is use every lever at the federal government level to reduce delays.” Austan Goolsbee, a professor at the Chicago Booth School of Business who headed the CEA under President Obama, said, “Certainly this is a danger point for the administration. Whatever the cause of the bottlenecks, the public has not been overly patient with these kinds of problems in the past.” Goolsbee “said Biden’s moves to expand port capacity are ‘important and correct’ but will only ease the problem, not fix it.”
The Los Angeles Times says in an analysis (link) item that the plan “addresses only one link in a global supply chain largely outside of Biden’s control, meaning he faces potential blowback from unhappy shoppers while also lacking the power to fix the mess. Biden can’t force overseas factories to keep churning out products. He can’t hire more truck drivers to pick up cargo when it arrives. And he can’t stop the pandemic that continues to disrupt operations all over the world.” The “bottom line: Americans want their stuff, and there’s very little that Biden can do to get it to them.”
— Pelosi: Democrats face ‘difficult decisions’ to trim $3.5 trillion spending plan. As the latest Oct. 31 “deadline” for passage approaches, House Speaker Nancy Pelosi (D-Calif.) is warning that difficult decisions must be made to pare down President Biden’s “expansive plans for reimagining the nation’s social service programs and tackling climate change.” Democrats’ efforts to reduce the $3.5 trillion package to about $2 trillion, are raising tough questions that Biden and his party are rushing to answer by the self-imposed deadline.
Progressive Democrats are warning colleagues against a “false choice” over what to keep or cut as Democrats scale back. In a letter to Pelosi and Senate Majority Leader Chuck Schumer (D-N.Y.) on Wednesday, the leaders of the Congressional Progressive Caucus argue the package should not simply be narrowed as centrist lawmakers prefer, but instead kept as Biden’s bigger vision but for fewer than 10 years. The progressives wrote, “Much has been made in recent weeks about the compromises necessary to enact this transformative agenda. ... We have been told that we can either adequately fund a small number of investments or legislate broadly, but only make a shallow, short-term impact. We would argue that this is a false choice.”
CHINA UPDATE
— China’s producer price index surged 10.7% year-over-year in September, the fastest pace in 25 years, led by coal prices and other commodity costs. That is adding to global inflation fears, though it didn’t spill over into the country’s consumer prices, which rose at a slower rate compared with August. Stubbornly high factory-gate prices in China exceeded many economists’ expectations, raising fear of stagflation, when prices keep rising during periods of slower growth. China’s economic momentum eased in recent months amid slower credit growth and tightened regulations.
— Shares and dollar bonds of Chinese real estate firms slid again as investors fretted about a debt crisis rippling through developers including China Evergrande Group, a day after the sector was hit with rating downgrades.
— China raises minimum purchasing price for wheat for first time since 2014. China has raised the minimum purchasing price for wheat in 2022 to 2,300 yuan ($357) per metric ton, a 1.8% increase from 2021’s minimum of 2,260 yuan ($351) per metric ton. The minimum price refers to the price the government pays farmers to buy their wheat when the market price drops below that level. The policy is aimed at ensuring food production and comes amid a renewed Chinese focus on food security. This was the first increase to the minimum purchasing price since 2014.
TRADE POLICY
— USDA’s Vilsack to meet with Mexican counterpart next week in Iowa. USDA Secretary Tom Vilsack will host meetings with Mexico’s Secretary of Agriculture and Rural Development Víctor Manuel Villalobos Arámbula Oct. 20-21 in Des Moines, Iowa, as Vilsack will be there to participate in the World Food Prize Laureate Award ceremony. While no agenda was signaled by USDA in announcing the meetings, the topic of the presidential decree in Mexico for the country to halt imports of GMO corn, a situation which our sources have noted is steeped in uncertainty as the decree lacks specificity as the key question that remains unanswered is whether the decree applies to corn imported for food use or corn imported for feed use, the latter of which would have a significant impact on U.S. corn exports to Mexico. Vilsack has insisted he has been assured there will not be an impact on US corn exported to Mexico for feed use, but that is not clear yet, according to our sources. The recent Mexican rejection of an approval of a GMO corn variety will probably be a discussion point.
ENERGY & CLIMATE CHANGE
— At least one lawmaker has taken exception to the White House focus on fossil fuels. Sen. Chuck Grassley (R-Iowa) tweeted: “According 2 press Pres Biden / WH continues to meet w Big Oil to solve rising gas prices but NO mention of biofuels which are better for environment + lower gas prices + create jobs in USA Is Pres Biden going to keep his campaign promise to Iowans to support ethanol???”
— U.S. climate envoy John Kerry says COP26 may not get all the results he has been working toward, in part because Congress has yet to act on President Biden’s ambitious climate agenda. In an interview with the Associated Press (link), Kerry says negotiations may fall short of securing commitments from major emitters to stop burning coal and commit to aggressive near-term emissions cuts. “By the time Glasgow’s over, we’re going to know who is doing their fair share, and who isn’t,” he said. “It would be wonderful if everybody came and everybody hit the 1.5 degrees mark now,” he said.
LIVESTOCK, FOOD & BEVERAGE INDUSTRY
— White House again posts to big packers as cause of some food inflation. Food prices rose 4.6% in September, and it didn’t take long for the White House to pounce consolidation in the meat industry. Supermarket prices rose 1.2% last month and grocery prices are now up 4.5% over the past 12 months. Beef prices rose 4.8% and are up nearly 18% for the last 12 months. White House press secretary Jen Psaki on Wednesday singled out meatpackers for blame when it comes to rising food prices. The price of meat is “an issue that has been impacting them (consumers) nearly every single day,” Psaki said. She said rising meat prices are due in part “to competition, and the small number of large meat producers who have a dominance over the market.”
In the daily White House briefing Wednesday, Psaki was asked about supply chain issues to which she indicated that has been a focus for the administration. “That’s one of the reasons the president pressed for more competition, why [USDA] Secretary [Tom] Vilsack has been focused on this as one of his primary issues, one of the reasons we announced the Food Supply Chain Loan Guarantee program.” But she also noted food prices remain a concern for the administration. “They’re focused on the cost of goods,” she said. “They’re focused on how much meat costs. They’re focused on what their checkbook looks like.”
Among grocery items, the index for meats, poultry, fish and eggs was up by 10.5% from September 2020. The smallest increase was for dairy and related complex, which rose 0.6% over the last 12 months.
CORONAVIRUS UPDATE
— Summary: Global cases of Covid-19 are at 239,208,897 with 4,875,011 deaths, according to data compiled by the Center for Systems Science and Engineering at Johns Hopkins University. The U.S. case count is at 44,683,145 with 719,530 deaths. The Johns Hopkins University Coronavirus Resource Center said that there have been 404,371,247 doses administered, 187,937,559 have been fully vaccinated, or 57.3% of the U.S. population.
— Vaccination rates against Covid-19 in the U.S. have risen by more than 20 percentage points after multiple institutions adopted vaccine requirements, while case numbers and deaths from the virus are down. White House Covid-19 response coordinator Jeff Zients said that 77% of eligible Americans had received at least one shot of a vaccine.
— FDA panel to consider Moderna’s Covid-19 boosters today. The Food and Drug Administration’s vaccine advisory panel meets today to consider whether to authorize booster shots of Moderna’s Covid-19 vaccine and meets Friday about Johnson & Johnson boosters. It will also hear data about mixing and matching boosters with doses of a different company’s vaccine. Pfizer’s vaccine with BioNTech is the only booster currently approved, for those 65 and older, the immunocompromised, and workers in at-risk settings such as hospitals or schools. Seven million people have gotten Pfizer-BioNTech boosters.
The National Institutes of Health released findings that said mixing and matching is safe, adding that recipients of J&J’s one-dose vaccine had a better response with a booster of Pfizer or Moderna’s shot than a booster of J&J.
— World Health Organization assembled a new team of 26 scientists to investigate the origins of the coronavirus that causes Covid-19, saying time is running out to study blood samples and other clues. China says investigators should examine the U.S. and other countries, in case it came from a lab accident. Earlier this year, President Biden ordered a similar systematic review, though that probe ended after China continued to reject calls for transparency and withhold information. While some scientists believe the virus jumped from bats to humans, a lab leak theory has gained ground after initially being dismissed by many as a conspiracy.
OTHER ITEMS OF NOTE
— Fraud pattern tends to start in U.K. “The most sophisticated fraud tends to start in the U.K., and then move two years later to the U.S. and then around the world.” — Ayelet Biger-Levin, VP of product strategy at cybersecurity firm BioCatch.