Pro Farmer Evening Report: Jan. 12, 2022

Check our advice monitor on ProFarmer.com for updates to our marketing plan.

USDA raises U.S. corn, soybean and wheat carryout forecasts... USDA increased its U.S. corn and soybean production and carryout forecasts in today’s reports. The new figures were also above pre-report trade estimates. Dec. 1 corn and soybean stocks provided no real surprises, coming in just slightly larger than anticipated.

U.S. wheat carryout increased more than traders expected. USDA also estimated winter wheat seedings higher than last year and pre-report estimates. Dec. 1 wheat stocks declined more than expected from year-ago levels.

U.S. cotton production and carryout were cut and came in below the pre-report estimates.

Global corn, soybean and cotton carryout numbers were cut, with the soybean reduction being bigger than anticipated. World wheat carryout was increased.

All said, today’s data was relatively mild compared with some January crop reports.

More report details can be found here and our reaction can be found here.

 

Biden considering reducing 2022 ethanol blending requirement from initial proposal... After proposing in December the 2022 ethanol blending requirement will be 15 billion gallons, the Biden administration is thinking about reducing it before it becomes final later this year, according to Reuters, citing sources familiar with the situation.

The refining industry and unions argue the ethanol industry cannot support the 15 billion gallon blending level due to shrinking fuel consumption, ethanol plant shutdowns and higher regulatory costs.

In December, EPA announced the ethanol blending volumes for 2020, 2021 and 2022.  It cut the blending amounts for 2020, 2021 and restored the 2022 level to 15 billion gallons. EPA held a virtual hearing on the blending requirements on Jan. 4, 2022. The public comment period on the RFS proposals closes on Feb. 4.

Impacts of surging fertilizer prices to farms... Economists at Texas A&M University recently completed two studies on impacts of surging fertilizer prices for farms. Not surprisingly, the studies found an increase/decrease in crop returns often coincides with an increase/decrease in input expenditures. But when crop returns decline, fertilizer expenditures tend to decline less. The studies found:

• Based on currently available data, the increase in nitrogen prices appears to be 81% higher for the 2022 crop than previous estimates. An average increase in nitrogen costs of $52.07 per acre was noted across the 46 corn farms the economists studied. This would translate into roughly 32¢ per bushel that corn farmers would need from the market or government to offset the higher nitrogen price.
   
• The suggestion that recent increases in the price of natural gas are the primary reason for the higher prices of nitrogen products is highly suspect. For example, the price of anhydrous increased $688 per ton from the end of 2020 through the end of October 2021. However, the increase in the value of the embedded natural gas accounts for only $102 (or 15%) of that increase. Once the value of natural gas in a ton of anhydrous has been subtracted from the price, the residual tends to closely track the price of corn, albeit on different scales. This close correspondence could be due to increased demand for nitrogen products as corn prices increase, or could be due to the exercise of market power by nitrogen product manufacturers and extraction of economic rents from corn producers.
   
• The largest whole-farm impact would fall on farms at an average of $128,000 per farm and the largest per-acre impact would be on rice farms at $62.04 per acre.

The economists note: “Given the farm safety net is not designed to address rapidly rising costs of production, there are growing concerns in the countryside about the need for additional assistance.” Will lawmakers and farm groups use these reports to get Congress to provide additional aid?

For more details on the studies, click here. 
 

USTR office corrects Vilsack... “Ambassador Katherine Tai is not going to China and the Phase 1 did not expire,” an email sent by the U.S. Trade Representative’s office said.

The email corrects USDA Secretary Tom Vilsack’s speech at the American Farm Bureau convention earlier this week. The office also noted the Phase 1 deal does not expire and the minimum purchase commitments were only part of the deal and only covered two years, 2020 and 2021.

 

U.S. inflation highest in 40 years...  The U.S. consumer price index (CPI) increased 0.5% last month to push the annual rate to 7.0%, the highest since June 1982, according to the Department of Labor.  Before the report, economists polled by Reuters predicted the index up 0.4% in December and an annual rate of 7.0%.

Excluding the volatile food and energy components, the CPI increased 0.6% last month after rising 0.5% in November. In the 12 months through December, the so-called core CPI accelerated 5.5%. That was the largest year-on-year gain since February 1991 and followed a 4.9% advance in November.

Economists believe the annual CPI rate probably peaked in December – and if not, will likely do so by March. There are signs that supply bottlenecks are starting to ease as manufacturers report improved supplier deliveries in December. The year-on-year core CPI rate is expected to peak in February.

Inflation is well above the Fed’s 2% target with the U.S. central bank now talking about raising interest rates to tame inflation. Current money markets price about 85% odds of an interest rate hike by March and a total of at least three quarter-point hikes this year.


Former N.Y. Fed Chief: Fed needs to get a lot more hawkish... “As the economic recovery pushes unemployment unsustainably low — something that may already have happened — wage growth will spill into consumer price inflation. The Fed will have to respond by taking interest rates above neutral well before the end of 2024. How high might rates go? If inflation is running above the Fed’s 2% target, they must adjust both to compensate for higher inflation and to achieve tight monetary policy. So, if inflation subsides to 2.5% to 3% as supply chain issues dissipate, then a federal funds rate peak in the 3% to 4% range seems reasonable," former New York Fed President Bill Dudley writes at Bloomberg Opinion.

Buttigieg, lawmakers on next steps for ports, supply chain... Transportation Secretary Pete Buttigieg visited the ports of Los Angeles and Long Beach yesterday, where he met with local officials and lawmakers about the supply chain and talked up the spending the state will be able to apply for from the recently enacted infrastructure law. “When there is an issue affecting ports here, you will feel it as far away as my Indiana hometown,” Buttigieg said, while touting port progress but warning that “as long as the pandemic persists, as long as we are making up for decades of past disinvestment, we are going to see impacts on shipping times and shipping costs.”

Democratic California lawmakers at the port press conference used the event to push for the Senate to pass Democrats’ stalled social spending and tax bill through reconciliation (Build Back Better). Rep. Alan Lowenthal (D-Calif.), who serves on the House Transportation and Infrastructure Committee, said that the Senate “must pass” the legislation, which he says will “expand capacity and critically aid in our transition to zero emission operations” by giving additional money to ports.

The Covid-19 Omicron variant is hampering efforts to clear a backlog of about 100 container ships at the U.S.’ busiest port complex as infections rise among Southern California dockworkers. About 800 dockworkers — roughly 1 in 10 of the daily workforce at the ports of Los Angeles and Long Beach — were unavailable for Covid-related reasons as of Monday, according to the Pacific Maritime Association. Absentees included workers who tested positive for the virus, were quarantining or awaiting test results, or who felt unwell.

Officials have been unable to get the Los Angeles port to operate around-the-clock, as planned and announced in October under a Biden administration strategy to address the supply-chain crisis ahead of the holiday period. Gene Seroka, executive director of the Port of Los Angeles, said the effort has been hampered because most elements of the supply chain — including warehouse operators and truck drivers — don’t operate 24 hours a day, making it difficult to accept cargo at the ports in the middle of the night when workers aren’t available to receive the products. Making matters worse, he said, is a shortage of truck drivers and warehouse workers since the start of the Covid-19 pandemic. “It’s the private sector that needs to drive this,” he said.

Officials at the ports started Nov. 15 to impose a fee on containers that sit around for more than six days if intended for rail transport or nine days if intended for trucks. The ocean carrier companies that brought in those idling containers face fines of $100 on the first day past deadline, $200 on the next and so on. Since Nov. 1, the number of idled cargo containers clogging the Port of Long Beach has been reduced by more than 40%, said Mario Cordero, executive director of the port. No fines have yet to be collected because the threat is working, he said. Seroka said the mere threat of fines has already reduced the number of cargo containers at the Port of Los Angeles by 60% since Oct. 24.

Meanwhile, U.S. trucking will remain plagued with equipment and driver shortages this year, and while freight growth is slowing from last year’s pace, it “is leveling off at a very high level, and in some sectors it can continue to grow,” said Bob Costello, chief economist for the American Trucking Associations. The industry is short about 80,000 drivers even as pay has jumped, and truck makers can’t keep up with demand, he said in an interview with Bloomberg. “Supply remains challenged this year in the trucking industry, even if we do add some more drivers.” Meanwhile, spot freight rates — which rose 29% last year, according to KeyBanc Capital Markets — will likely remain elevated.



State-owned Lithuanian railway will stop hauling Belarus potash... Lithuania terminated a transport agreement between the state-owned railway and Belarus state-owned potash producer Belaruskali, saying the sanctions-hit country could not use Lithuania to export the crop nutrient. Belaruskali uses Lithuania's Klaipeda port to export potash.

According to the Lithuanian government, the 2018 agreement between the railway and Belaruskali goes against national security, which is legal grounds for its termination. Transport minister Marius Skuodis told reporters, “This is just a first step towards stopping the potash transport.” He said the state could resort to reviewing any potash-related transport contract on national security grounds.

Other rail companies could still transport potash as they are not subject to EU sanctions. At least two non-state-owned railway companies could be looking into the business.

Oil analysts predicting higher prices... One market analyst says $100 per barrel for Brent crude oil in the second quarter is possible. Other analysts are raising their price expectations with Morgan Stanley and J.P. Morgan expecting prices to hit $90 per barrel in the third quarter and by the end of the year, respectfully.

Some of the factors contributing to the strong price forecasts are no sharp Chinese economic slowdown, Omicron likely to fade rather quickly and OPEC+’s limited ability to increase production.

OPEC+ agreed to gradually relax the output cuts implemented when demand collapsed in 2020. However, many smaller producers can’t raise supply and others have been wary of pumping too much oil in case of renewed Covide-19 setbacks.

 

Ukraine caps retail food margins... Ukraine’s government placed a 10% limit over the wholesale price for buckwheat, sugar, wheat flour, noodles, milk, eggs, poultry and butter to stabilize food inflation. This follows the government placing a 25% mark-up limit on gas sales to food prices last month.

Despite being one of the world’s top food producers, food inflation in December reached 13.3% year-on-year, while food prices increased by 11.3% over the whole of 2021. Inflation in Ukraine exceeded 10% in the second half of 2021 for the first time since 2018, despite the central bank tightening monetary policy as it targets a rate of 5%.