Evening Report: Jan. 28, 2022

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 Your Pro Farmer newsletter is now available... There was some improvement in South American weather this week, as some of the dry areas of Argentina and southern Brazil received rains, while conditions turned drier in wet areas of central and northern Brazil. But more rains will be needed in dry areas, especially in southern Brazil. In the U.S., winter wheat conditions continue to deteriorate. Globally, markets continue to closely monitor the Russia/Ukraine situation, though there doesn’t seem to be quite as much sense there will be any immediate actions by Russia. Meanwhile, the U.S. dollar rocketed higher amid expectations the Fed will start raising interest rates in March. We cover all of these items and much more in this week’s newsletter, which you can access here.

 

 
Russia continues military preparations, de-escalation still possible... Pentagon spokesman John Kirby said on Friday on CNN and MSNBC’s Morning Joe Russian President Vladimir Putin is increasing his options, including a military option, with Ukraine. However, the department of defense still sees a path of diplomacy and de-escalation in the situation.

On Friday, Reuters reported Russia moved medical supplies, including blood supplies and a field hospital near Ukraine. Some U.S. officials note it does not mean Russia will invade, but it would not likely do an invasion without medical supplies like blood and a field hospital. 

Russian officials have repeatedly denied planning to invade. But Moscow says it feels concerned by Ukraine’s growing ties with the West. On Friday, Putin said the U.S. and NATO’s written response did not address Russia’s main security demands in their standoff over Ukraine but that Moscow was ready to keep talking.

On Thursday, the United States asked that the United Nations Security Council meet publicly Monday to discuss Russia’s “threatening behavior” against Ukraine and its troop build-up on Ukraine’s borders and in Belarus, the U.S. United Nations Ambassador said.

 

Biden administration prepares for Russian invasion effects... Top officials in the Biden administration discussed possible Russian sanctions with the most prominent U.S. bank executives, including Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co. and Goldman Sachs Group Inc., according to a Bloomberg report. They want to make sure any Russian sanctions would not disrupt the global financial system.

On Friday, U.S. President Joe Biden and his European Union counterpart Ursula von der Leyen pledged to cooperate on guaranteeing Europe’s and Ukraine’s energy supply. The EU gets about one-third of its gas supply from Russia.

 

U.S. inflation highest since 1982...  The U.S. personal consumption expenditures (PCE) price index increased 0.4% in December and surged 5.8% in 2021 — the largest annual advance since 1982. Energy prices rose 29.9%, while food prices increased 5.7%. Excluding the volatile food and energy components, the so-called core PCE price index rose 0.5% in December and accelerated 4.9% last year — the biggest jump since 1983.

 

Consumer spending drops... Consumer spending, which accounts for two-thirds of U.S. economic activity, fell 0.6% in December, according to the Commerce Department. Spending on goods was down 2.6%, while expenditures on services was up 0.5%. The drop was within economists’ pre-report expectations. In November, consumer spending rose 0.4%.

Economists say the decline in December was likely a sign that consumers started holiday shopping in October, fearing supply shortages. Meanwhile, the increase of services was led by healthcare spending.

 

Consumer sentiment falls to the lowest level since November 2011... The January University of Michigan Consumer Sentiment Index fell to 67.2 in January, the lowest level since November 2011. The index is down 4.8% from the December reading of 70.6 and down 14.9% from the January 2021 reading of 79.0.  In its preliminary report released on Jan. 14, the index was 68.8.

According to the report, rising inflation and falling real incomes are consumers’ primary concerns. Matching the highest level since 2008, inflation is expected to increase 4.9% in 2022. For the next five to 10 years, survey respondents expect prices to rise 3.1% annually.

However, the report warned that consumers might misinterpret the Fed’s policy moves to slow inflation as part of the problem rather than part of the solution.

 

Attaché cuts Argentine corn production, export forecasts... USDA’s attaché in Argentina lowered its estimate for the country’s corn production and exports by 3 MMT each compared to USDA’s January World Agricultural Supply and Demand Estimates (WASDE) Report. The attaché reduced Argentina’s total corn production forecast to 51 MMT, compared to 54 MMT projected by USDA earlier this month. The production cut was due to dry conditions. The attaché kept corn harvested acreage at 6.8 million hectares even though more than 7 million hectares were planted. Farmers are chopping corn for silage due to dry conditions and lack of forage feed availability.

The attaché cut its forecast for Argentina’s corn exports in 2021-22 to 36 MMT, which would be 3.5 MMT under the estimate for 2020-21. In the Jan. 12 WASDE Report, USDA projected 2021-22 Argentina corn exports at 39 MMT.

Local forecasts predict drier-than-normal weather for February, which is the critical month for late corn. The attaché says if current dry conditions continue, further production cuts are likely.

 

Argentine wheat production, export projections increased... USDA’s attaché in Argentina raised its wheat production forecast by 1.3 MMT and exports by 1.7 MMT compared to USDA’s WASDE Report. The wheat crop forecast was increased to 21.8 MMT, matching the Buenos Aires Grain Exchange production estimate.

The attaché raised Argentina’s 2021-22 wheat export forecast to 15.2 MMT, up from the 13.5 MMT reported in the Jan. 12 WASDE Report.

 

Cattle Inventory Report to show more herd contraction... USDA’s Cattle Inventory Report at 2 p.m. CT is expected to show the U.S. cattle herd as of Jan. 1 contracted 1.2% from year-ago, based on an Urner Barry survey. The beef cow inventory and the number of beef replacement heifers are both expected to be down 1.8%, which would signal the beef herd will continue to contract in the years ahead. The 2021 calf crop is expected to be down 0.9% from the previous year. The dairy cow herd is anticipated to have declined 0.4%, though dairy replacement heifers are expected to be up 0.2% from last year.

Cattle Inventory

Average estimate
(Percent of year-ago)

Range of estimates
(Percent of year-ago)

All cattle/calves (Jan. 1)

98.8

98.4-99.3

Cow/heifers that have calved

98.6

98.3-98.9

  Beef cows

98.2

97.8-98.6

  Dairy cows

99.6

99.3-100.0

Heifers 500 lbs.+

99.2

98.4-99.6

Beef heifer replacements

98.2

96.8-98.9

Dairy heifer replacements

100.2

98.8-101.1

Other heifers

99.3

98.8-99.9

Steers 500 lbs.+

98.7

98.1-99.6

Bulls 500 lbs.+

98.9

98.4-100.0

All calves 500 lbs. and under

98.9

98.0-99.6

Calf crop

99.1

98.0-99.9

 

 
EPA extends refinery biofuel compliance rules... EPA is extending the RFS compliance deadline for the 2019 compliance year only for refineries with a capacity of 75,000 barrels per day or less. The deadline for all refineries to comply for 2020, 2021 and 2022 has also been extended. EPA is also changing the compliance and attest engagement reporting deadlines for 2023 and future years. The agency is finalizing the proposed biofuel blending requirements for 2020, 2021 and 2022. In 2021, several oil refiners reduced buying compliance credits thinking EPA would reduce biofuels blending requirements.

 

India to budget $40 billion for 2022-23 food, fertilizer subsidy... In its budget next week, India is likely to set aside about 3 trillion rupees ($40 billion) for food and fertilizer subsidies in 2022-23, roughly the same amount the government budgeted for the fiscal year ending in March, government officials told Reuters.

In the budget presented on Tuesday, 1.1 trillion rupees will be targeted for fertilizer subsidies and 2 trillion rupees for food subsidies. The fertilizer ministry sought as much as 1.4 trillion for subsidies in 2022-23. 

For the current fiscal year, 835 billion rupees were initially budgeted. However, the fertilizer subsidies have been increased twice to a possible record of 1.5 trillion rupees. The bulk of the fertilizer subsidies are used to sell urea at a cheaper government-fixed rate to farmers. The government also subsidies other fertilizers sold by companies to farmers.

 

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